Is it SAFE to Invest in Private Retirement Scheme (PRS) ?

This is one of the common question asked by potential PRS contributors. First, I want to emphasis that PRS is a long-term investment for the purpose of retirement planning. In investment case, long-term means you already using the most powerful method to reap a good return. Anyway, many contributors still want to treat PRS as some kind of short-term investment. I got the answer for you.

Basically, PRS is very similar to unit trust investment. The underlying structure and investment philosophy were the same actually. No wonder many people perceived PRS is another unit trust scheme. Yes, you're correct to a certain extent.

Under the guidelines, each PRS providers must at least launched their core funds for investors to select, namely Growth, Moderate and Conservative. To make things simple, we only discussed these core funds because I believe most of us only invest in core funds. From these core funds, growth fund is the most aggressive one. In other words, the most risky one, with the aim of getting better return than the other two.

Asset Allocation of Core Funds under the guideline by Securities Commission of Malaysia

Is it really so risky?

Let's us examine even deeper now. Again, under the guideline for PRS growth fund, only maximum of 70% of NAV can be allocated to equities, while the balance was in fixed income/money market instruments. If you're an unit trust investor, you will know that this is almost like a balance fund type of asset allocation. For your information, for normal unit trust equity fund, equities exposure was between 70% - 98%. Meaning, the maximum equities exposure for PRS Growth fund equals to the minimum of an equity fund. Not so risky, right?

Of course, if you want higher equity exposure for your PRS portfolio, you can opt for those non-core funds, which can go as high as 98% in equity exposure. Then, the next question was "Is it risky to invest now?"...

It all depends on your perception. If you think that Malaysia market is too expensive now, you may opt for those funds with foreign exposure. Currently, from the 4 PRS providers whom already launched their schemes, some can invest into foreign countries. Some are fund-of-funds, some are foreign funds. Coming soon, more variety of PRS funds will be offered, such as property fund, commodities fund...

This is a guest post by Alex Yeoh in the series of Private Retirement Scheme. For more PRS info, you may contact Alex Yeoh (email: alexyeoh@vka.com.my), a licensed financial planner, whom representing multiple PRS providers. Thank you.

The Ghost of Christmas Past: Merry films of Lehman's Fall

I have no family in the UK, so I always exhibit strange behaviour on Christmas day. Last year I wondered around the City of London and took photos of empty bank offices, after which I attended a wedding of two Occupy protesters on the steps of St. Paul's cathedral. This year I wandered around Brixton and took photos, including one of the Space Invader mosaic above the chicken & chips shop on Coldharbour Lane, before going home to watch THREE whole films on the fall of Lehman Brothers.

GANDALF VISITS MORDOR

Lehman has always held a special place in my heart because I had two interviews there in 2008, mere weeks before it collapsed. I sat up on the 36th floor and was questioned by men whose job it was to ascertain the robustness of my character. One of them said "you may have heard things in the press about us being in the shit, but these are the exaggerations of melodramatic journalists". A week later I was having another interview there, but little did I know that they were in the midst of negotiations with the Korea Development Bank, trying to convince them to inject much-needed capital in the bank. The MD interviewing me was a little distracted, though in my naive state, I wrote it off as normal MD-like behaviour, rather than the product of him being at a bank on the verge of crumbling.

The action behind the scenes leading up to final Lehman implosion is fascinating. Perhaps most striking is just how arbitrary the process was. In one dramatic weekend the US treasury secretary Hank Paulson hauled the CEOs of America's top banks into the New York Fed, and said, in a nutshell, "I bailed out Bear Stearns, now you guys must bail out Lehman". The negotiations hinged on whether Goldman, JP Morgan, Citigroup, Morgan Stanley, and a few other banks could agree to take on Lehman's bad assets in order to induce Bank of America or Barclays to buy the rest of Lehman. The famous twist in the tale comes when Merrill Lynch's John Thain cuts a private deal with Bank of America to save Merrill instead of Lehman. This leaves Barclays as the only possible suitor, but the deal runs into trouble with the UK regulators, leaving Lehman to collapse, only to be picked up by Barclays anyway at a much cheaper price. These are the basic events focused on by the three films I watched. To help you take your pick, I've given each film a rating below:

Film 1: The Last days of Lehman (2009)

A crap made-for-TV film if ever there was, but worth a brief watch to see the awesome James Cromwell playing Hank Paulson. Cromwell incidentally plays the Nazi eugenics doctor in the incredible series American Horror Story, and seems equally at home with both characters. It's debatable whether Hank Paulson can be compared to a genocidal scientist, but he certainly has helped to create financial monsters. In the final analysis, Cromwell saves an otherwise dismal cast of buffoon-like characters, and drags the film's rating up to 5.5/10.

Film 2: Too Big to Fail (2011)
This film portrays the same events as the Last Days of Lehman, only it does with much more style. William Hurt pulls a great performance of Hank Paulson, but the highlight of the film for me was Paul Giametti playing Ben Bernanke. The guy who plays Goldman Sach's CEO Lloyd Blankfein is also very entertaining. It's based on the book of the same name by Andrew Ross Sorkin, who himself appears as a journalist in the film. It's light on technical detail of what was going on, but is overall pretty well acted and scripted, giving a reasonably realistic human face to the key players. I give this one 7/10.

Film 3: The Love of Money - The Bank that Bust the World (2009)

A quality BBC documentary with some heavy hitters being interviewed, including Bob Diamond and Gordon Brown, plus several of the main players during the fall of the bank. It's the traditional talking-heads style, so no great prizes for innovation, but it gives a solid account of the chaotic Lehman balls-up. I reckon it earns 7.5/10, maybe even 8 if you've had a few whiskeys.

Suitpossum does Youtube

In conclusion, I've decided to launch a little Youtube Channel to showcase some of these videos. I'm thinking of calling it Suitpossum's Guide to Global Finance channel. It doesn't have much on it yet, but I'll be making useful playlists, and maybe even creating my own videos. Exciting times.

Exclusive Interview: YUMI WONG

Malaysia's upcoming popular model, Yumi Wong is the name you can't forget in the near future. She is pretty, famous and most important is very young. At the age of 23 only currently, she already features in many tv commercial, magazines, one of the most sought after model in town, and as an ambassador of many companies. Read to know more about Yumi:

1. When were you started to join the modelling/entertainment industry? And, how?
   Still remember that when I am still in school, one of my friend got a freelance job and she needed someone to accompany her. She asked few of our friends on trying to get the job, while I'm like no harm, just try. But, in the end, only I myself got the job. This is how I started by becoming a freelancer and keep doing it until making it as my career.
   
   
2. What's your BEST achievement so far?
   Best achievement? Hmmm, I won't say that I had any great achievement so far because I think that although I have been in this industry for few years, it was only recently it became a career for me. This is just the beginning for me actually. So, I would say that the best achievement is the support and trust from the people, clients and sponsors.
   
   
   
3. We believe your fans would like to know your plans for 2013. Can tell us abit?
   My plans in 2013 is... stop gaining weight! Lol ~ and of course in 2013, other than getting better for whatever I'm doing, I would love to do more acting, learn better acting skills, and show my fans the different side of Yumi. Stay tune ya...
   
   
4. It's awesome that you have so many followers via Facebook, Twitter, Instagram... Any words to them over here?
   Yes! My words to them is: "Thank you so much for supporting me all this while. Without you guys, Yumi will never be able to make it until here today. I will work harder, learn more new things and never let you guys down. Love you all ~ XOXO"
   
   
5. Since your schedule was so tight, how do you juggle between your time and work?
   Arrg ~ this is very hard! But right now, most of the time I will spend on my work. For whatever activities, work come first for me because I think that I'm still young, still able to work more, as long as I got enough time to rest. Yup, I will spend my day just for working. Anyway, my job is quite fun after all.
   
   
6. Finally, how are you going to manage your personal financial matters? Are you a shopaholic?
   Well, shopping is what every girls' activities all the time! It was like breathing, and we can't stop or change it!!! But, I myself will only shop for what I need, I don't like wasting stuffs. As long as it still can be use, I will not buy a new one to replace it. So, my answer is YES I did shopping sometime, but not a shopaholic at all. And, I am quite a good money saver (I think).

Finance Malaysia blog hereby thanks Yumi for the interview and sincerely wishes her to be the next TOP international model from Malaysia, and successful in whatever things she venture into. If you want to know more about Yumi and her latest updates, you may "Like" Yumi Wong Facebook fan page.

What are the TAX benefits from Private Retirement Scheme (PRS)?

According to Securities Commission of Malaysia, tax incentives are provided to both employers and individuals for the first 10 years from assessment year 2012; in addition to the tax deduction permitted for EPF contributions:

Amount of Tax Savings by individuals for PRS contributions

For Individual:

Tax relief of up to RM3,000 per year will be given for contributions made within that year. This is on top of existing tax relief already enjoyed by taxpayers. How much can you save from tax? Let's look at the table above which illustrates the amount of tax saving an individual get after personal tax relief and RM6,000 EPF + Life Insurance tax relief. Assuming maximum RM3,000 PRS relief, the amount of tax saving depends on your level of income. For high tax bracket individual, you can save up to RM780 annually!!!

For Employer:

Tax deduction on contributions to PRS made on behalf of their employees above the statutory rate of up to 19% of employees' remuneration was granted. Example, if an employer already making 12% EPF contributions to his employees, the employer may choose to reward their employees by contributing into employees PRS account for up to another 7%.

Vesting Schedule to Retain Employees?

Yes, employer can use PRS as a tool to retain employees by adding a "vesting schedule" clause. Currently, there are a few available vesting methods: by length of service, job rank, or by age. Unlike EPF, if an employee leaves before vesting, the employer can access to the un-vested portion of contribution already made. Likewise, for EPF, employee take the full amount when they left. With PRS vesting schedule, employee may think twice before switching jobs.

In conclusion, there are tax incentives for every tax payer, employee or employer. Ultimately, enough retirement funds was the key objective of PRS. On top of that, a tax exemption is also provided on income received by the funds under the PRS.

This is a guest post by Alex Yeoh in the series of Private Retirement Scheme. For more PRS info, you may contact Alex Yeoh (alexyeoh@vka.com.my), a licensed financial planner, whom can distributes products from multiple PRS providers. Thank you.

How Private Retirement Scheme (PRS) works actually?

Many people are still in the dark on how actually Private Retirement Scheme (PRS) works. In order to clear everyone's mind, we hope this post was timely for those who may want to entitle for extra tax relief of up to RM 3,000 given by PRS before 31st December 2012. To further explain the whole scheme, Finance Malaysia Blog was glad that Alex Yeoh, a licensed financial planner is able to share with us on this matter.

By Alex Yeoh,

First we must know that PRS is a voluntary scheme for the purpose of retirement saving. For ease of understanding, let us look at the picture above which explain the process into two parts. Initially, contributions were made by us into the PRS fund that we select. It was as flexible as  normal unit trust investments (shown in upper part). Contribute anytime any amount as you like, without any specific intervals. As simple as that.

When can I withdraw the money?

Each time, your contributions were split and maintained in sub-accounts A and B similar to EPF way (shown in lower part). 70% of contributions will go to Account A, which can be withdrawn upon reaching retirement age, which is currently at 55.

Meanwhile, the balance 30% into Account B, which can be withdrawn after one year, subject to 8% tax penalty. Take note that you can withdrawn from Account B for whatever reason. Although lump sum withdrawal are permitted, contributors are encouraged to retain their savings for continuous investment under the respective schemes.

Why 8% tax penalty?

The said 8% tax penalty was to discourage contributors to withdrawn their money prior to retirement age. We must understand that PRS is meant for retirement savings. Moreover, the 8% tax penalty was deducted from withdrawal amount to pay back Inland Revenue Board (IRB). Why? Because IRB is the one who gave you tax relief on contributions made initially. Otherwise, loop-hole was existed with everyone just want to take advantage of the tax relief and  withdrawn their money after that. Agree?

For more PRS info, you may contact Alex Yeoh (email: alexyeoh@vka.com.my), a licensed financial planner, whom can distributes products from multiple PRS providers. Thank you.

The Heretic's Guide to Global Finance: Hacking the Future of Money

[Note: An up to date blogpost about the book appears here, and the book's page is here]

This blog has been on the down low over the last few months because I've been writing a book. The book is now finished, 78 579 words aimed at  providing a gateway for an individual to gain access to the matrix of global finance. It's called The Heretic's Guide To Global Finance: Hacking the Future of Money. 

It will be published in May 2013 by Pluto Press, a fantastic independent publisher based in Highgate, London, who have published such societal shitstirrers as Noam Chomsky, Edward Said, Vandana Shiva, Susan George, and John Holloway, amongst others.

I've often found that I'll read an interesting book providing a critique of the financial system, but then I'll put it down and that's kind of the end of it. I store the info away somewhere and pull it out during a conversation maybe, but I don't really act on it. Thus, when Pluto approached me to write a book on finance, I decided it would be good to create something that stays with the reader after they put it down, a manuscript that sets in motion certain heretical processes within that individual, perhaps a self-reinforcing critical impulse that culminates in them becoming a subversive financial ninja or sorts, or a Shaolin fighting monk of finance, disrupting capital flows around the world in the cause of social and ecological justice.

To do that, The Heretic's Guide sets out a framework for approaching the financial system based on anthropology, gonzo exploration, the Hacker ethos, DIY culture, activist entrepreneurialism, drag queens, rogue magicians, guerilla gardening, bats, dolphins, OpenSource culture, network disruption, circuitbending, and you.  In essence it's about jamming systems of power in the cause of democratic openness. Pretty simple actually. It's going into production now, and more publicity will start to come out early next year.

In the mean time, I'm going to try recover. If you've ever wondered what it's like to write a book in six months, the picture below says it all, ha ha. I've come some way since I started this blog, and now I need a week of sleep. Over and out.

THE PATIENT WAS ADMITTED ON TUESDAY, SHOWING SIGNS OF DISORIENTATION

Köpkraft i Sverige de sista 30 åren

Inflation är en bedräglig storhet. Den smyger sig obemärkt på och om den inte hålls på en låg ensiffrig nivå hotar den både välstånd och social ordning. De sista tio åren har inflationen varit låg och det är något det stora flertalet av oss kan vara mycket tacksamma för. Nedan har jag listat några siffror som jag tror kan vara användbara att memorera. Eller att känna till att man kan hitta här på bloggen. Om ni vill till ursprungskällan för siffrorna så hittar ni dem på SCB.

• 30 år, en faktor 3: KPI (köpkraftsindex) är idag ungefär 300 och 1980 var det 100. Det gör att man behöver ungefär tre ggr så mkt pengar idag som 1980, d.v.s. innan finanssektorns avreglering och snabba tillväxt, för att klara sig.

• 25 år, en faktor 2: KPI (köpkraftsindex) är idag ungefär 300 och 1985 var det ungefär 150. Det gör att den typiske studenten som tar examen idag behöver en dubbelt så hög lön som sina föräldrar behövde när de tog examen för att klara sig.

• 20 år, en faktor 1.5: KPI (köpkraftsindex) är idag ungefär 300 och 1990 var det ungefär 200. En bra siffra att komma ihåg för dem som, likt mig själv, började placera pengar i början av 90-talet. Om ditt mål 1990 var att bli miljonär så tycker jag du ska känna att du nått ditt mål först om du sparat ihop 1.5 miljoner idag. Notera också att detta visar att medan prisnivån i Sverige fördubblades under 80-talet har den bara ökat med hälften så mycket under den dubbelt så långa perioden 1990 till idag.

• 10 år, en faktor 1.1: KPI (köpkraftsindex) är idag ungefär 300 och 2002 var det ungefär 270. D.v.s. inte mycket har hänt med prisnivån sedan IT-kraschen. Priserna är bara ynka 10% högre idag än för tio år sedan (egentligen var inflationen lite högre än så (14%) men för att göra det enklare att komma ihåg det hela så nöjer jag mig med denna avrundade siffra).

Hoppas det får fortsätta så här! Jag tror dock inte det är det mest troliga scenariet med tanke på den politisering av marknadsekonomin vi ser runt omkring i världen idag.

New Fund: OSK-UOB Multi Asset Regular Income Fund

As investor continue to seek safe investment havens, i.e. investments that are more stable and/or of lower risk and with regular income, OSK-UOB Investment Management see opportunities in the Asia and Asia Pacific (ex Japan) region. Hence, they are now offering investors a fund that utilizes a multi-asset strategy to generate potential regular income and capital growth in a fund that invests in three yielding assets i.e. bonds, equities and REITs (real estate investment trusts) from the Asia and Asia Pacific (ex Japan) region.

The Fund is suitable for investors who:

1. seek regular income and capital growth over medium to long term;
2. are willing to accept moderate risk in their investments; and
3. wish to benefit from investment exposure in the Asian and Asia Pacific (ex Japan) region.

Tactical Asset Allocation?

Of the fund's investments, the External Investment Manager will initially invest in accordance to the allocation stated in the table below. However, for the purpose of tactical asset allocation, the manager may deviate from the stated allocation by a 10% variance for each asset class depending on the market conditions to achieve medium to long term returns.

Thus, this Fund's portfolio will be structured as follows:

• 65% - 98% of NAV
• Investments in Asian (ex Japan) debt instruments / bonds, Asia Pacific (ex Japan) dividend equities and Asia Pacific (ex Japan) REITs.
• 2% - 35% of NAV
• Investments in liquid assets including money market instruments and deposits with financial institutions.

What's the composite benchmark for this fund?

• 50% JP Morgan Asia Credit Index Total Return Composite (RM);
• 30% MSCI AC Asia Pacific ex Japan Index (RM);
• 20% MSCI AC Asia Pacific ex Japan REITs Index (RM).

Distribution Policy:

Depending on the level of income generated at each relevant period, the fund will declare distributions, if any, to unit holders QUARTERLY.

Click here to read fund's prospectus

Source: OSK-UOB Investment Management

Falling into a Dividend Trap? (Dec 2012)

No doubt, many investors prefer only invest in dividend-based counters. Malaysia is famous and already been recognized as one of the hottest spot for those looking for high dividend yields counters. But, things may changed. Why?

First, how do we calculate dividend yields? It's dividing the one year dividends declared by share price. Normally, yield which is higher than 5% was considered attractive. Just when everyone looking to hide their money from risks, yet aiming for higher returns than putting into fixed deposit (3% p.a), dividend counters seems to be their preferred selection.

Should we follow the "professionals"?

Yet, many investors just follow the winds (fund managers, analysts, consultants...) to invest based on the past 6 months, 1 year or 2 years track records. Yes. It's proven track records. But, where we are heading to is more important, right?

If you read the newspaper which published out-dated yields data, good luck. It's was based on last year dividends divided by average share price for last 365 days. For me, it's totally irrelevant for us to make decisions.

On the other hand, what we noticed was the share prices of dividend counters had moved up a lot since second half of last year. Although they have come down abit lately, we must ask the following questions before bargain hunting.

• Are we jumping in too late now?
• Are we taking more risks now?

Think about it and start to reconsider your decision again.

Personally, I believes this was not the right time to invest in dividend based counters. Nothing to do with their fundamentals or businesses as they are well-manage, profit generating companies. The problem is their share prices have already gone up a lot, which does not justify with the word "attractive yield" currently. Same goes to dividend based local unit trust funds. If really want to search for high dividend investments, you can still find it handy overseas, not Malaysia. Happy Investing!!!

BUY OIL FIELDS or IMPORT OIl?

This question has come to fore after ONGC's overseas arm, ONGC Videsh (OVL), purchased 8.4% of the giant Kashagan oil field in Kazakhstan for $5 billion in a deal which is for the span of 25 years. Located in the north Caspian Sea, this is the world's largest oil discovery since 1968, with reserves estimated to be as high as 30 billion barrels.  Let’s look at some other major countries for comparison. China prefers acquiring assets; Japan opts buying oil, instead. India opts for both. So now lets look at both cases. With crude prices at $100 per barrel, OVL will recover the full value of its investment in a little more than six years. If prices fall, it will take longer. Thus this deal might not be good in near term. This Kashagan oil field is estimated to have very high capacity and output capacity of 3mn barrels/day. Keeping this factor it looks quite a lucrative deal in long term but, if it turns out to be a disaster similar to its $2-billion deal to buy Russia's Imperial Energy it would dent the comapny and the country very badly as OVL has exhausted all its reserves in this deal. But the Kashagan deal is unlikely to suffer the same fate because of its huge estimated capacity. One more fear was that it might be difficult to transport this oil to India but this fear is warded off as this output can be swapped with any other seller worldwide. Thus this recent buying spree may be good to secure energy sources for the country and meet its long-term production goals. The other side of discussion i.e. importing oil cannot be declined this easily. Experience shows that functional oil markets offer security, with some reserves thrown in and oil markets functioned even during the two Gulf wars. It is completely the government’s policies whether it wants to stick to importing or go for buying fields. So is it right to buy fields or import oil?

ETP update: 10 Key Achievements (Nov 2012)

Below is the 10 key achievements highlighted by CEO of Pemandu, that demonstrates the positive inroads of the ETP:

1. Projects will be implemented within the 12 focused National Key Economic Areas (NKEA) and also implement 51 Strategic Reform Initiatives (SRI) to ensure competitiveness will flourish.
   
2. Whilst Malaysia's GNI per capita was only US$6,700 in 2009, it grew dramatically by 45% in 2011. (Target is US$15,000 by 2020)
   
   
3. GDP grew by 5.3% year-to-date. This is significant, considering Singapore's growth of only 1.3% while neighboring countries recorded the following GDP growth:
• Thailand 3.0%
• South Korea 1.6%
• Taiwan 1.0%
• Hong Kong 1.3%
  
4. Economy continues to grow to reach new GDP and GNI records in 2011, with Government achieved its highest revenue in history with RM185 billion in 2011, allowing the Government to implement many programmes, including those under GTP such as BRIM1 and BRIM2.
   
5. Private investment continues to achieve robust growth. As of Sept 2012, private investment grew by 25.5% yoy, reaching a new record of RM112.2 billion.
   
   
   
6. Domestic private consumption continues healthy growth of 8.2% year to date, an evidence of growing disposable income by Malaysians.
   
7. FTSE Bursa Malaysia KLCI market capitalization scaled new historic high on 1st Nov of 1,675.69 points, with market capital Rm1.46 trillion.
   
   
   
8. Consistent delivery of fiscal deficit reduction from 6.6% of GDP in 2009, 5.6% in 2010, 4.8% in 2011 and further reductions are planned in 2013 and beyond. Debt ceiling was capped at 55% of GDP.
   
   
   
9. Recognition of Malaysia's tremendous progress by external parties such as World Bank (ranking in Doing Business), AT Kearney's FDI confidence index, IMD World Competitiveness Yearbook, WEF Global Competitiveness and CNN ranked KL as 4th best shopping cities.
   
10. Achievements against the KPI were at 123% in 2011 and 94% this year

Source: etp.pemandu.gov.my (summarized by Finance Malaysia blog for ease of reading)

EPF Flexible Age 55 Withdrawal

As all of us know, Employees Provident Funds (EPF) is meant for our retirement savings which helps us go through our golden years. However, statistic shows that most of the contributors opted for full withdrawals at age 55 and finished it all within a period of 10 years.

In addressing this issue and encouraging contributors to keep their savings longer, EPF has launched a campaign to promote awareness on their "Flexible Age 55 Withdrawal Scheme". How flexible is it? If you're one of the to-be-retiree, then this post more than relevant to you. Read on and share this with other contributors if you think that this might be useful for them.

How does "EPF Flexible Age 55 Withdrawal Scheme" works?

By opting the scheme, contributors could withdraw part of their savings at any one time or make monthly withdrawals or a combination of both options. This is how flexible it is where you can vary the frequency and withdrawal amount anytime. In other words, withdraw only when you need it, otherwise, just left it with EPF to continue accumulate with compounding dividends for a longer period.

To elaborate further, the eligible combination withdrawal method are as follows:

1. Withdrawal of a partial amount of your savings & retain the balance in your EPF account
2. Withdrawal of a partial amount of your savings & transfer the balance for monthly payments
3. Withdrawal of a partial amount of your savings & transfer a partial amount for monthly payments while maintaining the balance in your EPF account;
4. Transfer your entire savings amount for monthly payments.

Members can submit the application within 6 months before age 55, according to the date of birth. However, payment will be made within 5 working days after reaching the age of 55.

Withdrawal Amount Eligibility

Minimum withdrawal amount for partial withdrawal is Rm2,000. Meanwhile, let's have a look at Monthly Payment Withdrawal as below:

• You may choose monthly payments with the minimum amount of RM250.00 per month for a minimum period of 12 months.
• The minimum amount that can be transferred as monthly payments is RM3,000.00.
• You need to determine the total monthly payment amount, the amount per month, the number of months and the payment commencement month.
• The EPF will transfer the total withdrawn amount into a special account. Crediting will be made into your bank account every month according to the amount and number of months applied.
• Payments will be made on the 25th of every month.
• The number of months for the monthly payments do not go beyond your age of 75 years.
• You may cancel this withdrawal any time.

Is it very troublesome?

In order to opt for the said withdrawals, you would need to prepare the following documents only:

• MyKad
• For payment via direct crediting to member’s bank account:
• Bank passbook or Saving/Current account statement
• Owns an account with the panel bank appointed by EPF
• The bank account must still be active
• Your identification number matches with the bank’s record
• Payment is made in Ringgit Malaysia
• Otherwise, payment will be made via banker’s cheque

Should you have any enquiry or require additional information regarding this withdrawal, kindly contact:

• Any EPF Office nearest to you;
• The EPF Call Management Centre (CMC) at: 03-8922 6000
• Customer Feedback: http://enquiry.kwsp.gov.my

Source: EPF website

India Inc.'s Dilemma

The recent news regarding the latest tussle between the insurance regulator IRDA and the finance ministry shows some signs of desperation on the side of the ministry to meet the disinvestment target. The finance ministry expects to raise Rs. 30,000 crore through the sale of government stakes in state owned companies.However this target seems to be far from being achieved.
The main reason for this type of disinvestment is the rising fiscal deficit which has to be reduced if India does not want to be in trouble.

 The recent 2G auctions have also left the government concerned about meeting the target of reducing the fiscal deficit to 5.3% of India's GDP. The estimated revenues from the auction were Rs.40,000 crore however the auctions were able to raise only Rs.9,400 crore.

With this two problems in front of GoI it is obvious for them to get worried and hence they do not want to take any risks. So they have now decided to allow LIC , India's largest insurer to invest in buying stakes of listed companies up to 25% (up from 10% previously). This decision might be a bane because it might increase LIC's exposure to risk and thus investor's money might be at risk. So IRDA is opposing this.

Whether this decision is useful or like the other two trials this too will prove to be a flop for GoI is a question which is yet to be answered.

Parth Pandya
SIMSREE Finance Forum

The Dutch Tulip Mania – bubbla eller ej?

De flesta av er som läser denna blog har säkert hört talas om den holländska tulpanlöks-bubblan på 1600-talet. Vad de flesta troligen inte känner till är att det allvarligt diskuteras i akademiska kretsar huruvida det verkligen var en bubbla eller ej!

Man skulle kunna tro att det är självklart att en marknad som på någon månad ser priserna gå upp tjugofalt är i en bubbelfas; d.v.s. en fas där tulpanlökens marknadsvärde vida överstiger dess intrinsiska värde. Man tar också för givet att saker man hör gång på gång måste vara sanna.... Båda dessa saker kan dock faktiskt (ibland) vara skimärer.

Som jag ser det finns det åtminstone tre argument för varför bubblan inte var en bubbla:
1) Data från 1630-talet är av mkt dålig kvalité och möjligen manipulerad och utvald för att förstärka tesen att där var en spekulativ bubbla. Tidningar saknades t.ex. på 30-talet.
2) Institutionella egenskaper hos tulpanlökmarknaden skulle kunna motivera prisökningen. Bl.a. har det föreslagits att terminskontrakt som av holländska regeringen tvångs-omvandlats till optioner skulle kunna förklara det hela.
3) Andra faktorer kanske kan motivera rationaliteten i att priserna inte bara steg snabbt men också var mkt höga (den dyraste löken som såldes (Semper Augustus) kostade mer än en lyxvilla i Amsterdam). T.ex. kan det faktum att 1/5 av alla invånare i tulpan-centrana Amsterdam och Haarlem dog i pesten under bara ett par månader året innan den värsta tulpanhysterin kanske förklara densamma (riskaversionen sjönk möjligen som en konsekvens av denna händelse som egentligen är mer anmärkningsvärd än bubblan....). Och precis som miljardärer kan värdera Damien Hirsts diamantprydda dödskalle till 100 lyxvillor 2008 (trots ett mkt lägre intrinsiskt värde) så kanske miljardärer kunde värdera tulpaner av unik färg till 1 lyxvilla 1637...

Det sagt; i en trevlig artikel (från 2009) presenterar Maurits van der Veen å andra sidan argument för varför det trots allt var en bubbla. Hans huvudargument är att täta sociala nätverk bland tulpanlöksköparna/säljarna skulle kunna förklara varför en bubbla faktiskt uppstod. Både gemensam religion, släktskap och grannskap karaktäriserade den (faktiskt) ganska lilla skara av aktiva handlare av tulpanlökar i Holland. Detta skulle kunna ha skapat handlare som fäste mkt mer vikt vid andras beteende än handlare på större marknader med anonyma handlare. Bubblor kan därför uppstå enklare och snabbare. Jag kan rekommendera artikeln (här) och tycker den är intressant läsning inte minst för den som fascinerats av Ponzi spel á la Madoff (där också de flesta investerare delade såväl religion som sociala nätverk).

Slutsats: allt är kanske inte alltid vad man tror det är!

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Jag hade aldrig sett en tulpanlök tidigare och kanske är det fler av er som inte gjort det? Bilden ovan visar i alla fall en tulpanlök som jag satte nu i September. Den kostade ungefär tio kronor och jag har ingen aning vilken färg tulpanen blir (jag återkommer med en bild på blomman). Som jag förstår det var det på marknaden för denna typ av simpla tulpanlökar som hysterin var som störst! Priserna var dock, i absoluta tal, inte så höga för denna typ av lökar utan det var de lökar som smittas av virus och därför belv spräckliga, randiga etc. som var riktiga dyrgripar.

US Elections and India

Last Wednesday the world got a very important news - Mr. Barack Obama being re-elected as the president of the United States of America. However it is such a news that would not leave even a single country in the world unaffected. For India there were mixed feelings.

For the India IT industry this news is considered to be somewhat bad  because of the stricter visa rules that would make it difficult for Indian IT industry to send their people to the U.S. where lie the majority of its customers. 

However if we look at the global economic scenario this news is not bad at all. The world is well known by the phrase "fiscal cliff" by now. Mr. Obama is believed to take a softer stand with respect to tax reforms and reducing the fiscal spending of the U.S. thus benefiting the growth f both the U.S. and the world economy and hence the Indian economy as we will see more FIIs investing heavily in growing markets like India. By December this year the decision regarding the fiscal cliff is expected to come making things much more clear.

On the other hand India must take care that the internal policies must not act as a hindrance to the investments. There are several reforms which await the winter of the parliamentary session for their approval. So there is one more reason to wait for this December.

Parth Pandya

SIMSREE Finance Forum

The Golden Rules of Investing

Earlier this year some folks from the U.K. came to our house to make videos in which I pontificated about passive investing. Some of the material will be included in longer pieces on their site but short snippets are also available there.

Here is one on my views of the two most important rules of investing:

The Golden Rules of Investing (Video)

The Capital Asset Pricing Model in Brief

Here is a very short video made at our home by the folks at sensibleinvesting.tv. In it, I explain the essence of the Capital Asset Pricing Model. As one can imagine, I have said more (much more) elsewhere.

Here is the link:

What is the Capital Asset Pricing Model?

What is US "Fiscal Cliff" actually?

When everyone thought that US and the world will be better if Obama won his presidential re-election again, world equities markets today declines with US being the most serious market by dropping more than 2%. What's the reason? Answer: Fiscal Cliff ?

Hmmm... Then, what is fiscal cliff actually which many of us on the street do not even heard about this new term before. No worry, Finance Malaysia blog did his homework over here. Share this out if you like.

Understanding Fiscal Cliff...

The US fiscal cliff refers to the effect of a series of enacted legislation which, if unchanged, will result in tax increases, spending cuts, and a corresponding reduction in the budget deficit. With Obama retaining the presidency, it sends the signal that it's US government policies will pretty much stay the same as previous 4 years. Ben Bernanke will stay as Fed chairman, which also meaning that the open-ended liquidity and bond buying programs will continue, fueling risk taking appetite of equity and fixed income markets for the foreseeable future.

Budget deficits, projected through 2022. The "CBO Baseline" shows the effects of the fiscal cliff under current law. The "Alternative Scenario" represents what would happen if Congress extends the Bush tax cuts and repeals the Budget Control Act-mandated spending reductions beyond the end of 2012.

However, Obama has to resume his duties in a very likely divided congress, with Republicans controlling the House and Democrats controlling the Senate. With this political deadlock and the looming "Fiscal Cliff", that's the reason why US market sink this morning.

Good or Bad?

If you understand it, the so called "Fiscal Cliff" is not something bad, in which its purpose is to reduce budget deficit of US. What investors worried was the measures being taken will slow the already slow growth rate of US economy, subsequently the world economies including Asia. But, without the intention of reducing budget deficit of US, would you be more confident? Of course NOT, because US would never able to not walk out from the brushes. Right?

By now, you should be able to understand the term. Meanwhile, some analysts have argued that "fiscal slope" or "fiscal hill" would be more appropriate because while the cumulative economic effect over all would be substantial, it would not be felt immediately but rather gradually as the weeks and months went by. Hahaha...

Magical Thinking about Pension Plans

This year I was fortunate enough to be awarded the Lillywhite Award for extraordinary lifetime contributions to Americans' economic security. Dallas Salisbury, President of the Employee Benefit Research Institute which sponsors the award, presented it to me at the Pensions and Investments Defined Contribution Conference in San Francisco, California. The following is a slightly edited version of my invited remarks thereafter.

I started studying pension funds when most people had defined benefit plans. No decisions. You worked, you got paychecks. You retired, you got smaller paychecks, You died, your partner got even smaller paychecks. He or she died, the paychecks stopped.

Now defined benefit plans survive mainly in the government sector. Social Security of course. And pension plans for government employees. But they can teach us something about defined contribution plans.

Take CalPERS. It covers non-teaching state and many local government employees in California. And, officially, it is substantially underfunded. This is based on the assumption made for funding by the CalPERS actuaries that their portfolio of bonds, stocks and exotica will return exactly 7.5% every single year. Moreover, they value assets at an average of past values.

Magical thinking. Bad economics.

Almost every economist who has looked at similar pension funds concludes that assets should be valued at market and that liabilities should be valued by determining the cost of a low-risk government bond portfolio that could provide the funds to pay the benefits already earned. For CalPERS this portfolio would be primarily in TIPS since their benefits are mostly indexed for inflation.

When the liabilities are valued with good economics, the extent to which CalPERS is underfunded is not just substantial – it is woeful.

But this is a Defined Contribution conference. Employers in the DC world have no liabilities and mark assets to market – in some cases every day. No magical thinking. Good economics.

Yes, but...

Sometimes in projecting the amount that should be contributed to a defined contribution plan there is magical thinking. We or our employees may assume the portfolio will earn 7.5% or so per year for sure. The market may go down, but if so it will feel sorry for us and go back up in short order.

But the good news is that we are getting better in helping employees get a sense of both expected return and risk in the accumulation phase.

But not always in the decumulation phase.

As the baby boomers enter retirement, every part of the financial industry is lusting after their money. Financial advisors have strategies for managing investments and spending. Insurance companies have traditional annuities and guaranteed withdrawal plans. Mutual funds have retirement income products. Employers have extensions of 401(k) plans. Everyone wants a piece of the action.

For good or bad reasons, left to their own devices, retirees invest relatively little in traditional annuities, foregoing the significant advantages of pooling mortality risk.

Moreover, thanks to Chairman Bernanke and his counterparts around the world, low-risk investments currently offer paltry nominal returns and negative real returns for all but the very longest horizons.

What's an investor to do? A frequent answer is this. Invest in risky securities, which should provide higher returns. Spend on the assumption that returns will be 7.5% (or so) per year. Not to worry, returns may vary, but they will average out in the long run. Once again, magical thinking and bad economics.

So what should financial professionals, do? One answer is to use Monte Carlo analysis with a sensible market model to generate possible scenarios for future investment returns, then use the results to help investors understand the true implications of alternative decumulation investment and spending strategies.

Admittedly, neither the creation or the communication of such ranges of outcomes is easy. But investors need to understand that if they take market risk, someone will be exposed to that risk. If something bad happens, it is going to happen to someone. It might be them or it might be their beneficiaries. Their financial advisor, investment company or employer may get smaller fees, but won't bear the majority of the impact. And if insurance companies take market risk, they do so at their peril or, worse yet that of the taxpayers who might have to bail them out.

Pooling can't help – when the market crashes it takes almost all the players with it.

If your investments are subject to market risk, so are the prospects for your spending and/or that of your beneficiaries. Even the cleverest financial strategy can't magically make market risk disappear.

So, I implore all those who help people save and invest for retirement and then use their savings sensibly in retirement. Please avoid magical thinking and bad economics. Employees and retirees deserve better.

Betala banktjänstemän med obligationer i stället för aktier!

Ibland överraskar EU-byråkraterna med att leverera något som jag gillar. Liikanen-kommissionen lyckades med denna bedrift härom veckan. De förslår bl.a. att bankanställdas bonusar (delvis) ska betalas med bankens obligationer i stället för med bankens aktier. Detta tycker jag låter som en bra idé då det torde sänka riskbenägenheten hos bankirerna och då en stor (större) del av bankens investerare faktiskt är obligationsägare snarare än aktieägare. På det viset har principalen (den typiska investeraren) och agenten (bankchefen/tjänstemannen) förenliga incitament.

Jag har nyligen skrivit en artikel Executive Compensation Based on Asset Values om detta som är publicerad i Economics Bulletin 32 (2), (2012) 1498-1502. Artikeln kan nås här och handlar om hur ledningen i bolag, framförallt banker, kan kompenseras på ett sätt som är konsistent med investerarnas mål. Jag förslår att man använder kreditderivat för att lösa problemet med corporate debt som inte handlas på marknaden.

Auction - The only way of allocating Natural Resorces to Private Firms?

The article is written by Khushal Shah and Chetan Dhawan from SIMSREE in the Arthneeti Article Writing Competition (September 2012)

 

Dr Manmohan Singh is standing at a very precarious position today. The Comptroller and Auditor General of India, in his recent report, has pulled up the government for financial wrong doing due to its policy of allocating captive coal blocks to private companies without a competitive bidding procedure. Dr Singh has justified his stance by arguing that the CAG has gone wrong with its numbers and that it is the government prerogative to decide on policy regarding allocation of natural resources. Has Dr Singh erred in handing out coal blocks for free and subsequently justifying the government’s decision?

To answer this let us first look at how the allocation of natural resources started in India. The Mines and Mineral Development and Regulation Act was enacted in 1957 when we hardly had any information about the extent of our natural resources. Also, there was very limited private investment. Under such a scenario, the government promoted first-cum-first-serve scheme whereby any willing investor was given the lease and the license to extract the minerals.The reason for implementation of the scheme being that ultimately the method of allocation of natural resources including airwaves, coal, minerals, oil and gas, forest land, to name a few, should also take into account public interest which includes within its ambit the larger economic perspective and not merely financial gain. However the recent revelations by the CAG accusing the government of causing a notional loss of lakhs of crores of rupees to the national exchequer and the prima facie reports by the CBI accusing several government ministers of nepotism indicating collusion between corporates and bureaucrats call into question the feasibility of a first cum first served allocation policy for any natural resource.

            Today, we are faced with such a low level of public trust that the auction process is seen as the 'best' way to ensure adherence to transparency and openness in resource allocation and maximising revenues to the government. Even the apex court, following 2G spectrum revelations, commented that ‘If scarce natural resources were to be alienated by the state, then the ‘only’ legal method was a transparent public auction’. So why is it that an ‘auction’ is perceived to be the only best possible method?

            To answer this, let us first see how resource allocation under auctions takes place. Generally in this scheme government comes up with a ‘Base Price’, which is the minimum price at which the government expects to sell the resource. The bidders are then expected to bid above the base price based on their perceived value of the resource. The bidding goes on till only one highest bidder remains. Now the resource is allocated to the bidder at this discovered highest price.Since the entire process is transparent,chances of collusion and corruption reduce drastically, securing the best possible price for the government.Perhaps, we can take a clue from the recently conducted 3G auctions which took place by means of an online auction. The bidding went on till the highest bid was realized. The process ensured transparency during the entire process by means of specially designed secure software. Clearly, an auction is a way to determine market demand and price. But why fixate on auctions as the only way to ensure market orientation, transparency and efficiency in the allocation and pricing of natural resources in India?

While auctions could be a ‘preferred’ option since they bring about transparency and secure the best possible price, revenue enhancement cannot be the only consideration while allocating natural resources.The disposal and distribution of natural resources has to be made in accordance with the sector specific requirement of each natural resource. The method of distribution of natural resource has to take into account the nature of natural resource and economic policy underlying the effective utilisation of such resource. There are various other factors such as national inclusion, service affordability, final product pricing, rural penetration etc that have to be taken into consideration to arrive at informed and reasoned decision of the methodology of allocating natural resources.           

Apart from these there are certain problems which the government might have to overcome before it can enforce the auction policy for all natural resource.First, the Centre has to convert this policy to law by way of amending Section 11(2) of the 1957 Act to auction natural resources like minerals, which is time-consumingFor example, the government tried to amend the Act to introduce auctions for allotment of coal blocks in 2004, but has not yet finalised its modus operandi.Secondly, the past experiences of some State Government for allocating leases by competitive bidding have not been encouraging. In 1991, Odisha suddenly realised that mining gemstones by the State-owned Orissa Mining Corporation was not remunerative and decided to auction gem-rich blocks by competitive bidding through Orissa Mining Corporation.The State Government identified 12 such blocks for aquamarine and sapphire in Bolangir and Kalahandi districts for a reserve price of Rs 20 lakh. Out of 12, the State Government could auction only five blocks for Rs 22 lakh. Thirdly, the Supreme Court in its order of February 2 this year observed that while allocating natural resources through auctions, the doctrine of public interest within the framework of the Constitutional rights of the people has to be adhered to, which is not possible if the government adopts only auction route for allocation of all natural resources. For example, if we auction fish resources of the Bay of Bengal, the Japanese trawler companies may bid the highest price, but the livelihood of the east-coast fishermen will be in jeopardy. Fourthly, it is observed that the cost of buying at a high price from an auction is more often than not passed on to the final consumer. For example the recent auction of third generation airwaves did fetch the government a huge sum, but the services have not found widespread acceptance among the general public because the companies, in order to recover the bid price, had to price these services at a higher price. Compare this to the allocation of 2G spectrum. It is widely believed that while the awarding of 2G spectrum on a so-called first-come-first-served basis in 2008 may have caused massive losses to the exchequer, the consumers, nevertheless, benefited from call rates dropping due to the entry of new mobile operators and very low call rates.

Another alternative for allocation of natural resources which can be beneficial to both the government and the companies can be a royalty based mechanism. A royalty based mechanism is similar to a tax based on assessed value of a property.The royalty should be tied to the market prices, rather than a fixed amount. A royalty based mechanism would enable the government to charge royalty at the current market price, rather than at the beginning when the resources are allocated. It would ensure continuous supply of revenue to the government. Since the royalty is associated with the actual market price, it would ensure higher revenue generation for the government. The time period for revising the royalty value should not be kept very long. Although the royalty based mechanism is prevalent in India, the royalty amount is fixed and revised every three years, which is a very long period considering the fluctuations in the prices.

            Considering the diverse needs of the country, it would be very difficult to pin point on a specific policy as the best alternative, given that the main aim of the government is to bring in transparency and safeguard the resources belonging to the country. Auctions are meant to allocate scarce resources in a transparent manner. In case the government wants to deviate from market based pricing, driven by overriding public concern, then the rationale behind policy making must be clearly manifested. In the larger public interest, if prices of end products need to be kept at a threshold, then the good or service should be subsidised at the consumer end rather than at the input end. Ensuring that benefit given at the input end to corporates will be passed on to the consumer is very difficult.The best choice would be the one which would ensure sustainability, effectiveness and transparency in the utilisation of the scarce natural resources.