What to Invest in if You Choose to Reduce Your EPF Contribution Rate

Securities Commission MalaysiaInvestSmart


Let us assume you are an employee under the age of 60 today who opted to reduce your statutory contribution rate from 11% to 8%. The reduction is effective for 22 months, starting from March 2016 to December 2017.

This means you would be contributing RM30 lesser into your EPF account for every RM1,000 in monthly salary. You are free to choose how the RM30 should be spent.

Let us assume that your monthly salary is RM10,000. In the 22-month period, you would be collecting RM6,600 in cash which would have been contributed into your EPF account if the statutory rate remained at 11%.

Extra Cash-in-Hand = RM10,000 x 3% x 22 months = RM6,600

Should You Accept the Cash?

We believe it is subject to your own circumstances. There is no perfectly right or wrong answer to this question.

Here, we would like to share 5 things that may influence your decision on whether to utilise the cash or put it back into your EPF account. They include:

#1: Is this RM6,600 Disposable Cash?

Perhaps you might be facing some financial difficulties. You may have outstanding credit card debt which is charging you 18% interest per annum. You may have other debt repayments such as mortgages, hire purchase loans, and other personal loans. The extra RM300 a month could be used to service them, thus lightening your financial burden.

Perhaps you may be underinsured today. You could get yourself a decent life and medical insurance package for RM300 a month. This is crucial to safeguarding your financial future. Here, we will leave the talking to your life insurance agent.

For the 2 cases above, we believe it is wise to keep the RM300 a month by choosing the 3% reduction. However, if you are financially secure and intending to invest the RM300 instead, then let us shop around for investment vehicles that would give the best bang for your buck.

But first, what would your expected returns be if your money is parked in your EPF account?

#2: Keep the Money in EPF

Over the past 5 years, the EPF Board has declared above 6% in dividend rates to its contributors.

DividendRates (%)

Source: kwsp.gov.my

The Track Record

Next, we should find out how efficient the EPF Board is in growing its investment assets and increasing its return on these assets (ROI) over the last 5 years.

Based on its annual reports, the EPF Board had grown its investment assets from RM440.52 Billion in 2010 to RM636.53 Billion in 2014. ROI from investment assets has increased gradually from 6.08% to 7.25% during the period.

InvestmentAsset(RM Billion)440.52469.22526.75589.87636.53
ROI (%)6.086.586.876.977.25

Source: Annual Report 2014 of the EPF Board

Therefore, if we were to invest the RM6,600 on our own, we should set a minimum targeted investment return of more than 6% per annum. This is because it is the annual dividend rates that we would be expecting had we left the money parked inside our EPF account.

#3: Invest in Unit Trusts

Today, unit trust is a popular investment vehicle. If you buy unit trust, you are entrusting your capital to a fund manager who would be doing the investment for you. These investments include equities, bonds, and money market funds. Before investing in unit trust, there are a few things that you need to consider. They are:


For a start, you will incur 3 different fees when investing in unit trust. First, there is a one-off sales charge for buying units of a unit trust fund. Often, it is about 5% of your investment capital if the fund requires active management. Secondly, there are 2 recurring fees for holding onto your investment in a unit trust fund. They are trustee fees and management fees which are payable on an annual basis. These fees would range from 1% – 2% per annum. Hence, you may want to assess the impact of the 3 fees mentioned on your returns for investing in unit trust.


If you pay a combined 6.5% in fees, you would need to achieve 7.0% returns on your unit trust investment to break even in your first year of investing. Thus, you need to find a unit trust fund that consistently achieves double-digit investment returns to enjoy meaningful gains on your investment in unit trust. The calculation below explains why you need 7.0% to cover the 6.5% fees incurred in your first year in unit trust investment.

Investment Capital = RM10,000

Combined Fees in Year 1 = 6.5%

Starting Capital = RM10,000 – RM650 = RM9,350

Returns Required to Break Even in Year 1 = RM650 / RM9,350 X 100%

= 6.95% (rounded up and it is 7.0%)

How Does it Compare to EPF Returns?

Before investing in any fund, it is a great idea to compare the investment portfolio of the EPF against the funds promoted to you. We believe the EPF has a good and solid track record in generating investment returns compared to most unit trust funds in the market. However, for this point, please do not take our word for it. It is always important to do your homework first before investing.

#4: Invest in Shares

Basically, there are many skills that you should arm yourself with in order to do well in the stock market. Among the two most important are Fundamental and Technical Analysis.

Fundamental and Technical Analysis in Investing

Fundamental analysis is the foundation of solid investing. In simpler terms, it involves understanding and interpreting the financial reports of public listed companies. Doing this helps investors differentiate between stocks that achieve consistent growth in profitability and mediocre ones that do not. In addition, this knowledge helps in identifying stocks that choose to pay high level of dividends or in reinvesting profits into other profitable investments.

The inability to read financial reports would increase the risk of making a bad investment decision in the stock market.

Meanwhile, technical analysis involves the study of stock price charts. Here, technical investors want to identify the current price trend. Basically, there are 3 types of price trend. They include uptrend, downtrend and sideway trend. Through identification of price trend, technical investors would be able to position themselves to profit when the uptrend in share price is beginning or to protect profits when share price is beginning to move on a downtrend.

The inability to identify price trends would cause investors to overpay or undersell their shares, thus, impacting their investment returns.

Portfolio Management

The long-term goal of making investment decisions is to avoid making investment mistakes. The key to ensuring investment mistakes are kept to a minimum is to diversify your investments. This involves having adequate diversification in your stock portfolio, and buying shares with a good margin of safety.

Learning before Investing

While it is possible to make good returns with some luck, the truth is that you will need to devote time and effort to do your homework first before investing in the stock market. Investors who do not do their homework are often known as ‘naked investors’. To them, stock investing is indeed very risky.

If you are not familiar with any of the skills mentioned above, we recommend that you at least try reading about them first before putting your hard-earned money in stocks. However, if shares are not your cup of tea, then consider alternative investment options such as property, gold, silver or other investment products. But a word of caution: With so many options available, please ensure that you fully understand the investment product before putting your money into it!

Investing Can Be Profitable if You Make Informed and Smart Investment Decisions!

Regardless of your choices, the level of returns ultimately depends on whether you are a savvy investor who makes informed and smart investment decisions. If you are not, the question would then be how devoted you are towards educating yourself to become a better and savvier investor.

If you are willing to learn, you must start by attending classes, lessons or seminars on the subject of investing. In general, various sources of information are available through online materials, books, workshops and more.


Article Category: 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].