MPF Funds Explained: The Conservative Fund Is Not Capital-Guaranteed — It Can Lose in Low Rates

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

Semi-portability arrived in November 2012, and many workers were set to rebuild their retirement strategy. Start with the basics: MPF funds come in five types — conservative, guaranteed, bond, equity and mixed-asset. First up: the conservative fund. It is not a capital-guaranteed fund — that misconception needs dismantling first.

What is the MPF conservative fund?

A money-market fund, limited to short Hong Kong-dollar paper and deposits. Originally called the “capital preservation fund”, it was renamed to stress its conservative strategy. Every MPF scheme must offer at least one; as a money-market vehicle it may only hold Hong Kong-dollar assets — deposits of 12 months or less, or short-term bonds of BBB or above maturing within 90 days.

What is the “prescribed savings rate”?

Miss the line, and the trustee earns no fees that month. If a conservative fund’s return trails the MPFA’s monthly prescribed savings rate — the average Hong Kong-dollar savings rate of the three note-issuing banks — the trustee may not collect trustee or manager fees for that month, protecting members.

What are its pros and cons?

Safest — and weakest at growing money. Its biggest strength is its biggest weakness: no growth engine. In low rates and inflation, its income and appreciation lag inflation badly. Lipper data: 38 conservative funds managed zero or negative growth over the past year — in low rates, “safe” funds can still print red ink, let alone chase 3.5% inflation. The prescribed rate sat near 0.01% for years; even hitting it could not beat inflation.

So is it still useful?

A haven for near-retirees and market timers. For those close to retirement, capital safety is the goal — the conservative fund still works. For wave-riders, it is the shelter after taking profits: park proceeds there, keep principal plus gains, wait for the next opportunity. Young and old each have their use for it.

What is the lesson from 2012?

Conservative does not mean guaranteed — 2012’s first lesson. Semi-portability gave members the right to switch, but switching wisely starts with knowing the fund types. The conservative fund is a tool, not an answer — used right, it is your shelter.