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.