FAQ: How to start investing in Private Retirement Scheme in Malaysia (and get RM1000 bonus)

 prs youth scheme

In 2015, I took advantage of the PRS Youth Scheme, invested RM1000, and received RM500 from the government. Let’s put all the stuff I researched about PRS into a compilation. Hope this helps someone out there!

Note: Update on PRS Youth Scheme – you get RM1000 on RM1000 contribution now!

 

Note: To the best of my ability, I checked and double checked all sources. However, if I made a mistake, please let me know!

What is PRS?

Think of it like optional EPF. If you are a working adult, you know that 11% of your salary is deducted for EPF right? The money goes into a ‘tabung’ managed by KWSP, who will invest it on your behalf. So the money you contribute to PRS goes into a ‘tabung’ managed by a provider of your choice, who will invest it on your behalf.

It’s like EPF? So my employer also contribute? Must give every month?

No. This is 100% your contribution. Enough la, your employer already give you 13% contribution already (12% if you make more than RM5000 a month).

As for contributing every month to PRS, you can, but you don’t have to. I contributed RM1000 in 2015 to get the incentive and haven’t contributed since. I should continue :p

Addition from reader Nadjwa: Employer can also contribute to PRS. And they too can get tax incentive. However both parties (employee & employer) are free to choose the amount and contribution frequency. No need to contribute with a fix amount every month. Employee also can auto deduct from salary as low as RM50 for each contribution.

Can I ask my employer to switch contribution from EPF to PRS?

Cannot. EPF is mandatory.

Then might as well make extra contribution to EPF right.

You can, but if you are between 20-30 years old, do you really want to miss RM1000 in free money?

How do I get the free RM1000?

Via the PRS Youth Scheme. To encourage our generation to save for retirement, the Malaysian government will be giving 20-30 year olds an extra RM1000 when they contribute RM1000 towards their PRS. You can check your eligibility here.

Government got money meh?

The budget for the PRS Youth Incentive was tabled in Budget 2014. So yes, it was already allocated.

Given that Malaysia has more than 5 million youths aged between 20-30 years old, and only 26,825 youths took this incentive in 2014, I dare say that yes, money is there. So take your share.

I get the RM10oo one time or every year?

One time only.

Got conditions not to receive the RM1000?

Got. Nah.

Basically,

  • Kenot be from employer, unless via salary deduction.
  • Kenot transfer from another provider, but switching funds is okay. Read more here. If you don’t have contribution yet, this is not relevant for you.
  • Contributions made between 2 Jan 2014 and 31 Dec 2018 only.
  • Must give RM1000, either oneshot or accumulated over one calendar year. Meaning, if you give RM900 on 31 Dec, then give RM100 on 1 Jan, still not eligible.
  • Must put at least RM1000 in ONE fund. If you have 2 funds and contribute RM500 each, still not eligible.

The link has more info, you guys read properly okay. PRS also made a FAQ here.

How will the government give me the RM1000?

They deposit straight into your PRS account, the one you created from the provider. Mine looks like this (I did mine when it was still RM500):

screenshot-www fundsupermart com my 2015-12-13 20-30-20

Who/What are the providers?

These companies. Providers are banks/fund management companies that will invest your money on your behalf. They are made up of very clever people who know economics and trade policies and stuff and can make smart predictions on which economies are growing so they, and directly you, can gain from it.

Which provider are the best?/ Which funds should I choose?

You should choose a provider and a fund that best suit your investment personality and your risk profile.

But what does that mean?

That means – would you rather an agent take care of this for you or do it yourself? Some people feel more assurance if an agent explains everything to them, and all they have to do is to pick from the agent’s recommendation. The downside to that is higher fees in general, which will eat into your investment. Also, you have a much smaller selection. Of course the agent will promote their product, they’ll get commission. To know if they are legit, they must carry this card.

I took the DIY route – went with an online fund manager called Fund Supermart. They have reasonable management fee and no sales charge (some providers charge up to 3% – not a dealbreaker, but not for me). They even have their own page on PRS, here.

Note: I do not get paid to promote Fund Supermart. I had an excellent experience, that’s why I’m recommending it. I also don’t know any other online fund managers aside this one.

I want an agent.

Then I suggest you contact institutional PRS advisors or corporate PRS advisors. They’ll be happy to hear from you. Like getting insurance or applying for loans, get feedback from at least 3 agents.  Pick the one you can get along with and can trust.

What types of funds are available?

I would highly suggest you to visit this page to have a sense of how funds are named. Broadly speaking, it’s categorised into 3: Growth, Moderate, and Conservative. If it’s Syariah-compliant, it’s usually mentioned in the name as well.

Growth funds has the most risk but potentially offer high returns and Conservative funds has the least risk but potentially offer low returns. Moderate is somewhere in between.

For young people, we are advised to go for Growth funds. Simply because our focus is wealth accumulation not wealth preservation. Conservative funds are preferred for people who want to maintain their wealth, at least to keep up with the rate of inflation.

Class C funds? Class D funds? What’s that?

It’s just a way to classify how funds are sold. You can read more about class types here. It’s not superbly important.

There’s SO MANY funds! How do I pick the best one?

Disclaimer: NOT AN EXPERT. Just sharing the process that I used. Get other people’s advice too.

Hint: you’ll never know which one is the ‘best’ one because you can’t predict the future.

Do you have a preference towards any of the providers? Some people base their decisions on that. They trust Company A so they pick what Company A offer. Some companies win investment awards – that is indicative (not guarantee) of good performance too.

Some people know and trust a particular fund manager, so they base their trust and money on that.

If you don’t use the above methods to choose, what you can do is use the information available to make educated guesses. To reduce the available choices, what worked for me is process of elimination. First I eliminated Conservative and Moderate funds, then I eliminated non-Syariah funds, then I eliminated funds with high fees. That left me with a handful of funds to pick from.

Then it’s a matter of reading each fund report and factsheet. One example of factsheet is here, you can see what your money will be invested in if you pick this fund (strictly example, not promo).

You might go through some more process of elimination. Some people might not want to invest in funds containing oil, since the price is crap right now and might go lower. Some people are never comfortable investing in some countries that don’t align with their values or whatever. Check everything in the factsheet and the longer reports.

You might also pick your funds based on the volatility level. Volatility just means not stable, not predictable. Growth funds tend to be volatile, so I’m not so strict with this. The thing is, even if a fund recorded consistent growth, ALL funds will say this phrase: “Past performance is not indicative of future results”.

This is why I say no one can predict the future. You never know what will happen. So again, make your educated guesses based on the information you have.

Also, Investopedia has a really good article on how to pick funds. Read it here.

Okay, that’s for picking funds. Now about the money – can I use the RM1000 now?

Well, can and cannot. This is a retirement scheme. In Malaysia, our retirement age is 60, although in practice most people retire at 55. This means that you only get to withdraw your PRS when you reach that age.

Although, having said that, it is possible to withdraw before you retire. Check here.

Only RM1000 ah. Not worth it, cannot survive even one month after retire like that.

Watch your mouth. Assuming you are 25, retire at 55, and receive modest returns of 6% a year, the RM500 will balloon jadi RM2709.19 tau! Update: It’s RM1000 now, so you can double this amount!

If you get 7, 8, 10, 15, 20% returns? Your luck will vary, but 6% is a good starting point.

1.jpg
Eh how does it balloon.

This is the magic of compound interest. You earn money on top of the money you earned. The longer the term, the better. Read more about compound interest here.

But I’m still too young to think about retirement.

The younger you are, the better it is to start your retirement.

You know what you have on your side?

Time.

Time for the money to grow.

Like pokok like that.

Can I use EPF money to contribute to PRS?

Yes you can. But got T&C one.

As advised by a reader (see comments), you can’t. This section had been deleted. Thank you Mun Keong!

I don’t have RM1000 to invest..

Then you have to save up money for it. Thankfully, you have until 31 Dec 2018 before this incentive expires. In my honest, personal opinion, this is a really good opportunity. In a survey, currently only 22% of EPF contributors have enough money to retire. Scary wei if old no money. #bethe22%.

How do I save money?

Ah, soalan cepumas. ‘Spend less than you earn, earn more than you spend‘. My blog values frugalism, minimalism and spending less in general, but please do check out other sources to increase your income.

Should I borrow money to get this incentive?

I’ll turn the question back around at you. Do you think it’s a wise idea to borrow money to get this incentive?

Please note that there’s no guarantee that your investment will confirm sure give you good returns one. In fact, if your agent is like, YA GUARANTEE YOU GET RICH ONE, omg he/she is not a very good agent.

I say, if you can secure a no-interest loan (check FAMA Bank – Bank of Father & Mother), go for it. PRS seems to encourage that as well- they say parents can contribute for their children.

If you are contemplating to borrow from credit card or bank loan, mmm probably not a good idea. Their interest is high. Why would you borrow money at 18% from your credit card for uncertain interest on your PRS?

I’m already in debt. Should I prioritise paying off my debts or saving for this scheme?

Depends on the type of debt. If you have credit card debt, or any other debt that imposes high interest rates, pay them off first. You never want to cancel off your head start.

What else should I know about PRS?

You can get up to RM3000 in tax relief if you participate in PRS!

Any other questions not covered? Let me know in comments!

Author

16 comments

  1. FYI

    Your link to EPF, claiming to be able to use EPF money for PRS is NOT for PRS.
    It is for approved (ie. not all) unit trusts and KLSE stocks
    http://www.kwsp.gov.my/portal/documents/10180/153718/Risalah_Pelaburan_Ahli_Jan_2014_ENG.pdf

    For clarity, please check out PRS administrator’s website
    http://www.ppa.my/prs/prs-faqs/ :
    Q: Can I withdraw from my EPF to contribute to the PRS?
    A: The PRS is a supplementary form of retirement savings in addition to the EPF and is voluntary in nature. Members are not permitted by law to withdraw from EPF to contribute to the PRS.


    Feedback on your writing:
    “Can I use EPF money to contribute to PRS?

    Yes you can. But got T&C one.

    You must have enough basic savings in your account to even be allowed to withdraw. Basic savings are calculated by age.”

    1. Ah! Missed that! Thanks so much, I will edit right away. You seem to know what you’re talking about, any other mistakes in the FAQ?

  2. A little correction:

    Employer can also contribute to PRS. And they too can get tax incentive. However both parties (employee & employer) are free to choose the amount and contribution frequency. No need to contribute with a fix amount every month. Employee also can auto deduct from salary as low as RM50 for each contribution.

  3. Hi there,

    Let say i invested in 1k straight , i will right away get a return of 1k to the PRS account right ? meaning my PRS total amount will be 2k now right ? About the annual return , is there a guarantee return or like a min annual return ? meaning if i choose the wrong funds to invest or the agent choose the wrong funds to invest i will still get some % interest annually . The reason i ask this is because let say i choose the wrong funds or the agent choose the wrong funds and the turn out there’s no return then it will be a waste of time and effort to invest then , no ?
    Thank you
    Ps: i’m new to all this investment thingy

    1. Hi dan,

      If I recall correctly, I got my RM500 quite fast. Not quite overnight but it’s be there. Yes, you will have RM2k (they count it as RM1k + RM1k) in your account.

      There is no guarantee or minimum annual return. Any investment that guarantees, unless its fixed deposit or other stable, well known ones, is likely a scam. They will say ‘past performance is not indicative of future performance’.

      For unit trust, yes there is a chance the fund will not perform well, especially growth funds. You can diversify, ie pick other types of investments or put your money in other unit trusts.

      That being said, no private provider will want to end up with a bad fund. They have reputations to protect, its not like they just earn free commission. Their job is to make sure the fund performs well, adjust the strategy as needed. So while there is no guarantee, I say it’s in good hands.

      p/s – new is fine, I welcome new

  4. Hi Suraya,

    May I know what are the procedures of applying a PRS account? Do we open a PPA account first? How and where do we open a PPA or PRS account? Thanks!

    1. Hi Megan,

      The first step is to choose a PRS provider. Either open an account at Fundsupermart or select one of the other providers (who will likely assign you an agent, idk never tried). The link to all the providers is in the article.

      After open account is the task of actually selecting a fund. Fundsupermart has this fund selector tool. If other providers, the agents will probably advice after a chat with you.

      Then it’s a matter of transferring the money and confirming fund purchase.

      Hope this helps!

  5. Hi Suraya,

    Good article. I wish to clarify something which I hope you can help me with. Assume I follow your method of “DIY” and avoid the sales charge, I have created FSM account, choose the provider as well as the type of fund of my preference and made payment (PRS part done I assume?). As for PPA account, how do I open it? Does the provider of PRS would automatically help you to open once u made purchase at FSM?

    *I do not have any account for either one at the moment*

    1. Hi Ian,

      When you open an account in FSM, you don’t have to open a separate PRS account. Just fund then purchase units from their PRS offering. Not sure how it’s done in the backend, but as user I didn’t have to complete any more steps. Hope this helps!

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