140 Comparing the performance of unit trust funds and investment-linked funds

Comparing the performance of unit trust funds and investment-linked funds

Unit trust (UT) funds and investment-linked (IL) funds are two type of funds that are similar to each other. Unit trust funds are managed by, well, unit trust companies. Investment-linked funds are managed by insurance companies. Of course, there are some structure difference between them but we won't go into them in this article.

We often see clients like to compare UT funds and IL funds. Their common observation was IL fund price kept on climbing while UT fund price seems like not moving or even falling. We always like to explain UT fund prices will be adjusted accordingly when they declare a distribution (or dividend in layman understanding). And to make up for the distribution paid, total units will be added. So although the price "falls", the units actually "increased".

However, the anchoring bias is so strong that what clients remember is only the price. And they are so sensitive to the movement of price and not the the whole value of investment. Indeed, without a proper comparing tools, it is very hard to judged which type of funds is better.

In a recent training, I learnt a tool to compare both type of funds. And it is Lipper Leaders. So, let's do some comparison and see how it goes.

Let's head to http://www.lipperleaders.com/index.aspx.

Let's try and screen using Malaysia Equity. Below "1. I’d like to search for Lipper rated funds:" let's select "Malaysia" under "Universe:", "Equity" under "Asset Type", "Equity Malaysia" under "Classification".

Under "2. Select a time period:", let's select "10 Year". Then click "Display Funds".

OK, we do see some names of insurance companies. Let's try to sort them by their 10 performance. Let's click on "10 Year Return" twice to sort them descendingly. The first two pages are filled with funds that has no 10 year performance, so let's click 'Next" until page with 10 year data.

What we observed from here is that the top ten spots are taken by UT funds that returned 177%-329% for their investors. Manulife takes the 11th spot with 176%. This shows in terms of performance wise, UT funds are ahead of IL funds.

Now, let's be a bit more stringent and try to screen for the best-of-the-best funds. What do we mean by that. You notice there are some number under the columns of "Total Return", "Consistent Return", and "Preservation". The numbers shows their rating, with 5 being the highest and 1 the lowest.

To do a fresh screening, we have to go back to  http://www.lipperleaders.com/index.aspx.

Below "1. I’d like to search for Lipper rated funds:" let's select "Malaysia" under "Universe:", "Equity" under "Asset Type", "Equity Malaysia" under "Classification".

Under "2. Select a time period:", let's select "10 Year". Then click "Display Funds".

Below "3. Choose Lipper Leaders that match your goals:", we will select "5 - Lipper Leader" for "Total Return", "Consistent Return", and "Preservation".

Then we click "Display Funds". Only 6 funds make the list, and all of them are UT funds.

Well, maybe the screen was too stringent. Let's try to loosen one of the criteria. We choose "4 or better" for "Preservation".

This is what we see. 11 make the list, with top 8 spots taken by UT funds (177%-329%). The subsequent 2 spots are taken by IL funds (153%-176%).

This goes to see UT funds are better in terms of performance, and the outperformance can be as much as 87%.

So, why not start comparing your investment-linked funds if you do have one. Maybe you will want to go for the best funds. Well, if you can afford to send your kids to the best school, will you settle for something lesser?

139 Claiming estate through Amanah Raya Bhd

Claiming estate through Amanah Raya Bhd

In Malaysia, once a person passed away, his/her assets will be frozen and can only be distributed according to his nomination (for insurance policies, KWSP and PRS), his will or Distribution Act.

For a person who does not leave behind a will, i.e. intestate, Distribution Act will decide who are entitled and their portion size. Refer to below table for details.

To claim estate under Distribution Act, the family needs to apply for Letter of Administration (LA). To get LA, the family need to go through the below processes. The biggest problem in this process is the 2 sureties that has to guarantee gross estate value for Administration Bond. Meaning should the Administrator run away with deceased's assets, sureties has to come out with their own to pay the family. Basically, nobody wants to be a guarantor.

Another alternative that are more commonly used by general public is to seek Amanah Raya or Harta Pusaka Kecil (under Pajabat Tanah dan Galian). Harta Pusaka Kecil only deals with estate that has at least some immovable properties (house, car, land etc). Amanah Raya can deal with estate with immovable and/or movable properties.

Amanah Raya is a public trustee, thereby requirement of 2 sureties is not needed. Amanah Raya will require some documents and fees when public seeks their service.


Documents needed

The following documents are needed for processing:-

1. Deceased's death cert (original and photocopy)
2. Deceased's birth cert
3. NRIC of deceased's parents, spouse and children
4. Copy of birth cert of deceased's children
5. Copy of death cert deceased's parents (if demised)
6. Copy of marriage cert
7. Photocopy of movable / immovable assets
8. Amanah Raya's forms

Therefore, it is very important to ensure all family member's birth cert, marriage cert and NRIC are readily retrievable. You never know when you will need any of them. Relationship between family members can only be proven with birth cert and marriage cert. So don't lose them.

Make extra copy so that in case of loss, you can still bring the photocopy to JPN to request for replacement. This is especially important for parents or grandparents that are born around independence time. JPN may need to manually search for cc copy in their offices. So, a photocopy will assist their job a great deal.


Fees

1. Deposit of between RM150-RM1000 depending on the type of assets
2. Administraton fee of between 1%-5% depending on type and size of assets


Time

Waiting of 4-12 months depending on the size and type of assets.


Observation

Although Distribution Act provide a structure of dividing assets, it is still best to make a proper will according to your needs. With a will, you decide who gets what and their portion. Example, you may want to allocate more for child / parents that need extra care.

Parents with young children also can decide the guardian and the age the are entitled to inherit the assets. A child age 18 who inherit big assets may suddenly be surrounded with many investment advice (or worse, spending advice).

I still remember a friend's wife who lamented it is very tiring and time-consuming to go to various banks and government offices to make enquiries and submissions. On top of that, she has to take care of her two children. So during will-writing time, I always ask my clients whether they want their spouse to go through the same ordeal.

There are many areas that needs to be considered to ensure the future events are not burdening the family members. Always seek professional help to plan your assets distribution.

138 Funding Societies — Fully invested and rewarded with bonus

Funding Societies — Fully invested and rewarded with bonus

In my article Funding Societies—my first investment in P2P financing company, I mentioned that I and my referrer will receive RM50 bonus reward once RM1000 of my investment is disbursed for lending.

Well, all my RM1000 has been disbursed and I was rewarded with the RM50 bonus. Meaning the person who refer me is also rewarded as well.

Funding Societies is the only one that reward both parties.


Referral Scheme

I joined three P2P companies and they all provide referral scheme. Mine are

Funding Societies:- http://promo.fundingsocieties.com.my/referral-program/?r=jjqsmwav

Fundaztic:- https://p2p.fundaztic.com:443/generalize/regist?member=e1hvJ8%2Fctu1o9eb9s9%2FZXA%3D%3D,

B2B Finpal :- Put IN001029-Teo Soon Ann in the last column Referral Codewhen doing registration at https://prod.b2bfinpal.com/investor/registration.

137 In P2P Financing (or any investment), diversification is key to minimize loss

In P2P Financing (or any investment), diversification is key to minimize loss

In my previous articles, I shared my participation in two of the six approved P2P Financing companies. I also shared I used auto invest and limit my investment amount and time frame. My idea is to diversify, and to try to minimize the potential loss caused by any default. To me, this is a high risk investment — we just won't know when things will go wrong.

Well, yesterday I received an email newsletter from a famous blogger. He shared his first loss in Funding Societies — the largest P2P Financing company in Malaysia. He has been with Funding Societies for quite some time, and has been earning 10+% of interest.

Then suddenly, he received email from Funding Societies that one of the loan could default. This loan is for a period of one year. The first one or two payments were on time, but the subsequent two or three were late or not received.

After reading the email, actually it could only be categorized as a potential loss only. Funding Societies has met up with the borrower and has reached agreement to restructure the loan repayment. The borrower borrowed in anticipation of a business grow, but did not materialized. Businessmen planned for potential expansion but future is always uncertain.

The blogger gave some advice on how to know the background of loan and the borrower. On top of all, his advice is diversification is the way to reduce loss. After all, Funding Societies' statistics showed their default rate of their loans is only slightly above 1% and lower than 2%.

When we come to investing style, there are always arguments of concentration and diversification. Both camps has their success stories to tell. The famous value investors Warren Buffett and Charlie Munger practiced concentration. Their money are all in Berkshire Hathaway, and Berkshire Hathaway has its money in few stocks only.

However, for small investor like us, I think we should we should practice diversification. We do not have the time and knowledge to study our investments. If I put my money in one stock, and it goes with the wind, it would be disastrous for me and my family. We may not have the time to regain the loss.

When Warren Buffett closed his first partnership way back in 1970s, he asked Bill Ruane to take our his partnership since some of his investors wanted to stay invested in stock market. Bill started Sequoia Fund, and practiced concentration. The fund performed well because of the stock selection but it also suffer loss because of concentrating on the wrong stocks.

Today, we have many type of investments, and within each investment, there are so many companies to choose. We do not know which will do well in which market cycle, so our best bet is to put some here and some there.

In Malaysia, there are few stocks like Public Bank, Digi or Genting that has proven to bring wealth to their shareholders. In those stocks, bought them, forget them, and you are rich. But when they we first listed, nobody knows they are wealth creator,  just like nobody knows Berkshire Hathaway will be the greatest investment company.

Coming back to the P2P Financing, it is a new investment industry for small investors — the maximum investment per person is RM50,000. Six companies are available, we can put some money into few of them, and further spread our money into more loans.

Luckily, the blogger's exposure in the default loan is only a small fraction of his total investment. Otherwise, he may suffer great loss and many sleepless nights.

With diversification in mind, I chose two companies that provide short term loans. I am not ready to lend to long term borrowers.

Funding Societies has both long and short term loan but I set auto bot to participate in short term loans only. B2B Finpal only loan to short term borrowers. I set the investment to even shorter period.

If you too want to diversify some money into B2B Financing, you may consider them. All the two companies provide referral scheme. And mine are

Funding Societies:- http://promo.fundingsocieties.com.my/referral-program/?r=jjqsmwav

Funding Societies rewards the introducer and investors with RM50 when investor sign up and invest a minimum of RM1,000. So it benefits both of us.

B2B Finpal :- Put IN001029-Teo Soon Ann in the last column Referral Code when doing registration at https://prod.b2bfinpal.com/investor/registration.

136 B2B FinPal — my second P2P lending company

B2B FinPal — my second P2P lending company


After I joined my first P2P lending company  —  Funding Societies, I surveyed other P2P lending companies. I get to know Funding Societies has the biggest market share, followed by Fundaztic and B2B FinPal.

Actually, Fundaztic is the second company I joined but I did not put money into it. This is because Fundaztic needs RM2,000 to have auto-investment facilities. And I do not want to put that much. Another thing is Fundaztic's lending are longer term — up to 2 or 3 years. I also do not want to lock my money that long.

(Auto-investment is a function where we as investors put our criteria into their system. When an opportunity that meet our criteria appears, lending company will help us to bid for the opportunity. Without auto-investment, investors can always select manually.)

Then after that I surveyed B2B FinPal. They need RM1,000 for auto-investment and their lending are very short term (mostly I see 2–3 months). This short lending period gets me interested. I set the minimum investment amount for each lending to be RM100. If each lending can give me 0.5%–1% net interest per month, it's very good for me — consider that I get almost nothing in savings account.



Registration

Funding Societies and Fundaztic are easier to open account. Simply fill up the online form. For Funding Societies, wait few days for them to activate the account. For Fundaztic, they will bank in a random amount of money into our savings account as verification code. For B2B Finpal, we need to print out and complete their agreement.

(I think Funding Societies has improved their registration process. My mentor told me he had to print out the agreement as well.)



Lending

After joining those P2P lending companies, I realized that so many SME need funding. Some need big amount, some small, some longer term, some very short term. I think each P2P lending companies has positioned themselves in the area they want to be.

Funding Societies has both short term (3 months invoice financing opportunity) and long term (1-2 years business term financing). Fundaztic is mostly longer term (above 2 years) financing. B2B FinPal short term financing only. Of course, shorter term financing comes with lower interest rate.

I received emails everyday from, almost all three companies, about lending opportunities for me to consider. This is such a big market. P2P lending companies must be a great help to them. At least better than going to Ah-Long funding. ^_^

I think by this rate of lending opportunities, minimum investment amount of RM1,000 will be used up very soon. About a week or two in Funding Societies, about RM400 has been allocated for lending.



Fees

All three companies do not charge account opening fee. However, please note the platform fee (or the fee charged from repayment or sharing on interest received). Funding Societies has a low platform fee. B2B FinPal platform fee (sharing rate) is actually quite high. That said, B2B Finpal offered undeniably me an opportunity to get interest rate higher than conventional savings account.



Never forget — Risk

Although P2P lending is regulated in Malaysia, and each licensed companies has their set of lending criteria, I see it as a high risk investment because the creditor can possibly default. The default rate is perhaps very low, but we should not perceived it to be low risk. "Low default does not mean no default". That's why I do not want to lock my money for long term.

In investment, never forget "high risk, high return". In equity investment, we always aim for 8%–10% type of compound return. In P2P lending here, I see the interest rate can 10% or 15% per annum, so it must be of higher risk. So, I want to control each participation to the minimum requirement (RM100), and shorter term lending.



Referral Scheme

All the three companies provide referral scheme. And mine are

Funding Societies:- http://promo.fundingsocieties.com.my/referral-program/?r=jjqsmwav

Fundaztic:- https://p2p.fundaztic.com:443/generalize/regist?member=e1hvJ8%2Fctu1o9eb9s9%2FZXA%3D%3D,

B2B Finpal :- Put IN001029-Teo Soon Ann in the last column Referral Code when doing registration at https://prod.b2bfinpal.com/investor/registration.



Last word

Never forget to go for regulated investment scheme only. And the company must be licensed. I am glad many investment schemes in Malaysia are regulated. So many scams has happened in Malaysia, and so many innocent investors lost a lot of money.

With that, my exposure in P2P lending is consider complete. What follows is the monitoring process of each companies operation, opportunities, and most importantly the default rate.