How MPF funds work — and why the default fund may not suit you

Tsz-hong, a university junior of Ah Chik, has just landed a law-firm job and starts after graduation. He knows work means MPF contributions but understands nothing about MPF investing. Ah Chik walks him through how funds work.

How do contributions become investments?

The employer passes them to the trustee; the manager buys units for you. After joining, your employer registers you with its chosen MPF scheme; you pick a fund or portfolio matching your goals and risk appetite. Each month your contribution plus your employer’s goes via the employer to the trustee, and the fund manager buys fund units at the prevailing market price.

How does the fund grow your money?

Strength in numbers, spreading risk. Pooling many members’ contributions 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. But investment involves risk: if the fund price falls, you lose.

What if you choose nothing?

The trustee puts your money in the default fund — which may not match your goals. Every MPF scheme has a default fund for members who make no choice. But it may not fit: a young member should arguably invest more aggressively, while the default fund might be conservative. Ah Chik suggests reading the trustee’s fund fact sheets on objectives and risks before deciding your own strategy.

To see default funds and fact sheets across schemes, visit MPF fund comparison.