Does the MPF Conservative Fund protect capital? It was renamed in 2009 over just this confusion

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

Many members see the “MPF Conservative Fund” name and assume capital protection. The MPFA renamed it from “capital preservation fund” back in October 2009 — precisely because the old name misled. Conservative does not mean capital-protected. That is lesson one.

Why is capital not protected?

Because beyond Hong Kong-dollar deposits, these funds hold 40–60% in Hong Kong-dollar fixed-income bonds. Bond returns move with yields and prices; a bad stretch can leave returns below savings rates. Even matching savings rates, trustees still pay the 0.03% compensation-fund levy and professional indemnity insurance on net assets — waiving management fees does not equal capital protection.

What about guaranteed funds?

Guaranteed funds do carry capital or return guarantees — with strings attached (lock-ins, limited guarantee periods, restricted withdrawal triggers). Conservative funds are merely low-volatility. Do not confuse the two.

When does the conservative fund fit?

Consider it only within five years of planned retirement. At end-March 2012, 11.7% of MPF assets (about HK$45.7 billion) sat in conservative funds, far above other money-market categories. But in high inflation its meagre returns may not keep up — the young who lean on it too hard risk watching inflation devour their balances. Before choosing, always read the fact sheet’s fee model and track record.