Investment Objectives |
Primarily to provide a guarantee on capital invested, but also to achieve a guaranteed rate of return |
Investment Instruments |
Bonds, stocks, or short-term, interest-bearing money-market instruments |
Risk Tolerance Level |
Relatively low, but it also depends on whether the guarantee conditions can be met when the MPF is withdrawn |
Major Risks |
- Trustees can modify the future guaranteed rate of return with prior notice to scheme members.
- If the assets in your Guaranteed Fund are invested in an insurance policy, you should be aware of the credit risk of the related insurance company.
- Guarantor risk (i.e. the risk that the guarantor will fail to fulfil its obligation to provide the guaranteed return)
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Fees & Charges |
The guarantor usually charges a guarantee fee or reserve charge, in addition to the basic fees and charges of most other MPF funds. |
Features |
- The funds have two major types of guarantees: capital guarantees or return guarantees.
- Both capital guarantees and return guarantees can be either conditional or unconditional. For conditional guarantees, the guarantee conditions must be met to benefit from the guarantee. No guarantee conditions apply in the case of unconditional guarantees. Currently, the majority of Guaranteed Funds in the MPF market provide conditional guarantees.
- You should take note of the guarantee conditions for conditional guarantees, such as the following:
Minimum investment period:Scheme members must commit to invest in the fund during the whole minimum investment period. If scheme members switch to another fund or if scheme members’ employers switch to another MPF scheme during this period, the guarantee will become void. Let’s say, for example, you have a Guaranteed Fund that provides a guaranteed rate of return of 2% per annum, with a minimum investment period of five years. If you switch to another fund after only three years, the guaranteed rate of return will not be applicable. Your payout depends on the actual performance of the fund at the time of withdrawal, not the guaranteed rate of return.Withdrawal requirement:Scheme members can get the guaranteed return only when their withdrawals are made under the specified conditions: for instance, after holding the fund for at least the minimum period (e.g. three years or above), making at least the minimum number of contributions (e.g. 90 times), the last contribution having been made some years previously (e.g. five years or more), reaching the age of 65, or otherwise meeting the legal requirements for the early withdrawal of accrued benefits. - Guaranteed Funds can be investment-linked (i.e. the fund return is based on the performance of the fund’s assets), or non-investment-linked (i.e. the fund return does not hinge on the performance of the fund assets).
- The guarantor has the right to retain the investment earnings if they exceed the guaranteed return. The retained investment earnings may be taken as guarantor’s profit, or used to offset the underperformance of the fund at other times.
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Fans |
My fans do not like taking risks, and prefer having guarantees. Some of them are close to retirement. They are willing to abide by the guarantee terms and conditions in order to get a guaranteed return. Their slogan is “agree to the terms and conditions to get the guarantee”. |
Points to Note before Investing |
- You should examine your risk tolerance level, the characteristics and risk level of the various funds, and the risk and return relationship of the funds.
- You should read the terms and conditions of the MPF Scheme Brochure very carefully, in particular the potential risks and guarantee conditions.
- You should understand whether a capital guarantee or return guarantee is provided, and assess whether you can fulfil the relevant guarantee conditions before investing.
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