MPF comparison: choose a scheme with a diversified fund range

In 2011 workers still could not choose their own provider for mandatory contributions in an active employment account, but when consolidating preserved accounts they could pick the MPF scheme that suited them best. AIA’s Pui-Lan Tse advised that fund diversification should be a key criterion.

Why does fund diversification matter?

Because life stages, risk tolerance and market climates all change — the broader a scheme’s fund range, the more flexibly members can switch funds later without changing schemes. An ideal scheme should cover lifecycle funds, mixed-asset funds, bond funds, equity funds, guaranteed funds and money-market funds. AIA’s MPF Prime scheme, for example, offered 25 fund choices, including three index-tracking funds and an Asian bond fund launching that month.

What is the cost of switching schemes?

Switching schemes creates an investment “vacuum period” — even moving to another scheme from the same provider leaves money idle and not growing. By contrast, with a sufficiently diversified single scheme, members could switch funds online or by phone hotline in as little as one day.

Tse’s bottom line: when choosing a scheme for a preserved account or the coming Employee Choice Arrangement, count the fund types in the scheme first, then check they match your needs. To compare schemes’ fund line-ups, use MPF fund search.