A look into the Malaysian Employees Provident Fund (EPF)

Dear Readers

Before I begin, I would like to place a caveat in this article: this article is based solely on my opinion.

The recent downfall of crude oil prices has revealed the vulnerability of the Malaysian economy to the movement of crude oil prices and its reliance, to an extent, on oil money, to fund fiscal policies. Acting in tandem with crude oil prices is the valuation of the Ringgit; Ringgit’s fate is usually sealed alongside the fluctuation of crude oil prices.

Credit: USA Today

Because of the drop in the valuation of Ringgit compared to the US Dollar, import items and commodities (generally traded in USD) are more expensive. This effect has driven the increase of prices of everyday items. This consequently drives inflation up.

Is inflation good?

Inflation is, as Banjamin Graham puts it, “shrinkage of purchasing power”. In other words, the value of your money decreases over time. This explains why a bowl of yummy noodles which costed RM2.50, 10 years ago, is now RM4.00.

However, inflation, when viewed in a macroeconomics point of view, is preferable over deflation. Deflation is the opposite of inflation; where the value of money increases because prices of goods and services decrease over time. You may be thinking,  wouldn’t it be better if my money increased in value every year? Well, not necessarily, because that means you, me and every other humans, would hold off on purchases for the reason that things will get cheaper in the near future. As a result, businesses will suffer tremendously because of the lack of sales. When businesses suffer, so do employees who make up a bulk of consumers.

Having explained the vicious deflationary cycle, it is easy to see why deflation is bad for the health of the economy. Certainly, excessive inflation is not good either –  look at the mess that it had created in Zimbabwe and Venezuela. Hence, central banks are tasked to strike a delicate balance between an inflation which is sufficient to stimulate the economy but would not burden consumers.

Recently, inflation has been a hot topic among Malaysians. This is because inflation has been on the upper-side since the beginning of 2017. In fact, inflation in September 2017 hit 4.3% but eased in October 2017, at 3.7%. I believe that the average inflation this year will be above 3%.

How will inflation affect your savings and investments?

You are all savers and investors as soon as you start earning an income. Most of your first investment is mandated in the form of EPF. EPF doubles as a savings account and an investment account for your retirement. The saving component is derived from the mandated contribution into your EPF, at the rate of between 11% to 8%. Of course, your employer co-contributes between 12% to 13%, depending on your salary.

The investment portion of EPF is achieved by the payment of dividend declared by EPF every year and the reinvestment of that dividend. The effect of the reinvestment of that dividend will be compounded over time until your retirement age is reached. Through savings and investing, it is hoped that you will be able to build a decent nest egg.

Because inflation decreases your value of money over time, your savings and investment in EPF will also be effected.

Malaysia’s average inflation in 2016 is about 2.1%. At the same time, EPF dividend return in 2016 is at 5.7%. That means there is a 3.6% actual growth in our savings and investment in EPF. If all things being equal for the foreseeable future and you no longer contribute to EPF, a 3.6% actual growth means that it will take 20 years for your investment in EPF to double (compounded of course). For example, RM100,000 will become RM200,000 in 20 years. In another 20 years (40 years in total), RM200,000 will become RM400,000.

However, if the actual growth is 5%, with all things being equal for the foreseeable future and you no longer contribute to EPF, it will take you 14.4 years to double up your money in EPF (compounded). For example, RM100,000 will become RM200,000 in 14.4 years. In another 14.4 years (about 29 years in total), that RM200,000 will become RM400,000. In another 11 years (40 years in total), that RM400,000 will become roughly RM714,285.

This illustration, although superficial, shows how a difference of 1.4% (5% – 3.6%) in actual growth, compounded over a lengthy 40 years, could affect your nest egg greatly.

Is EPF doing enough?

It is quite resounding that the majority of Malaysians do not have enough retirement savings. Two thirds of EPF members age 54 have less then RM50,000 in EPF savings. This is due to many factors including the lack or inability to save money, and possibly the low dividend yields declared by EPF.

As illustrated above, even a net growth of 1.4% can do wonders over time. So is it that hard for EPF to yield a 7% dividend yield per year? Personally, I think a 7% dividend pay out per year is not far-fetched or beyond the realm of possibilities (of course not in a financial crisis which has global implications).

EPF, in my opinion, would have to allocate more fixed income investment (which it holds about 51% in 2016) to more dividend-yielding equities (about 42-43%). Because Malaysia is a small economy, there are only so many quality blue chips, bonds and real estate to go around. Hence, it only make sense to invest in overseas assets. In 2016, EPF has 29% of overseas assets which yields 39% of gross investment income. It is important to note that Norwegian’s sovereign fund, the largest in the world with USD 1 trillion in assets, invest as much as almost all of its assets overseas. This is because Norway has a very small population and economy.

I’m sure EPF is aware that overseas market is providing better yields especially when our local market which had seeing red between 2014 to 2016. On the other hand,  the Dow Jones, Nasdaq, Nikkei and Hang Seng are hitting new recent highs.

However, nothing is as simple as it seems especially when there are other factors which may influence EPF’s investment decisions. Government interference may be one of those factors. Section 11 of the Employees Provident Fund Act 1991 allows the government to give the EPF Board directions as to how the Board performs its functions and duties. Those directions must be adhered so long as they do not go against the EPF Act. The government’s influence in EPF can be seen when Prime Minister made a promise that EPF will invest in American infrastructure. That raised a lot of controversies. But at the same breathe, isn’t it good that EPF is seeking to invest overseas instead of Malaysia?

So, what do we want?

Maybe it is time to reform our pension scheme. Maybe it is time to do away with a pension system like EPF. Maybe it is time to introduce a superannuation scheme.

Instead of making it compulsory to invest in EPF, you are required to invest in superannuation schemes which is similar to the Private Retirement Schemes. That way, you have control over your investment through a multitude of investment funds, and at the same time, developing the local financial industry to service this sector. There will be little or no government intervention into the way your money is invested and you are the master of your destiny.

So what are your thoughts? Should we move away from EPF? Or is EPF is reasonably good and flexible as it allows you to withdraw a portion of your EPF to be invested in EPF-compliant funds? Are there other pension schemes which you would like to share?

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Peer-to-peer (P2P) Lending: Maximising gain and reducing risks

Dear Readers

In my previous articles, P2P Financing Tips & Who’s afraid of P2P financing?, I have shared with you an overview of P2P Financing and some tips in choosing a sound SME to invest.

In this article, I will share with you a method to maximise profits in your P2P Lending investment whilst reducing its associated risks.


Reinvesting repayment

Since July 2017, my investment in P2P Lending through Funding Societies Malaysia, has multiplied from 1 portfolio to 3 portfolios.

This rapid expansion was made possible by reinvesting the monthly repayments, from my first and initial portfolio, as they are paid into my account balance, into other crowdfunding exercises. Funding Societies Malaysia makes reinvesting very accessible because the minimum investment amount for a crowdfunding exercise is RM100.

Through reinvesting, I have effectively invested RM1,500 even though I have only invested RM1,000. To illustrate, I have prepared this TABLE.

As you can deduce from the table, I reinvested a total of RM500, in September 2017, that was split into two portfolios of RM300 and RM200 respectively. Now, that RM500, has the opportunity to earn interest, which it wouldn’t have, had it just sat in my account balance (where no interest will be accrued).

Consequently, I am utilising my initial investment capital as efficiently as possible by squeezing every single drop of opportunity there is to earn interest. This is essentially another way of compounding returns – earning interest on interest.

Compounding returns is how wealth is built, over time. The wonders of compounding returns can only be fully taken advantage of when you start investing in the early part of your life. Do this by setting aside a portion of your salary to invest in quality investments such as P2P Lending.

Of course, before committing to any investment, you should stick to a few handy P2P Financing Tips to aid you in sieving out a right SME to invest.

Risk management

P2P Lending, like any other investments, is not immune to risks. The major risk in P2P Lending is the inability of a SME to make repayments associated to the financing. In other words, defaulting on repayments.

However, by picking a financially sound SME in which to invest and adopting proper risk management plan, it is possible to earn a handsome return with relatively low risk.

For example, I have RM454.24, currently, in my account balance (See: TABLE) which I have yet to reinvest. I’m looking into reinvesting RM400 by splitting them into two portfolios of RM200 each. By doing so, I am essentially spreading the risk, should there be a default, by investing in smaller amounts across multiple portfolios. Not only do I maximise my returns, I am also limiting any untoward risk which may affect my investment. That is definitely a win-win scenario.


It has been 4 months since I have started investing in P2P lending and I have gained a return of 3.7% (excluding service charges). I have already achieved a higher return rate than a 12-month-return-rate of most fixed deposits plans in Malaysia. And I did it in just 4 months.

Because of the low default rate, none of my portfolios experienced any hiccups or defaults. As long as I continue reinvesting my returns and capital, and adopting a risk management system, I anticipate that I will be receiving a total return of ~6% (excluding service charge) by year’s end. Not too shabby for an investment timeline of only 6 months.

So, what are you thoughts of this investment strategy? Do drop me a comment.

If you find this write-up helpful, follow me on Facebook to receive future updates and analysis.

Helpful links

Click the link if you would like to know more about P2P financing with Funding Societies Malaysia.

Click this LINK to register an account with Funding Societies Malaysia and earn RM50 when you deposit and invest RM1,000.00 through them.









Who’s afraid of share margin facility?

Dear Readers

Leverage is a double-edge sword.” You may have heard this adage ever so often. Leveraging is the usage of debt to acquire an asset.

There are many forms of leveraging. However. as the heading suggests, we will be sharing our thoughts about share margin facility (“SMF“), through our experience.

Having too much leverage is like walking on a tight rope. Credit: finpipe
What are the benefits of leveraging?

From an investment perspective, leveraging can magnify your gains. This is true when the gain achieved from leveraging is higher than the cost of borrowing.


If the RM1,000.00 which you have borrowed, has achieved a yield of 10% per annum, when compared to an interest rate of 3% on an annual basis (cost of borrowing),  you will have a net gain of 7%. In other words, you have pocketed a gain of RM70.00, which you would not have, had you not used leverage.

Further, leverage also provides you with additional liquidity to take advantage of an opportunity when it arises.

What are the downfalls of leveraging?

Leverage is risky and often works in the opposite by magnifying your losses.


If the RM1,000.00 which you have borrowed from the bank, with a 3% costs of borrowing per annum, incurred a loss of 10% per annum,  you will have a net loss of 13%. That means you have lost RM130.00, which you would not have, had you not used leverage.

In addition, interest, imposed on leverage, is often costly.

What is a SMF?

SMF is a line of credit which is often secured by a collateral. It may be easier to compare SMF to a revolving credit facility (for example, credit card) in that you only draw down funds as much as the credit limit allows.

There are a few components to a SMF, which this write-up intends to touch upon, to assist you in better understanding how a SMF works:

  1. Credit limit.
  2. Collateral.
  3. Margin account.
  4. Interest.
  5. Margin call.
What is a credit limit in a SMF?

Much like a credit card, SMF has a CREDIT LIMIT which depends largely on your disposable income. Once it is approved, you may, at any time, draw down funds, by providing an acceptable share as collateral.


Investor X has a credit limit of RM500,000.00 in his SMF. Before he is able to draw down the facility, he must pledge some shares in a form of a collateral.

What type of collateral does a SMF provider accept?

Most financial institutions accept COLLATERALS in the form of:

  2. Mutual funds.
  3. Fixed deposit.

It is important to note that a certain multiplier is attached to a form of collateral. Usually, a multiplier for fixed deposits, pledged as collateral, is set at 2 times/2X whereas a multiplier of a share, pledged as collateral, is set as 1.5 times/1.5X.

Multipliers are important because they multiply the value of your collaterals in relation to the available credit thus allowing you to control a larger amount from a smaller amount.


Going back to Investor X, he would now like to draw down RM100,000.00 from his SMF which has a credit limit of RM500,000.00, by pledging, either RM50,000.00 of fixed deposit (2X) or RM66,666 worth of shares (1.5X).

What is a margin account?

Upon a successful application for SMF, a MARGIN ACCOUNT will be created for you. A margin account is an account where the drawn down funds are made available. This will also be the account which you will be using  to make purchases of shares through SMF.

The margin account has an associated CDS account with Bursa Malaysia (“Collateral CDS Account“). Shares which are pledged as collateral, and shares which are purchased through the margin account, are held in the Collateral CDS Account.


Returning to Investor X who has decided to pledge 5,000 shares of SCIENTEX as collateral.  He fills out the appropriate Bursa Malaysia Transfer of Securities Request form which will transfer 5,000 shares of SCIENTEX from his personal CDS account to the Collateral CDS Account.

Upon confirmation that the 5,000 shares of SCIENTEX has been transferred to the Collateral CDS Account, his SMF provider makes available a RM100,000.00 line of credit to his margin account which Investor X can then draw down as when he pleases.

Seeing a right moment to make a purchase of shares, Investor X then draws down RM50,000.00 of the RM100,000.00, from his margin account to finance the purchase of 15,000 shares of AIRASIA.

A few months later, he draws down the remaining RM50,000.00 line of credit to purchase 7,500 shares of CIMB.

Therefore, the Collateral CDS Account holds 5,000 shares of SCIENTEX, 15,000 shares of AIRASIA and 7,500 shares of CIMB.

How is interest calculated?

Currently,  INTEREST on most SMF is about ~5% per annum. Hence, the cost of borrowing is quite high.

Interest is accrued on a daily basis, commencing from the first drawn down, on all outstanding credit balance. There is no obligation to make monthly repayments (as there is none per se) so long as there is no margin call.


Going back to Investor X, his first draw down, in the amount of RM50,000,00 was to finance the purchase of 15,000 shares of AIRASIA. Interest will start to accrue on that RM50,000.00, at that point in time, on a daily basis, at 5% per annum. 

If you remember, Investor X, a few months later, made another draw down of RM50,000.00 to purchase 7,500 shares of CIMB. At that point in time, interest will accrue, on the credit balance of RM100,000.00 instead of the previous RM50,000.00.

A costly interest rate is further exacerbated by the fact that any outstanding sum on unpaid interest will be added onto the principal amount (like an interest of a credit card). In other words, interest is compounded.

Hence, your debt grows exponentially because of the compounding interest. In the long run, this will also affect your loan-to-value ratio (“LVR“) (see below). Therefore, you should act sensibly by paying off any accrued interest, which is calculated on a monthly basis, to ensure that your LVR is well-managed.

What is a margin call?

The benefit of a SMF comes with certain obligations. One of such is to maintain a certain fixed ratio between your outstanding credit (principal + interest) and the value of  your collateral or also known as a LVR (loan-to-value ratio).

LVR = outstanding credit ÷ value of collateral

Generally, most SMF providers require that margin account be maintained at or a lower  LVR of 60%. 60% is usually the threshold level. I’ve seen a couple of SMF providers who set a threshold level of 70% (this is much better that a threshold level of 60%).

MARGIN CALL is a demand by a SMF provider that you deposit fresh funds to bring the LVR at or below the threshold level.


Back to Investor X who has been maintaining an outstanding credit amount of RM100,000.00. The value of the shares in the Collateral CDS Account is in the amount of RM166,666.00, in aggregate. Accordingly, Investor X is maintaining a LVR of 60%.

Unfortunately for Investor X, the share market crashed as a result of an unforeseeable alien invasion which caused the value of his collateral to fall by 50%. Consequently, the LVR of his margin account has skyrocketed to 120% (RM100,000.00  ÷ RM83,333.00). 

To maintain a LVR of 60%, he must pare down the outstanding credit in his margin account (by injecting cash) for a failure to do so may cause the SMF provider to sell off the shares in the Collateral Account, and demand any shortfall from Investor X.

What to consider prior to applying for a SMF?

Roughly, prior to obtaining a SMF, you should give consideration to the following factors:

  1. Whether your broker is in the list of approved brokers by the SMF provider?
  2. What is the LVR?
  3. What can be used as collateral?
  4. What is the multiplier attached to each collateral?
  5. What is the prevailing interest rate?
  6. Will interest be compounded?
  7. What shares are acceptable to the SMF provider for the purpose of a collateral? [Because of their volatility, penny stocks may not be in a list of shares which are acceptable by the SMF provider as collateral.]
  8. Is there a base price value for collateralised shares and are you comfortable with that base price value? [A base price value means that even if the share of, say MAYBANK, is RM9.80 in the market, the SMF provider will only accept a base price value, of a share of MAYBANK, as RM8.00, for the purpose of accepting the share as a collateral. In other words, your shares may not worth much as collateral.]
  9. Is there any flexibility to pare down your credit limit?
  10. How much is the stamp duty? [Stamp duty depends on the credit limit – if we are not mistaken.]
  11. How helpful is the sales team? [From your interaction with the sales team, we recommend that you gauge their service performance. You need a SMF provider which provides a helpful service.]

Debt should not be connoted as a form of negativity. There are good debts and there are bad debts. An SMF is what we consider to be a good debt. It allows one to generate income from it. On the contrary, mounting debts on a credit card to fund your lifestyle purchases are bad debts.

Leverage should be viewed in a holistic manner in one’s portfolio and it can be utilised in many different ways, as long as the need for capital arises. Hence, our stance is that every investor should have a margin account even if there is no impending need for it yet. Like substituted soccer players, you can keep them on the sideline and only put them to play when it is necessary to do so.

So what are your thoughts about leveraging and SMF in general? Do leave a comment.

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P2P Financing Tips

Dear Readers

In my last write-up, P2P financing update, I brought all of you to date with my P2P financing investment through Funding Societies Malaysia. As highlighted previously, P2P financing yields much better returns than traditional investment bonds and fixed deposits. Consequently, it is an effective investment to combat inflation.


Every investment has an inherent risk. P2P financing is no different. The major risk of P2P financing is the risk of a default by a borrowing SME. Fortunately, the default repayment percentage through the platform established by Funding Societies Malaysia is a negligible ~2%.

As for me, I have received 3 monthly repayments (July, August and September 2017) out of an agreed 6 monthly instalments. I am at the midpoint of the repayment schedule which has been a breeze thus far. I do not foresee any hiccups in receiving all of my remaining capital plus interest.

Business Term Financing Fact Sheet

Funding Societies Malaysia makes available, to all of its registered investors, a Business Term Financing Fact Sheet (“Fact Sheet“) for crowdfunding purposes. The Fact Sheet contains all of the necessary information regarding an SME including its financials over a certain period of time. This information is obtained by Funding Societies Malaysia through a due diligence process.

Unfortunately, Fact Sheets are confidential and only accessible to registered investors. Hence, I am unable to disclose the Fact Sheet of my investment. However, Funding Societies Malaysia was very accommodating when they provided a sample Fact Sheet which can be obtained by clicking the link HERE. As the format of the sample Fact Sheet is similar to that of the format of other Fact Sheets, is therefore ideal to be used for illustration purposes.

For convenience, I will refer to the SME in the sample Fact Sheet as Chocolate SME. As you click on the above link, you will notice that there are several headings in the sample Fact Sheet. The headings and their contents are listed in the table below:



Financing Details Contains all of the terms of the financing including financing tenure, simple interest rate, effective interest rate (compounded) and other conditions of finance.
Investors’ Repayment Schedule Contains an anticipated repayment sum which investors are to receive for each instalment until the end of the tenure.
Company’s Summary

Contains vital information on the SME including its incorporation date, the nature of the SME’s business, paid up capital, employees, existing litigation, any blacklist and financing records.

Financing records will summarise the SME’s other financial commitments with other lenders.


Director’s & PG’s Summary Contains vital information about all of the directors of the SME.
Financials Contains the past audited financials of the SME.
Financial Ratios Contains an evaluation of the financials of the SME.
Bank Statement Summary Contains a snapshot of the SME’s bank accounts.
Risk snapshot Contains an outline of the risks associated with the SME.
Comments Contains important highlights made by Funding Societies Malaysia.

The sample Fact Sheet contains information which you may analyse to make an inference as to the sustainability of the business and financial liquidity of Chocolate SME.

However, as a prudent investor, you should nonetheless read and understand all of the contents of a Fact Sheet. For the purpose of this write-up, allow me to list some of the major considerations which you should take into account prior to deciding whether to invest in Chocolate SME.

First consideration: Nature of business

Chocolate SME is a manufacturer of cocoa products in Malaysia, mainly chocolates. The chocolates are sold to chocolate retailers including the ones in Langkawi.

As excited as you are, at the thought of investing in a chocolate confectionery manufacturer,  you will need to satisfy yourself of the risks involved in Chocolate SME’s business.

But what makes a business risky? Well, any two persons looking at the same business may reach a different conclusion about the sustainability and risks associated with that business. Hence the answer to that question is better left to your knowledge, experience, power of observation and common sense.

For example, if an SME is in the business of selling typewriters, I would categorise it as a risky business. It is apparent, through my knowledge, experience, observation and common sense that not many people, if at all, are still using typewriters.

As chocolates is a popular confectionery and there is a strong demand for it in Malaysia – especially in a tax haven like Langkawi. Therefore, there is no reason for you to discount the sustainability of Chocolate SME’s business.

Second consideration: Debt repayment history

Ever heard of the saying, “History repeats itself”. The knowledge of the debt repayment history of an SME is crucial in gauging whether it has the means to make timely repayments.

In the case of Chocolate SME, the “Payment Behaviour and Financing Record” item of the Fact Sheet indicates that Chocolate SME has a good payment history across 2 existing accounts. That means that it is truly committed and financially capable of satisfying its debts.

Third consideration: Current ratio

The “Financials” part of the sample Fact Sheet consists of a summary of the income statement (the upper part of the Financials) and the balance sheet (the lower part of the Financials) of Chocolate SME. Some parts are blacken out as the information is not currently available.

With the available information, you should analyse whether Chocolate SME has too much debt for its own good in the short term. Why short term? It is because the financing tenure is only for 12 months (See: “Tenure” under the heading of “Financing Details”) . Therefore, it is only necessary to look at the ability of Chocolate SME to service its short term debt.

For the financial year-end (“FYE“) 2016, Chocolate SME had about RM2.7 million in current asset. Current asset is classified as an asset which is likely to be converted into cash within a year. For example, inventories are one of such types of assets because they can be easily sold in return for cash. Other types of current assets are cash (or its equivalent), equipment and receivables (money owing by debtors).

On the other hand, in the same year, Chocolate SME had about RM370k in current liabilities. Current liabilities are classified as moneys due to creditors within a year and are usually short term debts and account payable (to utility provider, suppliers and etc).

As a general rule of thumb, you want to invest in an SME which owns more current assets than current liabilities. This can be measured by using a current ratio.

Current ratio = (current assets ÷ current liabilities) x 100%

The current ratio of Chocolate SME for FYE 2016 was about 720%. This means, for FYE2016, Chocolate SME had roughly 7.2 times more current assets than current liabilities. Very impressive indeed.

Fourth consideration: Inventory turnover ratio

An inventory turnover ratio is simply a measurement of the effectiveness of an SME in dealing with the sales of inventories. In other words, how good is Chocolate SME in selling their inventories. Why is this relevant? This is because the more inventories are being sold – the more income that is generated by Chocolate SME. And by having more income, there will potentially be better cash flow to pay off outstanding financing liabilities.

An inventory turnover ratio is obtained by dividing the cost of goods sold with the average inventory. The higher the ratio, the better.

Inventory turnover ratio = cost of goods sold ÷ average inventory

For FYE2015, the inventory turnover ratio was at 6.70. This means the inventories were sold 6.7 times over during the course of FYE 2016. Even though it was lower than the than the 7.14 and 7.74 recorded for FYE 2013 and FYE 2014 respectively, that difference is not too far off.

Fifth consideration: Receivables Turnover

Receivables turnover ratio is a measure of how efficient Chocolate SME is able to collect receivables. Receivables means money/accounts to be received by Chocolate SME from its debtors. The more money Chocolate SME receives, the better it is for its cash flow. Consequently, a better cash flow translates to a better ability to pay monthly financing repayments.

A receivable turnover ratio is calculated by dividing net credit sales with the average account receivable. The higher the ratio, the better.

Receivable turnover ratio = net credit sales ÷ average receivable

For FYE 2015, the ratio was 7.40. This means that Chocolate SME was successful in collecting 7.4 times the average receivables during the course of FYE 2015. The ratio of 7.40 was slightly lower than the 8.75 and 8.37 recorded for FYE 2013 and FYE 2014 respectively but not by a huge margin.

Sixth consideration: Risk Snapshot and Comments

The Fact Sheet also contains Funding Societies Malaysia’s comments and observations of the financials and the risks associated with an investment in Chocolate SME.

I find that these observations are insightful as I was able to discern that:

  1. Chocolate SME’s products are sold on a healthy profit margin which has been improving other the years.
  2. The purpose of the financing is to expand its production capacity. I would be less inclined if the purpose of the financing is to pare down other outstanding debts.
  3. The directors of Chocolate SME are experienced business people.

Before I end, I just want to reiterate that the above considerations are not meant to be exhaustive in nature. There are many other considerations which you can take into account in determining whether a SME has a sustainable business model with the means of making financing repayments.

And more importantly, I hope that this write-up will arm you some guidance, courage and the confidence to nudge you into investing in P2P financing as a means to diversify your investment portfolio.

Your safeguard to the risks in every investment, including P2P financing, is knowledge.

Till then, happy investing!

Helpful links

Click the link if you would like to know more about P2P financing with Funding Societies Malaysia.

Click this LINK to register an account with Funding Societies Malaysia and earn RM50 when you deposit and invest RM1,000.00 through them. 

If you find this write-up helpful, please hit that like and share buttons on my Facebook for more updates and analysis.


Becoming Warren Buffett

Dear Readers

Ever thought how Warren Buffett became Warren Buffett?

HBO Documentary shows an interesting insight on the life of Warren Buffett.

Do enjoy.


P2P Financing Update

Dear Readers

In my last article, Who’s afraid of P2P financing?, I shared about my initial experience of P2P financing through Funding Societies Malaysia. So, if you haven’t read Who’s afraid of P2P financing?, I strongly suggest you give it a go.


Now, not everyone has the appetite for the volatility of equity investment (shares investing), and its derivatives. But, at the same time, I am sure most of us are seeking other investments which may yield better returns than conservative investments such as fixed deposit and bonds. This is because we are living in a low interest rate environment ever since the last global financial crisis in 2008. Interest rate in Malaysia, although higher than most developed economies such as Japan, USA and Europe, has remained stagnated since 2008. Low interest rates couple with higher inflation will see your hard-earned savings slowly diminishing, in terms of purchasing power.

Between 2008 and 2016, fixed deposit in Malaysia,  on average, yields a measly 2.85%.

deposit rate malaysia

Exacerbated by a rising inflation rate since the beginning of 2017, which has been hovering around 4% mark and hit a high of 5% in March 2017, higher inflation rate may have nudged us to look elsewhere for higher yields other than the low return generated by fixed deposits.

As for me, I only maintain a minimum amount in fixed deposit for a rainy day. My logic is simple; putting too much money in cash is not going to benefit me in the long run.  In fact, it may be detrimental. Hence, this is where P2P financing comes into the picture as it provides an opportunity to achieve a balance between a manageable risk and considerable return.

So, let’s get down to it.

What is your experience of P2P financing with Funding Societies Malaysia?

I am pleased to report that I have received my first monthly return from a crowdfunding which began in May 2017. I have made an initial test investment of RM1,000.00 in a crowdfunding exercise which raised RM1 mil for a small and medium-sized enterprise (“SME“). I did this after satisfying myself of the viability of the venture by carefully reading the investment fact sheet provided by Funding Societies Malaysia (think of it like a product disclosure statement).

Funding Societies Malaysia also performs stringent due diligence and credit assessments to sift out SME with bad creditworthiness – like how any banks would conduct themselves before approving a financing facility.

In this particular crowdfunding exercise, the investment tenure is for 6 months with an interest rate of 10% per annum. That is effectively, 5% interest over the course of 6 months (excluding service fee). Some crowdfunding exercise may yield up to 16% per annum (even after deducting service fee).


So for July 2017, I received RM174.99 from the investment, of which, RM166.66 is principal and RM8.33 is the interest (or the yield). RM1.74 (or 1% of investment) is deducted from RM174.99, as service fee for Funding Societies Malaysia, thus leaving me with a balance of RM173.25.

A thing which I am particularly fond about P2P financing is that the money received from the instalment repayments can be reinvested, in another crowdfunding exercise, as soon as it is made available to me. In other words, if there is an available crowdfunding exercise (there are about 2-3 crowdfunding exercises per month on average), I can reinvest my balance of RM173.25 through Funding Societies Malaysia. Hence, I am constantly generating income, as I should, because inflation never sleeps.

In my case, a yield of 10% per annual (excluding service fee) is handsome and definitely ample to tackle a rising inflation.

How would you rank P2P financing against fixed deposits and bonds in terms of yield?

Because P2P financing via Funding Societies Malaysia could potentially yield up to 16% of interest per annum (after deducting service fee), it has a return which is much higher than that of fixed deposits and most investment grade bonds (the AAA or AA-rated bonds).

See, by taking on an acceptable risk, you could be in a position to potentially receive a yield of about 4-5 times higher than that of the yield from a fixed deposit.

How does P2P financing stack up against investment in the share market (equity)?

P2P financing is an investment in debt as oppose to an investment in shares (equity). Hence, it has zero correlation with the performance of the share market. In spite of that, the yield from P2P financing is comparable with the yield from investing in the share market, which averages to about 7-10% per annum, in the long run.

Furthermore, P2P investing is definitely a suitable investment for those who cannot stomach the volatility of the stock market (like my mum) or for those looking to balance their portfolio with some high-yield debt investing (like me).

As an investor, I can truly appreciate the element of certainty of the return from P2P financing. For example, I know beforehand the return of investment which I will be getting from the get-go.


P2P financing is definitely a strong contender to other conservative investment such as cash or bonds. On the other hand, equity investors could also benefit from a high-yield diversification into P2P financing.

Like any other investments, the element of risk is inevitable and should be accepted as part and parcel of investing. With proper risk management, the risks involved in P2P financing can be greatly reduced.

In my next write-up about P2P financing, I will share some considerations which I personally make before investing in a particular crowdfunding exercise. Such consideration is part of my risk management strategy which I hope will be useful to you.

So how do you find P2P financing? Do drop me a comment.

Until then.

Helpful links

Click the link if you would like to know more about Funding Societies Malaysia.

Click on this special LINK should you would wish to sign up and create an investor’s account with Funding Societies Malaysia.

If you find this write-up helpful, please hit that like and share buttons on my Facebook for more updates and analysis.


Stock watchlist

Dear Readers

It’s almost the end of June. What an interesting month on Bursa. Market volatility started warming up after the Trump-Comey scandal; another Watergate in the making which will unlikely result in an impeachment.

After that, the market got hit when the Feds decided to hike interest rate. Even though this was expected, the effects of such rate hike has dented the mood on Bursa. There is a likelihood that foreign funds may decrease their exposure in the Malaysian equity market.

However, let’s not be swayed by things which are out of our control. Remember, the Malaysian economy is doing fine and if you are investing in a company with good fundamentals, there is nothing which you should be concerned about.

This brings up to the purpose of this write-up. There are companies which are fundamentally sound but are suffering minor hiccups every now and then either because their earnings are below market’s expectation, their businesses are affected by external factors i.e. hike in prices of commodities, purely market sentiment or a combination of all or any of the said factors. Yet nothing has changed, at the core of their businesses, which warrants concerns.


Today, we will look into 4 companies which have fallen out of favour by the market in recent time. This is not a recommendation, or anything of that sort, to be acted upon. Treat this write-up as an idea and rely on your own research.

  1. Maxis. From a high of RM6.60 in May and to a low of RM5.60; that translates to a 17% discount on Maxis Bhd’s share price. Partly to be blamed is a tighter competitive environment between the telcos, caused by price wars, and Maxis’ more recent private placement of newly issued 300 million shares which raised about RM1.66 billion. The fund raising will be used to pare down its borrowings. This of course raised the concern of share dilution which in turn affected its share price.
  2. BjFood. Berjaya Food Bhd posted its maiden loss in its last quarterly report for the first time ever since it went public. Earnings were dragged by the closures of non-performing Kenny Rogers Roasters (“KRR“) restaurants which resulted in an impairment to its earnings. Its Starbucks business remains the only growth impetus. This can be seen from its top line growth (revenue) which grew at a stupendous rate of about 9% from FY2016 to FY2017 notwithstanding the drag from KRR. BjFood share price looks enticing @ about RM1.55 from a high of RM1.90 in May 2017. That is a 22% drop. I reckon that the company will be more profitable if it runs a pure Starbucks business. However until that day comes, expect earnings to be unexciting. Regardless of the setbacks, Vincent Tan was not perturbed from accumulating about 4.6 million shares since 29 May 2017. For more information about the company, please refer to my analysis of BjFood.
  3. Malakoff. Malakoff Corporation Bhd is like a bleeding hemorrhoid that never stops bleeding. Malakoff’s share price has decided to take a plunge to an all time low of about RM1.06. Having gathered more information about Malakoff, I do not expect its share price to rebound above its listing price of RM1.80 anytime soon due to worries of its future earnings (lower tariff on extended power purchase agreement) and the outage which plagued its newest coal-fired flagship plant,  in Tanjung Bin,  from March to May 2017. On the plus side, it paid out about 7 cents of dividend in FY2015 and FY2016. If things play out the same in the current FY2017, you can’t really complaint about a 6.6% dividend yield @ RM1.06. Keep a watchful eyes of its next quarterly report to absorb and gauge the risk associated with Malakoff’s business. For more information about the company, please refer to my analysis of Malakoff.
  4. SEM. 7-Eleven Malaysia Holdings Bhd, like its related company, BjFood, by virtue of common substantial shareholders, is also feeling the heat. Its shares has gradually been beaten down to the current RM1.40 since the start of the year. This is synonymous with a decrease in earnings caused by higher overheads namely store expansion and an increase in employees’ wages and rents. The company also blames logistical reasons for the slow sale in February and March 2017. Further, shareholders did not view the company’s proposed issuance of 616.69 million new warrants in a positive light. Because of that the said proposal was scrapped earlier this month. On the plus side, Vincent Tan has been accumulating about 24 million shares since end of April 2017.

I do not own shares in any of the companies listed above.


Who’s afraid of P2P financing?

Dear Readers

My last article, Who’s afraid of mutual funds?  did stir up curiosity about mutual funds and their decent yields compared to stock picking in the stock market. The apparent lack of investment knowledge, amongst Malaysians, is quite troubling especially when Malaysians are enduring higher inflation after fuel subsidies were scrapped.

Inflation is your biggest enemy. It seeks to undo all the wealth that you have accumulated. The only resolution against inflation is investing and I hope that this blog serves to disseminate investment knowledge which will be acted upon.

Today, I will be talking about P2P lending. Just so you know, this post is about my first-hand experience in P2P lending, as your worthy guinea pig.

What is P2P lending?

P2P lending or peer-to-peer lending means the coordination of a group of people (either individuals or legal entities) to pool in money (crowdfunding exercise) for the sole purpose of lending the said pooled money (or principal) to a borrower.

Credit: Bankrate

In exchange, the borrower (usually a business seeking short-term financing) promises to repay the principal, and on top of that, the interest, over a set period of time.

Your investment return is the interest on the principal.

Most, if not all, P2P lending operators run an online platform.

Is P2P legal in Malaysia?

In case you are wondering, yes, P2P lending has been legalised in Malaysia. These P2P lending operators have been given the go-ahead, in 2016, by the Securities Commission.

What are the potential returns?

The rates are as competitive as those offered by institutional lenders on the premise that the lending is unsecured.

Unsecured lending is where a lender lends without the need for a borrower to offer a collateral as security. Because there is no collateral, the interest rate is relatively higher than the interest rate offered by lenders for secured lending. Of course, other factors are also taken into account in determining the interest rate such as:

  1. the credit worthiness of the borrower;
  2. nature of the borrower’s business (a business in a high risk industry would be offered higher interest i.e. technology industry)

From my observations, the interest rate is within the ballpark of 10-14% per annum. It is relatively higher than most conventional debt investments such as bonds, debentures and fixed deposits (but junk bonds may offer surprisingly good returns).

What are the risks?

The main and obvious risk is the risk of default by the borrower.

Other risk may include the P2P lending operator going under which may be more of an inconvenience or nuisance rather than a risk of a loss to your investment. This is because the pooled funds are segregated and held entirely by a trustee appointed by the P2P lending operator.

What does a P2P lending operator do?

The P2P lending operator establishes a platform to accommodate both, lenders and borrowers. For example, a business, in need of a lending, may approach the P2P lending operator. On the other hand, a P2P lending operator actively promotes its platform to investors so that there are sufficient  members to fund the lending.

When a potential borrower has fulfilled the credit requirements and is given the green light, the P2P lending operator will invite members, on its platform, to crowdfund the lending. Only after the crowdfunding has reached its intended target, the borrower is able to draw down on the lending.

For example, should a potential borrower requests for a lending amount of RM1 million, members would have to pool in their money to reach the said RM1 million mark. That must be done within a certain period of time which is predetermined by the operator. Only after the funding achieves the intended RM1 million mark would the fund be lent to the borrower.

If the fund fails to achieve the targeted RM1 million, within the predetermined period of time, the P2P lending operator may extend the crowdfunding time.

Investors also give an authority to the P2P lending operator to pursue debt recovery should a default arises.

What are the disclosures provided by P2P lending operator to members?

Like any regulated investment, the P2P lending operators are obliged to disclose the risk associated with the investment and also pertinent information about the borrower which includes:

  1. The terms of the lending (the amount of the lending, whether the borrower pays in monthly installments etc)
  2. The nature of the business of the borrower.
  3. The entity that owns the business (whether it is a company, partnership or sole proprietor)
  4. A background of the borrower (whether it is solvent, involved in litigation or blacklisted by any credit rating agencies)
  5. A summary of the directors of the borrower, if applicable.
  6. A past 3-year and current year financial report of the borrower (Profit and Loss and Balance Sheet).
  7. Bank account statement (monies in the bank account(s) of the borrower).

However, information which can identify the borrower’s identity remain undisclosed.

Be sure to understand the associated risks in this type of investment before pursuing any crowdfunding exercise.

Any tips to ensure maximum gain and minimum risks?

Do not put all of your eggs in one basket

There are usually a few crowdfunding exercises a month.  Say, if you have RM5,000, split your investment into 5 portions and invests them in 5 different crowdfunding exercises. That way, if one defaults, you will not lose all of your investment as illustrated below:

1 crowdfunding exercise x RM5000 x 10% per annum = RM500

5 crowdfunding exercises x (RM1000 each x 10% per annum) = RM500 (but risk of losing all of your investment is spread out)

From the illustration above, you stand to gain the same amount of return but your risk is substantially mitigated.

Be selective. It’s your money, after all

Read through the borrower’s financials, especially for the borrower’s cash flow statement and its ability to service short-term debt. It the cash flow is too constraint, move on; don’t attempt to take the plunge and hope for the best. A casino is where you should be if you want to indulge the latter.

What are the fees involved?

Generally, the P2P lending operator will get a 2% cut from your profits. Hence if the interest rate is 10%, you will effectively get an 8% return.

Any tax implications?

As much as we all hate to pay tax, unfortunately, the returns from P2P lending is taxable as it is considered by the good people of the Inland Revenue Board as interest income.

What P2P lending operator on which you are basing this article?

I am subscribed to Funding Societies Malaysia. There may be other better ones out there.

I suggest that you subscribe to more than one P2P lending operators for regular crowdfunding exercises. However, please do your research as fundraising exercise may differ from one operator to another.

My final thoughts

P2P lending is one of the most innovative ways of fundraising. It benefits individual investors, seeking good investment returns, and also borrowers, seeking for competitive borrowing interest rates.

Like all investments, there is an inherent risk of a loss. However in this case, be prepared to lose all of your investment if a borrower goes bust. On top of that, the issue of taxation may arise.

Nonetheless, with effective risk management, i.e. do not put your eggs in one basket, and research, P2P lending may be viable over the long run especially for those who can’t stomach the volatility of the stock market.

Do share this post and subscribe to learn to let your money work harder for you!



How the economy works?

Dear Readers

Everyone knows that the economy drives very facet of society; from you and me, to your average household, your employers and their clients and ultimately the government and the country.

Understanding the economy will assist you to understand the market better. I most certainly can’t explain the economy to you but Ray Dalio could in his animated video: How The Economic Machine Works.

Ray Dalio is the billionaire founder of Bridgwaters Associate, one of the world’s largest hedge funds. If the name Ray Dalio is familiar to you, you may recall that he predicted the 2008 recession in the USA.

Two things to take away from the video: debt and spending.



Who’s afraid of mutual funds?

Dear Readers

I’m certain everyone has heard of the cliché that mutual fund is overpriced and underwhelming in terms of its returns comparably to investing directly in the stock market.

Undeniably, mutual funds are not for everyone. However, for those clueless beings who are sitting on the fence as to whether you should jump on board the mutual funds bandwagon, allow me share my thoughts about mutual funds and how they can benefit you, as they have for me.

Credit to 

What is mutual fund?

Mutual fund is a vehicle to enable an investor to pool in his/her money with other investors. The collective pool of monies are managed by a qualified fund manager; not eager college grads.

Mutual funds are highly regulated by the law and are required to provide full disclosure to potential investors in a form of a product disclosure statement (“PDS“). Think of PDS as a prospectus of sort.

A PDS sets out:

  1. the objectives of the fund;
  2. suitability of the fund with regard to an investor’s risk profile;
  3. where your money will be invested;
  4. how the fund is to be benchmarked; and
  5. the sales fees, the trustee fees and the annual management fees, among others.

Should you complete a read of the PDS, you will be fully informed as to the suitability of the fund with reference to your risk profile and investment goals.

Types of mutual fund

There are many varieties of mutual funds. The major ones are:

  1. equity (publicly traded stocks);
  2. private equity (shares of companies which are not traded on the stock exchange);
  3. bonds (debts);
  4. fixed deposit (debt); and
  5. commodities.

With such wide array of types of mutual funds, mutual funds can no longer be described as an one-size-fits-all investment as an investor could easily find a fund to match their risk profile and investment goal.

Why should you invest in mutual fund

Look, no one likes handing over 1%-2% of the total value of your investment/portfolio to fund managers in the form of management fees. That is especially true if fund managers failed to outperform a fund’s intended benchmark or when a fund barely reached your intended investment goals.

However if you have a bad experience in investing directly in the stock market, or maybe you don’t have the necessary discipline or the know-how, or just plain busy, you may find mutual funds a delight.

This is because mutual funds can be an excellent alternative to investing directly in the stock market (especially when investing in equity funds) if you do not have trust issues over the notion of parking your money under someone’s care or you are not disgusted by the idea of paying someone a “fee” for managing your portfolio.

Further, a mutual fund is usually well diversified and often containing a basket of holdings in a variety of stocks or bonds.

Can mutual funds give a satisfying result?

I can answer this with much affirmation.

I am currently investing in mutual funds apart from investing directly in the good ol’ Bursa. I choose to invest in equity funds which are investing in the overseas market.

For example, one of my funds invests in the Asia Pacific region. That region includes China, Korea, Taiwan, Singapore, Malaysia and Australia (I think). The return is decent. About 12-13 percent per annum. It’s currently at 8% only because I’ve diluted the paper profit by investing more money into the fund.

Another fund that I invest is a fund that invests in technology counters such as Apple, Samsung, Tencent, Intel, AMD and the lot. Its main playground is Nasdaq. Up by 23% from a year ago, its performance is nothing short from impressive.

Mind you, profits made from these funds have been deducted of their 1%-2% management fee. If memory serves me well, all fees associated with a particular fund is calculated and deducted daily.

The way I see it, I take advantage of the geographical access that mutual funds provide by allowing me to invest in say, Apple, without actually having to go through all the paperwork and  tax filing associated with a direct purchase of Apple stocks.

Where do I get my funds?

Sales fee associated from the purchase of a unit trust from a bank may be as high as 5%-6%. That means an investment of RM10,000.00 would incur a RM500-RM600 sales fee and you start off with an initial investment of RM9,500.00.

I tend to avoid purchasing unit trust from banks all together. Instead I recommend Fundsupermart. It is a decent online mutual fund distributor with many funds to choose from, good customer support and low sales fee (about 2%-1.75%).

However, if you have to purchase funds from the banks, ask for a discount. Because of the highly competitive nature of the mutual fund industry, some banks are able to offer a 2%-3% sales fee.

Should I be afraid of mutual funds?

You don’t have to be.

Give it a go I say. Test the waters by investing a small portion of your money in a reputable fund of your picking. You’ll never know, the results can be rather pleasant.