Information Centre

Amid the market volatility last year, some investment columnists suggested that readers switch their MPF to Conservative Funds, and some of them also compared MPF Conservative Funds management fees with the interest rate level of time deposit. Here are some key facts about MPF Conservative Funds to help you better understand this matter.

What are MPF Conservative Funds?
Every MPF scheme provides a Money Market Fund which invests in short-term bank deposits or short-term bonds. This is a low-risk investment, which targets a rate of return similar to the Hong Kong Dollar (HKD) savings rate.  As the expected return is relatively low, that is why Money Market Funds are also called Conservative Funds.  

A Conservative Fund is more suitable for scheme members who are approaching retirement or wish to reduce investment risk resulting from short-term market volatility. However, it cannot achieve capital appreciation, so its long-term investment return may underperform the inflation rate. Therefore, it is not a good choice for scheme members who have relatively long investment horizon. Although Conservative Funds may help mitigate investment risk when the financial markets are persistently falling, scheme members should understand the inherent risk of switching funds. Switching MPF funds after a significant drop in the market can easily lead to a situation of "selling low, buying high", turning short-term fluctuations into actual investment losses.

Why is it inappropriate to compare the return of Conservative Funds with time deposit rates?
Some may directly compare the return of Conservative Funds with the interest rate for time deposits. In fact, according to the interest rates offered by the three note-issuing banks in Hong Kong, the HKD savings rate was almost 0% in the 12 months until last September. Similarly, the time deposit rates remained at a very low level in the 12 months up to last September. Furthermore, time deposit accounts usually require a lock-in period, and the interest rate depends on the deposit tenor and amount, and whether it is new funds. Therefore, it is inappropriate to compare the return of a Conservative Fund with time deposit rates. 

Will deducting administrative expenses lead to negative return?
There is also a fee control mechanism in place for Conservative Funds. If the return of an MPF Conservative Fund for a particular month is lower than or equal to the MPFA's Prescribed Saving Rate (PSR) for that month, no administrative expenses can be charged by trustees. The PSR refers to the simple average of the interest rates offered by the three note-issuing banks in Hong Kong on HKD savings accounts. If the return of the MPF Conservative Fund exceeds the PSR in any one of the following 12 months, then the trustee is allowed to collect the uncharged administrative expenses to the extent of the excess return after deducting the administrative expenses for that month. Therefore, there will be no negative return caused by deducting administrative expenses in a Conservative Fund. Regarding the PSR, please check the MPFA website for the monthly PSR via the following QR code.