Sunday, 22 December 2013

Warm Wishes!

A Merry Christmas and A Happy New 2014 Year from Invest Made Easy

We hope all your financial goals will be achieved and all investments turn fruitful!

Wednesday, 18 December 2013

Wednesday, 11 December 2013

Electricity Tariff Hike! Is TNB To Be Blamed?

Ever since the announcement of the recent Electricity Tariff Hike by 0.0499/kWhour, there's been mass displeasure by many Malaysian towards TNB as a company. Such was the furor generated by the hike that many Malaysians including the Youth Chief of a certain ruling party joined in to lambaste the utility company, alleging them of hiking the tariff to increase profit.

Meanwhile on the internet, you can find also find open criticism of the Tariff Hike such as from this Facebook group created with the name "Anti TNB Naikkan Harga".

The funny thing about the group is that members are now posting advertisement marketing products instead of discussing on how to manage the tariff hike.

Not forgetting anti-TNB propaganda images such as this:

or this

While all the above served to illicit further hate among Malaysians towards the utility company, it does make me wonder if this recent tariff hike was meant for the benefit of the utility company?

Now if we look at things logically, for TNB to push through a tariff hike proposal through the Parliament, they would require an extremely strong justification for it to be debated. While the general perception of the society is that the tariff hike will increase the company's profit, would that reasoning be used as a logical justification after a series of hikes ranging from petrol to sugar pricing recently.

While I myself dislike the fact I might have to pay more for my electricity consumption, I believe we need to further understand the real reason behind the tariff hike. It sounds ridiculous to jump into the bandwagon of people screaming for blood and slandering a company that has continuously ensure reliable electricity supply to our homes. 

Actual Reasons for Tariff Hike:
1) Hike needed to cater for capital expenditure

Despite the misleading headlines reported by TheStaron the 7th of December 2013, the contents of the article state the following:

As stated in the article, with TNB's capital expenditure (money spent on building assets such as power stations, transmission towers, substations, etc) reaching RM7 billion in 2012, the net profit of RM4.2 billion seems rather insufficient for a so called "profitable" company. With profits proving insufficient to cover the expenditure of improving electricity supply, what else can any company do apart from turning to loans in order to cater the deficit. 

Year by year, consumers continue to seek for zero interruption of electricity supply yet demanding to pay the same tariff amount. However, can any utility company be able to meet to such demands without incurring expenditure on maintenance, expansion, upgrading and replacing old asset? 

2) The money from the Tariff Hike does not go to TNB alone.
A peek at TNB's company website indicates the following:

The point being that the biggest reason for the Tariff Hike is due to the Government's Subsidy Rationalization Program. You might or might not know that the fuel supplied by Petronas to TNB in order to generate electricity is largely subsidized by the Government in an effort to ensure low tariff over the years. 

Similar to the reason behind the petrol price increase, the subsidy for fuel has taken its toll with the present Government debt standing at exceeding RM500 billion. Reduction on fuel subsidy was first witnessed by Malaysians through petrol prices increase of 20cents/liter a few months ago. The reduction of subsidy on fuel used by TNB to generate electricity is all but another part of the Government initiative to reduce on its expenditure. 

However, TNB being the only entity providing electrical supply to consumers was used as many would term as a scapegoat by Malaysians. The fact is from the 0.0499/kWhour hike, 82% of that income goes to the Government while the remaining 18% (0.009/kWhour) is for TNB to supplement its capital expenditure.

Despite the tariff hike, the current Government is still subsidizing approximately 14billion per year on fuel. 

Some readers might see this post as pro TNB or pro Government, which I am not. The entire purpose of this post is to discover the truth behind the tariff hike and eliminate the misconception many have towards  a company that has served us faithfully throughout the years.

Obviously there will be the occasional black out here and there which is a norm for any utility company in any country. Yet I choose to believe that TNB as a whole will continuously improve on their service delivery for Malaysians. 

On the other hand, let us not forget that as paying consumers, we have every right to demand for fast response when there's an interruption or when we need a new meter installed.

Cheers and Happy Investing!

P.s : If a certain Youth Chief is criticizing the tariff hike which was initiated by his own ruling certainly tells us a lot huh...

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Monday, 9 December 2013

HLA Cash Promise, What's All The Fuss About?

Most recently, a blog reader of mine highlighted this product by the name of Hong Leong Assurance (HLA) Cash Promise. This product has generated quite a buzz over the past 1-2 years due to its annual guaranteed cash benefits, paid on the first year of subscription. In addition the policy subscriber is only required to deposit a fix amount over a period of 6 years to enjoy the annual guaranteed cash benefit  payout (approximately 20% of the annual fix amount deposited) for 25 years. 

In fact the HLA Cash Promise is intensely debated in a thread at as shared below:

Despite the heated discussion of the product as well as the occasional sharing of experience related to unscrupulous agent trying promoting the product blindly, there's still not much that can be concluded from the product.

I tried searching Hong Leong Assurance website only to find the product disclosure sheet which still lack certain information such as the how the annual guaranteed cash benefit is calculated or how the dividend is calculated.

Google searched the product only to discover a few blogs created by representative/agents of this product. Luckily I manage to locate the brochure for the product from one of the blog. Despite the limited information, I'll try my best to review this product to the best of my understanding. 

Now let us take a look at what are the key points of HLA Cash Promise:

Key Points of HLA Cash Promise
  • This is an Insurance Saving Plan (another common name is Insurance Endowment Plan)
  • This is a 25-year participating endowment plan with Guaranteed Yearly Income. 
  • The Guaranteed Yearly Income is payable from end of 1st policy year up to maturity. 
  • The premium payment term of this plan is limited to 6 years only. 
  • The plan provides coverage for Death and Total Permanent Disability*
  • Upon maturity you will enjoy the following:
    • Guaranteed Maturity Benefit
    • Accumulated Guaranteed Yearly Income (if any)
    • Accumulated Non-Guaranteed Annual Cash Dividend (if any)
    • Terminal Dividend (if any)
*I will not elaborate much on the insurance coverage of this product as I believe many are into this plan due to the attractiveness of the annual guaranteed cash benefit and maturity amount. 

What will you get on a yearly basis?
  • Guaranteed Yearly Income
  • Non-Guaranteed Annual Cash Dividend

Descriptions of the above is shown in the product brochure below:

About Guaranteed Yearly Income
A guaranteed amount paid yearly for 25 years.

Both the brochure and the product disclosure sheet does not indicate how the guaranteed amount paid is calculated. However from blogs providing calculation samples, I believe the rate used to calculated Guaranteed Yearly Income is 20% of the annual amount deposited.

For example;
If you subscribe to this plan and you're depositing RM50,000 per year over 6 years, the Guaranteed Yearly Income is
= 20% of RM50,000
= RM10,000 (paid out yearly to you over a period of 25 years)

You are also given flexibility to do the following with your Guaranteed Yearly Income:

  1. Cash out the yearly cash for immediate usage
  2. Save the cash by depositing with Hong Leong Assurance and let your cash grow with interest over 25 years. (The interest offered by HLA for saving your Guaranteed Yearly Income according to one of blog is 5.25%)

About Non-Guaranteed Annual Cash Dividend
A non guaranteed amount that is declarable annually on survival of the life assured at the end of each policy year beginning from year 1 until maturity.

Once again, both brochure and the product disclosure sheet does not indicate the (%) of the cash dividend as well as based on what principal amount will the cash dividend be calculated.

Referring to blogs providing calculation samples, I conclude that the Non-Guaranteed Annual Cash Dividend is 2% of the annual amount deposited.

For example;
If you subscribe to this plan and you're depositing RM50,000 per year over 6 years, the Non-Guaranteed Annual Cash Dividend is
= 2% of RM50,000
= RM1,000

The same flexibility is given for Non-Guaranteed Annual Cash Dividend, allowing the policy holder to cash out or save the cash.

Total Amount Approximately Obtained from Yearly Income
This is a sample approximate based on the following scenario:

  • RM50,000 per year deposit over 6 years
  • 20% on Guaranteed Yearly Income
  • 2% on Non-Guaranteed Annual Cash Dividend
  • No withdrawal of cash over 25 years, saving it with HLA at 5.25% per annum interest

Calculation of the Sum of Yearly Income over 25 years as shown in the table below:

What will you get when policy matures?
Upon maturity you will enjoy the following:
    • Guaranteed Maturity Benefit
    • Accumulated Guaranteed Yearly Income (if any)
    • Accumulated Non-Guaranteed Annual Cash Dividend (if any)
    • Non-Guaranteed Terminal Dividend (if any)

About Guaranteed Maturity Benefit
One of the blog promoting this product wrongly misinterpret the Guaranteed Maturity Benefit to be the return of the total cash deposited over 6 years. In truth, the Guaranteed Maturity Benefit is paid according to the Entry Age of the policy holder whereby the amount is calculated using a multiplier value of the Guaranteed Yearly Income.

See table below for details of Guaranteed Maturity Benefit calculation

For example;
If you subscribe to this plan at the age of 30, depositing RM50,000 per year over 6 years and the Guaranteed Yearly Income is RM10,000, 
The Guaranteed Maturity Benefit upon Maturity is 
= 12.5 x Guaranteed Yearly Income
= 12.5 x RM10,000
= RM125,000

About Non Guaranteed Terminal Dividend
The value of this dividend is unknown to anyone except HLA. Therefore this dividend will be omitted from any calculation.

What is the IRR of HLA Cash Promise?
In order to calculate the Internal Rate of Return (IRR), the total payout upon maturity of the policy need to be determined.

The table below summarizes the total payout*:

With this, we can now determine the IRR for HLA Cash Promise as shown below:

IRR = 3.62%
Based on the calculated of IRR for HLA Cash Promise of 3.62% (disputable if you do not agree), we see that the rate is almost similar to you keeping your money in a fixed deposit account. This is a huge contrast to the exaggeration written by certain blogs promoting this product.

Do take note that I have excluded the Non-Guaranteed Terminal Dividend which could make a significant difference to the IRR calculation if the value given is big.

In all honesty, the product is considered a great instrument for saving up your money (not investing) and at the same time enjoy the insurance protection. Never the less, if you intend to sign up for this plan, do remember to verify and check on the charges incurred.

Cheers and Happy Investing!

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Friday, 6 December 2013

EPF Posts RM10.11 Billion Investment Income For Q3 2013 - Q3 2013 Income Up 44%

Taken from KWSP Website:

The Employees Provident Fund (EPF) generated investment income of RM10.11 billion for the third quarter ending 30 September 2013 (Q3 2013), representing a healthy year-on-year growth of 44.00% compared with RM7.02 billion investment income generated in the corresponding quarter in 2012.

In a statement issued today on its unaudited investment results for the third quarter of 2013 (Q3 2013), EPF Chief Executive Officer Datuk Shahril Ridza Ridzuan said, “The performance is primarily driven by a more robust equity market on both domestic and foreign fronts, coupled with a significant rise in trading volume in the third quarter. We have also benefited from higher dividend payouts from listed companies due to improved earnings.”

Equities continued to generate a higher proportion of investment income in Q3 2013 amounting to RM5.71 billion or an increase of RM3.37 billion compared with RM2.34 billion recorded in the corresponding period in 2012. Meanwhile, investment income derived from Real Estate and Infrastructure assets surged from RM54.62 million in Q3 2012 to RM429.16 million in Q3 2013, continuing the growth in performance since Q1 2013. 

The higher income from Equities helped offset a fall in income from Loans and Bonds, which was lower at RM2.28 billion compared with RM3.06 billion in the Q3 2012. This was reflective of the overall fall in yields for maturing assets that were reinvested. The higher Q3 2012 income was also due to one-off capital market transactions which were not repeated in Q3 2013. 

Malaysian Government Securities and Equivalents in Q3 2013 posted RM1.55 billion in income, reflecting a nominal increase of 0.18 per cent compared with Q3 2012 while Money Market Instruments contributed RM145.23 million for Q3 2013 income.

“The EPF continues to diversify its investments across markets, sectors and asset classes to provide optimal sustainable returns in the long term. Our global investments offer stable returns on a long-term basis, befitting our risk-return appetite as a retirement fund. We are also able to find opportunities from, and reduce the risk of, asymmetric market movements, such as the improvement in global developed economies and the selldown in emerging market currencies,” Datuk Shahril said.

As at Q3 2013, the EPF’s total overseas exposure constituted 20.39 per cent of its total investment assets based on book value, registering a rise from 18.97 per cent in Q2 2013. During the quarter under review, an additional USD2.50 billion of overseas investments were made and of the total, USD2.25 billion had been channelled into global equity mandates and the balance invested in global bonds, infrastructure and private equities. 

During the same quarter, the EPF also outsourced a further RM1 billion for domestic fixed income mandates.

Datuk Shahril added, “Currently, more than one third of EPF’s total investment assets are shariah compliant. The growth in Islamic finance assets globally presents us with the opportunity to further expand our investments into this space. This is also in line with the Fund’s diversification programme to continuously rebalance our portfolios according to our risk-return profile.

“Our efforts in shaping the Islamic finance industry have led us to be awarded the Best Institutional Solutions Provider in the Islamic Finance News (IFN) Islamic Investor Poll 2013. This is the second year in a row that EPF has received a major award in the Islamic Finance space.”

As at 30 September 2013, EPF’s investment assets increased by RM57.85 billion to RM568.04 billion from RM510.19 billion in Q3 2012. Total contributions of RM12.76 billion received in Q3 2013 exceeded the total amount withdrawn of RM8.85 billion, resulting in RM3.91 billion net inflows of funds for the quarter under review.

On the global economic outlook, Datuk Shahril said, “Even though we see signs of the global economy gradually improving, we remain concerned that the recovery is fragile, given ongoing policy and economic risks in the United States, Europe and China. The recently announced Budget 2014 is positive for the Malaysian economy and fiscal position as it clearly sets the agenda to restructure taxes and subsidies for long-term structural benefits and competitiveness. The EPF will continue with its policy of targeting real returns via prudent asset allocation and investment strategies.”