Choosing MPF funds: getting the fund type right matters most

This article is a rewrite of a report from March 2012.

Have you ever wondered whether the fund types in your MPF scheme suit your needs — from MPF equity fund options to bond funds? As the saying goes, fit matters most: the range on offer directly affects your room to switch when markets move. If your scheme lacks a fund for a market you fancy, you can only watch the opportunity slip away.

Which MPF fund is best for me?

No single fund suits everyone: life-cycle funds come in four equity bands, with higher equity weightings carrying higher risk. Ask how far you are from retirement and what losses you can stomach, then check your scheme offers matching types.

What are the main MPF fund types?

Two broad groups: life-cycle (mixed-asset) funds holding equities, bonds and deposits, split into 21–40, 41–60, 61–80 and above-80 per cent equity bands; and bond funds, divided into Hong Kong-dollar and global bonds. At end-2011 about 42 per cent of MPF assets sat in mixed-asset funds.

Beyond the weighting, the target market matters too: a life-cycle fund tilted towards emerging markets is riskier than one focused on developed markets. Simply put, the further you are from retirement, the more risk you can generally bear — but holding an 80-per-cent-plus equity life-cycle fund at age 65 is arguably too risky. (Editor’s note: the original text contained a corrupted character here, reconstructed as “then” based on context.)

Who are bond funds for?

Bond funds invest in bond markets, where the key drivers are interest-rate direction and credit default risk; when risk aversion spikes and money floods into bonds, rising bond prices lift fund returns. If your risk tolerance is low, bond funds are a reasonable option.

The MPF business director at a wealth management firm who wrote the original column stresses these are general observations for reference, not personal advice. To compare fund types systematically, see the guides at the MPF education hub.