This article first appeared in The Edge Malaysia Weekly on March 16, 2020 - March 22, 2020
THE Employees Provident Fund is considering raising the minimum eligibility score of Simple Average Rating for Consistent Returns (SACR) for unit trust funds to 3.00 from the current 2.33, according to people familiar with the matter. The revised rating is expected to take effect on April 1.
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.
However, an increase in the SACR may see more funds dropping off the list of unit trust funds that qualify for offering under the EPF Members Investment Scheme (EPF MIS) for the upcoming 2020/21 period.
The unit trust funds approved for EPF MIS are evaluated every year based on a list of criteria set by the EPF and approved by the Ministry of Finance. Funds that fall below the minimum requirement will be suspended and will not be offered during the period. The EPF normally releases the new list of unit trust funds offered under the scheme around this time.
According to the EPF’s website, 282 funds from 19 fund management institutions (FMIs) qualified for offering under the EPF MIS for the 2019/20 period. This is a marginal increase of 0.7% from the 2018/19 period.
“A meeting between fund managers and the Federation of Investment Managers Malaysia (FIMM) was held recently to discuss this matter,” one source tells The Edge.
“During the meeting, the FIMM informed fund managers that the EPF intended to raise the minimum SACR to 3.00,” he adds.
“An increase in the SACR to 3.00 is raising concern among fund managers, which are already struggling to deliver consistent returns across their funds under the EPF MIS, given the current market volatility,” says another source.
It is understood that fund managers had urged FIMM to ask for a lower SACR of 2.70 during its discussions with the pension fund.
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.
When contacted, EPF CEO Tunku Alizakri Raja Muhammad Alias tells The Edge the pension fund and FIMM are still finalising the matter. “An official press statement with regard to the qualified unit trust funds to be offered for the period of 2020/21 under the EPF MIS will be issued by EPF in due course.”
“We are in discussion with EPF on this and an official announcement will be made once the details are finalised,” FIMM says in an email reply to questions from The Edge.
The EPF 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. Basic Savings is a predetermined amount set according to age in Account 1 to ensure members have at least RM240,000 upon reaching 55 years old.
According to EPF, the Basic Savings quantum is benchmarked against the minimum pension of RM1,000 per month for 20 years from 55 to 75 years old.
Last month, The Edge reported that the EPF is set to be a RM1 trillion fund by 2021, with accumulated contributions from members estimated at RM864.7 billion as at end-October last year, compared with RM344.6 billion as at end-2008.
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