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 Private Retirement Scheme Started?

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creativ
post Nov 29 2012, 10:47 AM

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QUOTE(smartinvestor01 @ Nov 22 2012, 05:36 PM)
Well, basically from my point of view, PRS is not much different than a normal Regular Monthly Investment in Unit Trust..
The introduction of PRS is more like an effort by the government to enhance the unit trust market or to encourage the citizens to invest in unit trusts..
I Agree.

QUOTE(smartinvestor01 @ Nov 22 2012, 05:36 PM)
Therefore, i see nothing interesting in it, rather than just a feeling of frustration because it is like introducing a new version of unit trust.. Noting new...
*
I don't agree.

There is actually something new. Tax relief for 10 years, and if compounded annually until you're 55, the annualized return rate will cover the Management Expense Ratio (1.5%) and Sales Load (3%).

In other words, PRS is Unit Trust without fees thumbup.gif ! (and without liquidity sad.gif )

A smart investor will know that fund fees is the number 1 drag to your long term fund return relative to the market returns.

I have done the calculations. You can download the excel spreadheet --> Download Excel Spreadsheet from this Post

Example scenario:

If I'm 35 years old, and my tax rate is 26%. I contribute RM 3000 for 10 years (only) to take advantage of the tax relief.

Assuming the PRS fund has 0% returns (that means no profit, no loss), then my Annual Compounded Interest is 1.95% until 55 years old. This is enough to cover for the "Yearly" Management Expense Ratio (1.5% of your total fund value) and Sales "Front" Load (3%).

CODE

Age Year   Fund Contribution Fund          Fund Value  Income Tax  Income Tax      Total Return
          Amount            Return        (Year-End)  Rate        Relief Amount   Rate (Ann.)
                            Rate (Ann.)
35  2012   $3,000            0.0%          $3,000.00   26.0%       $780            35.02%
36  2013   $3,000            0.0%          $6,000.00   26.0%       $780            21.81%
37  2014   $3,000            0.0%          $9,000.00   26.0%       $780            15.82%
38  2015   $3,000            0.0%          $12,000.00  26.0%       $780            12.41%
39  2016   $3,000            0.0%          $15,000.00  26.0%       $780            10.20%
40  2017   $3,000            0.0%          $18,000.00  26.0%       $780            8.66%
41  2018   $3,000            0.0%          $21,000.00  26.0%       $780            7.53%
42  2019   $3,000            0.0%          $24,000.00  26.0%       $780            6.66%
43  2020   $3,000            0.0%          $27,000.00  26.0%       $780            5.96%
44  2021   $3,000            0.0%          $30,000.00  26.0%       $780            5.40%
45  2022   $-                0.0%          $30,000.00  0.0%        $-              4.60%
46  2023   $-                0.0%          $30,000.00  0.0%        $-              4.01%
47  2024   $-                0.0%          $30,000.00  0.0%        $-              3.54%
48  2025   $-                0.0%          $30,000.00  0.0%        $-              3.17%
49  2026   $-                0.0%          $30,000.00  0.0%        $-              2.87%
50  2027   $-                0.0%          $30,000.00  0.0%        $-              2.63%
51  2028   $-                0.0%          $30,000.00  0.0%        $-              2.42%
52  2029   $-                0.0%          $30,000.00  0.0%        $-              2.24%
53  2030   $-                0.0%          $30,000.00  0.0%        $-              2.08%
54  2031   $-                0.0%          $30,000.00  0.0%        $-              1.95% <--- Result
55  2032


This post has been edited by creativ: Nov 29 2012, 10:54 AM
creativ
post Nov 30 2012, 09:16 AM

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QUOTE(yong417 @ Nov 29 2012, 09:07 PM)
the illustration of the 1.95% seems only for a small group of ppl.
*
yong417,

That's why I shared the excel for download. When you personalize the values in the excel sheet, you will know if it is worth it to you or not.

Two factors which will affect your annualized return:

1. The older you are, the higher your annualized return rate when you reach 55.
2. The higher your tax rate, the higher your annualized return rate when you reach 55

Having said the above, I'm not advocating that you start investing in PRS in your later years. It is never to late to start investing. The earlier you start, the better due the the compounding effect of interest. Investing early also lowers risk, because you have time on your side.

Added on November 30, 2012, 10:51 am
QUOTE(xuzen @ Nov 29 2012, 03:00 PM)
This PRS scheme is only as good as the tax relief. I won't be surprise, financially savvy contributors will not put more than RM 3,000.00 p.a.
Exactly!

QUOTE(xuzen @ Nov 29 2012, 03:00 PM)
Once the tax relief is gone, the whole PRS scheme will be redundant.
*
You're right. I'm predicting the PRS scheme financially savvy, young, new contributors will start falling out the closer we are to year 2021.

I'm also hoping the government will extend the tax relief beyond 2021, if they genuinely wants to encourage the rakyat to save for retirement. (Please don't bring politics into this thread)

This post has been edited by creativ: Nov 30 2012, 10:59 AM
creativ
post Dec 4 2012, 10:18 AM

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Has anybody gone on-board PRS already? If yes, which Fund House have you chosen?

We only have a couple of weeks left to catch the 2012 boat.
creativ
post Dec 4 2012, 08:59 PM

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QUOTE(Kaka23 @ Dec 4 2012, 07:46 PM)
Can we invest in few PRS provider? Maybe 2 provider?
*
Yes we can:

Attached Image

This post has been edited by creativ: Dec 4 2012, 08:59 PM
creativ
post Dec 7 2012, 03:17 PM

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QUOTE(turbopips @ Dec 7 2012, 02:39 PM)
i spoke to a PRS agent and apparently i was encouraged to buy their unit trust instead. In fact i was told that it is the government that put a mandatory for these banks to set up this PRS and they had no choice but to accept the government offer.

Also the fund size according to the agent will be very small, whereby only higher income tax payers will buy and max will only be RM3k.
Imagine in reality who and how many ppl in Malaysia really pay tax? This times RM3k/year and then divided into 8 funds approved by government.
Therefore the PRS fund size is very small for each bank and also no historical proven record.

I really into this PRS as it give 26% returns every year (via income tax). on the other hand, i am worried that with PRS given at lowest priority among the other unit trust by the 8 banks, the capability of fund managers assigned by the bank may not generate any growth of money.

Any thoughts?
*
Firstly, Unit Trust Agents cum PRS Agents are sales men. They will want to sell you products that gives them the highest commission. Selling Unit Trust gives them higher commission than selling PRS (compare the sales charge)

Secondly, what's wrong with small fund size? The drawback of big fund size is that the fund manager will incur "impact cost" when managing the fund.

Thirdly, PRS is not managed by banks, just like Unit trusts, they are managed by Unit Trust Management Company (UTMC)

Fourthly, if you are worried if the UTMC fund manager capability, you can check on his historical performance in managing his other funds. (Of course, historical performance does not guarantee future performance.)

This post has been edited by creativ: Dec 7 2012, 03:20 PM
creativ
post Dec 8 2012, 11:24 AM

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QUOTE(turbopips @ Dec 8 2012, 12:51 AM)
The agent says bigger fund offers more flexibility n liquidity n is better.
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Hi Turbopips,

doh.gif

I would stopped taking advise from your unit trust agent if I were you.

If you want to buy from her, go ahead, she is a sales person after all. The only benefit I see is that she can help you with the administrative work of buying a fund from her company.

But when it comes to investment and financial advice, stop taking it from her.
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