FAQs on MPF Investments

Under Volatile Market

On MPF Funds and Investment

1.	Is it riskier to invest in equity funds than in bond funds as MPF investment?
2.	Why is that I still suffered a loss despite investing in “Growth Funds”?
3.	Why is that the MPF Conservative Fund cannot fully preserve my contribution capital?
4.	What is the difference between index funds and actively managed funds?
5.	Why is that the performance of Hang Seng Index tracking funds fails to follow the movement of the Hang Seng Index (HSI)?
6.	Why are there only limited fund choices or funds with high growth potential in MPF investment?

On Fund Fees and Performance

1.	Will the balance of an MPF account drop to zero if no further contributions are made while management fee is being collected continuously?
2.	Is there any protection imposed to regulate the charging of fees on MPF Conservative Funds so as to ensure that it will not be eaten up by the fees charged?
3.	Why has my trustee not been able to provide fees & expenses of the constituent funds in my account?
4.	Should I take as reference a fund's cumulative return rate or annualized return rate when reviewing the performance of a fund?

On Operation and Procedures

1.	Why have my MPF contributions been invested into a “default fund” by the trustee?
2.	Will my trustee subscribe fund units for me on the same day when trustee receives my contributions?
3.	I am an MPF scheme member, and I am also an investor in stocks. Therefore, I have been focusing on the short-term fund performance when selecting MPF schemes/funds and deciding if portfolio adjustment is required. Can I place several fund switching orders on the same day to speculate on the price change of MPF funds?
4.	Why does the switching of MPF funds sometimes take more than a week?
5.	Why do trustees adopt the lowest price to redeem and highest price to subscribe when I perform fund-switching?
6.	Why am I not given the option to specify the date of redemption when I give a fund switching instruction?
7.	Why does it take so long to complete a transfer request and the transacted price is different from that when I placed the transfer request?
8.	Why is that the amount of accrued benefits I received is significantly lower than that when I gave the instruction to withdraw my accrued benefits?
9.	Would my MPF benefits be affected if my trustee goes bankrupt?
10.	Why can't my trustee provide real-time fund price to me, like stock trading?

Under Volatile Market

1.	How can I manage my MPF investments under a volatile market?
	Answer:	You should bear in mind that MPF investments are long-term investments.  You should not be over-concerned about short-term market volatilities if you are still some way from retirement. The only time that the price actually impacts on you is when you take the money out of the system either at retirement or at early withdrawal under special circumstances allowed. Hence, you should think clearly if you really need to switch out of/into an MPF fund just because of the short-term price drop/rise of the MPF fund concerned. Moreover, MPF investments adopt the dollar cost averaging mechanism, which allows scheme members to spend a fixed amount of contribution to buy an MPF fund on a regular basis regardless of the fund price.  Therefore, more units can be purchased when prices are low, and fewer units when prices are high.  When the market improves, you can have a better return with more units of MPF fund purchased.
2.	Have MPF investments been affected by the financial tsunami?
	Answer:	All investments, including MPF funds, carry risks.  Like other investments, the performance of MPF funds, of which 60% of the total assets are invested in equities as at 30 June 2008, has been affected by the financial tsunami inevitably. Nevertheless, the stringent investment restrictions under the MPF System have alleviated the adverse impact.
3.	How does the current regime regulate the underlying investments of MPF funds?
	Answer:	All MPF funds are required to comply with the stringent investment restrictions under the MPF legislation.  The use of high-risk structured products and leveraging is prohibited.  The total amount invested in securities and permissible investments issued by a single issuer must not exceed 10% of the total assets of an MPF fund.  This aims for diversification to minimize risk.
4.	How does the MPFA monitor trustees of MPF schemes to ensure that scheme members’ interests are properly protected?
	Answer:	The MPFA imposes stringent entry and on-going eligibility requirements in capital adequacy, professional competence, resources sufficiency, internal control and risk management system on trustees, custodians and investment managers.  The MPFA adopts a proactive risk-based approach in monitoring the trustees' on-going compliance with the rules and regulations through reviewing the monthly, quarterly and yearly returns, audited financial statements and reports of the trustees, as well as conducting periodical and special/thematic on-site inspections. The MPFA highly emphasizes that trustees should have proper compliance monitoring systems in place to ensure their on-going compliance with the rules and regulations under the MPF regime.
5.	How can I safeguard my own MPF investments?
	Answer:	Different MPF schemes offer different funds for members to choose.  You should understand MPF funds' features and risks by reading the Offering Document and Fund Fact Sheet before investing in it.  You should choose the MPF funds that best match with your investment objectives and risk tolerance level. If the investment climate is unfavorable when you reach the age of 65, you may consider keeping the accrued benefits in the MPF System for continuous investment which best fits the market condition and your personal needs.  You may consider withdrawing your accrued benefits later when the prices of MPF funds rebound.

On MPF Funds and Investment

On Fund Fees and Performance

1.	Will the balance of an MPF account drop to zero if no further contributions are made while management fee is being collected continuously?
	Answer:		Management fee is deducted on a percentage basis rather than a fixed fee, so it is impossible that the account will drop to zero. For the majority of MPF funds, management fees are collected through deduction of the fund assets and will be reflected in the fund price.
2.	Is there any protection imposed to regulate the charging of fees on MPF Conservative Funds so as to ensure that it will not be eaten up by the fees charged?
	Answer:		The fee charging arrangement of MPF Conservative Funds is different from that of other MPF funds. The trustees calculate a monthly Prescribed Savings Rate ("PSR") based on the average interest rates offered by the three local note-issuing banks for a Hong Kong Dollar savings account. Where the rate of return offered by an MPF Conservative Fund for a particular month is equal or lower than the PSR, the trustee cannot charge any administrative fees.  However, if the fund return exceeds the PSR in any month within the next 12 months, the trustee can collect the uncharged administrative fees.
3.	Why has my trustee not been able to provide fees and expenses of the constituent funds in my account?
	Answer:		Generally speaking, there are two payment methods applied in the deduction of fees and expenses, including: deducting fees and expenses from the assets of the fund ("Fund Level Deduction"); and deducting fees and expenses from the members' accounts by way of units deduction ("Member Level Deduction"). Currently, most of the MPF funds adopt the "Fund Level Deduction" method for deducting fees and expenses. For Fund Level Deduction, administrative expenses (such as investment management fee, trustee fee, scheme administration fee and custodian fee) charging on an annualized rate basis is the major component of the fees of an MPF fund. The exact amount of administrative expenses levied entails complicated calculation, and is based on the net asset value of the fund as a whole. As the expenses are charged by deducting the asset value of the fund and not directly deducted from individual scheme members' accounts, the exact amount payable by you is not available. The fees and charges of a constituent fund is calculated as the Fund Expense Ratio and is set out in the Fund Fact Sheet made available for each scheme member twice yearly. It is also available on the "Fee Comparative Platform" on the MPFA website (http://cplatform.mpfa.org.hk).
4.	Should I take as reference a fund's cumulative return rate or annualized return rate when reviewing the performance of a fund?
	Answer:		You can take as reference both the cumulative return rate and the annualized return rate when reviewing the performance of a fund. The cumulative return rate reflects the return of a fund accumulated over the period concerned.  The annualized return rate indicates the average yearly return of a fund over the same period concerned.

On Operation and Procedures

1.	Why have my MPF contributions been invested into a “Default Fund” by the trustee?
	Answer:		When you join an MPF scheme, you have to specify your investment mandate in the MPF scheme application/enrolment form and your trustee will invest your MPF contributions according to your instruction. If you have not specified the investment mandate clearly in the form or have not chosen an investment mandate, your trustee may according to relevant provisions of the trust deed invest your contributions in the “Default Fund”.
2.	Will my trustee subscribe fund units for me on the same day when trustee receives my contributions?
	Answer:		Trustees will subscribe funds for scheme members only when the contributions are cleared by the bank and trustees have completed the relevant administrative procedures (e.g. checking correctness of calculation of contributions).
3.	I am an MPF scheme member, and I am also an investor in stocks. Therefore, I have been focusing on the short-term fund performance when selecting MPF schemes/funds and deciding if portfolio adjustment is required. Can I place several fund switching orders on the same day to speculate on the price change of MPF funds?
	Answer:		Investing in funds is different from trading in stocks. Funds are invested on a “forward pricing” mechanism i.e. the price of fund units can only be calculated after the close of market when the prices of underlying investments are available. Only one fund price is calculated for each dealing day, it is impossible to speculate on the price change of MPF funds by placing several fund switching orders in the same day.
4.	Why does the switching of MPF funds sometimes take more than a week?
	Answer:		The time required to complete a request to switch between constituent funds (“CF”) within a scheme may vary with the method of instruction used. In general, the processing time of fund switching through trustees’ Interactive Voice Response System and the Internet is shorter than through instructions in paper form. Some CF invest in approved pooled investment funds (“APIF”) which are operated by different investment managers. Transactions between CF and APIF are processed on a cleared fund basis. Therefore, it takes time to redeem units from the APIF level to the CF level and re-allocate the subscription from the CF level to the APIF level.
5.	Why do trustees adopt the lowest price to redeem and highest price to subscribe when I perform fund-switching?
	Answer:		When the switching order is placed, the price of the fund is not known, either by the MPF trustee or the scheme member. It is because funds are traded on a “forward pricing” mechanism, i.e. the price of fund units is calculated after the close of market when the prices of underlying investments are available. During the course to complete all necessary administrative procedures before the fund units are traded, the trading price may have gone up or down.
6.	Why am I not given the option to specify the date of redemption when I give a fund switching instruction?
	Answer:		For most of the MPF schemes, a scheme member cannot specify a particular day to redeem his MPF funds as trustees need the time to complete all administrative work and the process might involve external parties such that the definite processing time is unknown. Moreover, some constituent funds (“CF”) invest in approved pooled investment funds (“APIF”) which are operated by different investment managers. Transactions between CF and APIF are on a cleared fund basis. Therefore, it takes time to redeem units from the APIF level to the CF level and re-allocate the subscription from the CF level to the APIF level.
7.	Why does it take so long to complete a transfer request and the transacted price is different from that when I placed the transfer request?
	Answer:		A transfer involves some administrative procedures and both the original and new trustees. After receiving a transfer request, the new trustee needs to verify the information submitted (and open an account for you if you do not have one with it) before sending the information to the original trustee for verification. The original trustee will verify your information (e.g. notice of termination, if applicable), and redeem the units belonging to you. After that, the original trustee will transfer the accrued benefits redeemed to the new trustee. And the new trustee will buy units in fund(s) as instructed by you. As funds are traded on a “forward pricing” mechanism, both MPF trustees and scheme members are unable to know the trading price when placing a transfer request. Also, as it takes time to complete all necessary administrative procedures before the fund units are traded, the trading price may have gone up or down.
8.	Why is that the amount of accrued benefits I received is significantly lower than that when I gave the instruction to withdraw my accrued benefits?
	Answer:		It takes time for the trustee to verify your application, including to check the identity of the applicant and relevant documents which prove that the applicant fulfill the condition for withdrawal, and complete administrative procedures before the fund units are redeemed. As funds are traded on a “forward pricing” mechanism, both MPF trustees and scheme members are unable to know the trading price when placing a withdrawal request. Also during the course of time, the market may have gone up or down and therefore, the final price of units redeemed may be higher, or lower, than the time you placed the withdrawal request. There may also be charges upon withdrawals of benefits.
9.	Would my MPF benefits be affected if my trustee goes bankrupt?
	Answer:		No. The assets of the MPF schemes under the trusteeship of the trustee are segregated from the assets of the trustee. Accordingly, in case an MPF trustee goes bankrupt, your assets and those of other scheme members will not be affected.
10.	Why can't my trustee provide real-time fund price to me, like stock trading?
	Answer:		Trading in MPF funds is different from stock trading. Just like retail funds, MPF funds are traded on a “forward pricing” mechanism, i.e. the unit price of a fund has to be determined by calculating the fund’s asset value when the relevant investment market closes.