This article first appeared in The Edge Financial Daily on March 19, 2020

KUALA LUMPUR: The Employees Provident Fund (EPF) has decided to keep the minimum eligibility score of Simple Average Rating for Consistent Returns (SACR) for unit trust funds at 2.33, given the current market volatility.

On March 16, The Edge Malaysia weekly reported that the EPF was considering raising the SACR to 3.00 from the current 2.33 for the upcoming 2020/2021 period, which could see more unit trust funds dropping off the list of funds that qualify for offering under the EPF Members Investment Scheme (EPF MIS).

In a circular dated March 17 to participating fund management institutions (FMIs) and seen by The Edge Financial Daily, the EPF said the SACR will take effect on April 1 for the 2020/2021 period.

“Any funds whose investment objectives or Lipper classification change during the 2020/2021 period will be dropped from the list,” the pension fund added.

It is not known if there is any change to the number of funds qualified for offering under the EPF MIS for the upcoming period as it has yet to release the latest list.

When contacted, EPF chief executive officer Tunku Alizakri Raja Muhammad Alias said: “The SACR should be realistic, practical and reflect market conditions but still ensure that minimum standards of excellence are maintained.”

A total of 282 funds from 19 FMIs qualified for offering under the EPF MIS for the 2019/2020 period. This is a marginal increase of 0.7% from the 2018/2019 period.

However, the EPF was considering upping the SACR, although some fund managers had expressed concern over the higher eligibility score, saying that they were already struggling to deliver consistent returns across their funds under the EPF MIS amid current market volatility.

The last time the SACR was raised to 2.33 from 2.00 was in 2017. Prior to that, the minimum eligibility score was raised to 2.00 from 1.67 in 2013.

The unit trust funds approved for MIS are evaluated every year based on a list of criteria set by the EPF and approved by the finance ministry. Funds that fall below the minimum requirement will be suspended and will not be offered during the period. The EPF would normally release the new list of unit trust funds offered under the scheme around this time.

The SACR was introduced in 2010 to provide further protection for investors by screening out the bottom performers. It is computed based on the fund’s aggregate performance over a three-year period, and taking into account its performance against its peers. The MIS was introduced as an option for members to invest a portion of their EPF Account 1 savings in unit trust funds or via private mandates managed by the appointed FMIs. It is aimed at allowing EPF members to diversify their retirement portfolio and enhance retirement savings.

Under the EPF MIS, members may transfer from their EPF Account 1 up to 30% of the amount in excess of Basic Savings to be invested in the qualified funds.

The Basic Savings is a predetermined amount set according to age in Account 1 to ensure members have at least RM240,000 upon reaching age 55.