Pre-retirement MPF strategy: how to choose between bond, conservative and guaranteed funds

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

As discussed last time, MPF strategy must evolve with life stages — past 50, risk tolerance keeps falling. Nearing retirement, portfolios should glide toward steadiness, and bond funds, the MPF Conservative Fund and guaranteed funds are the low-risk picks — but each has its own character, so do not grab one blindly.

What defines a bond fund?

Low to medium risk, investing mainly in quality sovereign and corporate bonds worldwide for interest income and trading gains. Prices are broadly stable but move with interest rates — suiting moderately conservative members seeking steadier medium-to-long-term returns.

How are conservative-fund fees charged?

In any month the return falls below the prescribed savings rate, the trustee may not levy administration fees. The conservative fund is a money-market fund in short-term deposits and bonds, tracking Hong Kong-dollar savings rates. But note: if a later month’s return within 12 months beats the prescribed rate, the trustee can claw back the waived fees.

What strings attach to guaranteed funds?

The guarantee is conditional, in three main ways: first, a lock-in — no withdrawals or scheme transfers during the term, or the guarantee lapses; second, a limited guarantee period — say three years, after which the fund becomes non-guaranteed; third, withdrawal triggers — only at 65, early retirement, death or total incapacity. Assess honestly whether you can live with those terms before investing.