How MPF funds actually work, explained

Your first paycheque comes with an automatic MPF deduction — but where does the money go — in other words, how does MPF work? Professor Kam, founder of MPF University, answers through the questions of Macy, a young worker starting her first job.

How do contributions become fund units?

Your employer enrols you; the fund manager buys units for you. After joining, your employer registers you with its chosen MPF scheme and you pick a fund or portfolio that suits you. Each month your contribution plus your employer’s is passed to the trustee, and the fund manager of your chosen fund buys fund units at the prevailing market price.

How does the fund manager grow your money?

Strength in numbers, spread across assets. Pooling contributions from many members builds scale — more investment choices and better diversification. The manager invests per the fund’s objectives and policy, in equities, bonds or bank deposits, and members receive units in proportion. If the fund price rises you gain; if it falls you lose — investment always involves risk.

What if you don’t know how to choose?

Every scheme has a default fund — but it may not suit you. If you make no fund choice, the trustee puts your contributions into the scheme’s default fund. That may not match your needs: a young member could afford to be more aggressive, while the default fund might be conservative. Professor Kam suggests learning the details of each fund — managing your own MPF is itself a way to build investment knowledge.

To compare fund objectives and risk levels, visit MPF fund comparison.