By Sharan Raj
THERE are thousands of advertisements on YouTube, Facebook and newspapers by private fund inciting the middle class to invest their hard-earned money in order to ‘grow’ their wealth.
Previously, private mutual funds companies managed to convince the Ministry of Finance to allow workers to move their retirement savings from Employees Provident Fund (KWSP) to private mutual funds, claiming KWSP returns are “too low to retire”.
Interestingly, government-linked investment companies (GLICs) such KWSP and Permodalan Nasional Bhd (PNB) still managed to pull their way for mid-single digit return while most private mutual fund are struggle during this recession.
However, all the private mutual funds are making money even though people are losing money because the fund managers impose charges such as sales charges, management fees, commissions, transfer fees, switching fees, etc.
These charges are usually are not openly advertised neither disclosed sufficiently by mutual funds salespeople to overquote the potential future returns.
Private mutual fund managers are aggressively employing new salespersons in residential areas and religious spots like mosques and temples to tap into the middle-class savings.
Nearly every middle-income household knows one mutual fund salesperson in their extended family, friends, neighbourhood or religious circles.
These salespersons are incentivised by sales commission from deducting from the money invested by the workers not from private mutual funds profits.
Henceforth, the profits of the private mutual funds are nearly insulated from the private mutual funds own poor financial performances while people bear the full risk.
The middle class are then further misled by certain private mutual funds which declares the dividends in terms of ringgit per unit (RM per unit) instead of the return of investment (% per RM).
Thus, non-financial savvy middle class could not make proper comparisons between multiple private mutual funds.
Therefore, the Securities Commission (SC) needs execute a more proactive regulatory role to protect the middle-class people who are losing their hard-earned money silently, for example:
- Ban all form of charges and deductions onto capital amount invested by the people.
- Commission for salesperson should be paid from mutual funds’ profit.
- Limit private mutual funds’ earning solely to their financial performance.
- Standardise mutual funds reporting and advertising metrics. – March 18, 2021