My Two Cents

“Let me give you my 2 cents’ worth”  - the common phrase used by someone who would want to voice their opinion in a manner that is as diplomatic and non-offensive  as possible.  Many would say that it doesn’t cost a thing to give an opinion. Well, tell that to those who have been put behind bars under the Sedition Act of Malaysia.

There is a 3 fold pandemic delirium growing in this country. They are:

1.       The Parliament strongly believes in an “Implement first and study later” policy.

2.       We have an Inspector- General of Police (IGP), who seems to be undergoing a mid-life crisis. By becoming a uniformed vigilante and taking laws into his own hands he now decides what is Seditious  and what is not… Making Malaysia a safe haven… Taking down one activist at a time.

3.       GST is… Well, let me put it this way. A plain idea, if thought up by a brilliant mind, becomes brilliant. If a brilliant idea, by a plain mind, becomes plain.

Diva-central a.k.a the Parliament, is giving rise to dramatic politicians who seem to be strongly spear heading the “Implement first and study later” policy if not in all, most policies. It is their collective conscious efforts of taking this idea to a whole new level by which they hope to actively make mistakes and passively learn from them… Should the first line of defense fail then the second line of defense kicks in ; hope for the citizens to forget about it. The failure of the “Implement first and study later” policy has and is costing the country billions and billions of dollars. From the changing of the medium of instruction for Science and Mathematics into English, reverting it, and  re-reverting the revert, has certainly shown that there is a blatant problem when it comes to proper planning in the government. The GST shares the same ill fate. It lacks proper planning. Expecting a computer system to organize and handle everything is just like expecting a super computer to make the user super too. What they have failed to identify is that the computer is only as super as the user. Spending millions on a system, without knowing it’s purpose,  is certainly a waste of time, space and most importantly, resources. GST is indeed an amazing idea to generate income for the nation. But when the people mooting GST fail to under its benefits, they will be unable to explain its benefits to the public at large. Of course if people, irrespective of their walk of life, were to voice out their opinion on the matter, they will come face to face with our mid-life crisised vigilante- he who sedates the seditious!

Recently, the housewives of Malaysia had the privilege of listening to our first lady on her viral video on how to handle GST and inflation. From talking about reasonable tailoring of a baju kurong which starts from RM500 to hair grooming rates which start from a mere RM1,200, she had diligently and boldly tabled revolutionary ideas on such cost cutting measures which the housewives could implement when it comes to handling GST. But what about the working adults? Well, carrying boards and protesting against the GST is not going to help resolve the matter.

 As much as we are expecting the government to explain “why GST is good for us”, the people carrying these boards as a sign of protest should also then be able to tell “why GST is bad for us”. If you ask me, the good part about GST is the fact that it can be the greater source of income for the nation, especially at this point in time. With the pricing of commodities in the market being absolutely jittery, a country with commodity dependence like Malaysia, will face a financial crunch. Applying GST will allow for tax to be applied to every Malaysian, irrespective of race, ethnicity, religion, creed or class. This may in fact be the first step towards removing the quota system that polarizes Malaysians. The bad element however is not the GST itself but rather the implementation. Although having had 5 years to think about it (yes the idea was conceived in 2010), the poor management of the nationwide GST clearly shows that the ones behind the implementation were not serious about the matter. It seems to show that the motto Rakyat Dulu actually is (when enlarged) Rakyat (punya duit) Dulu. The fine prints in life can indeed be frustrating. So what do we do?!

Well, if we can’t eradicate GST (which we honestly should not),  we might as well find ways to overcome it. We have to see to it that our money is invested in mechanisms that have growth. Our upcoming economic scene is going to have a lot of greens and reds. The markets may not be a complete bull run this year but it certainly is not going to be a complete bear either. So, which are the markets that we should look into? Well, let me highlight 3 major markets:

1. Malaysia

2 .ASEAN

3. India.

Malaysia, being the epicenter of the halal industry and trade in the world, would be paving the way for a gigantic inflow of halal type businesses into the country. With the halal businesses being widely accepted globally, being the epicenter certainly entails huge economic benefits. Hence, capitalizing on it is certainly wise. As for ASEAN,it is now the focal point of global businesses. With new growth potential and abundant resources, ASEAN has caught the eye of the global audience. Malaysia, being the chair of ASEAN for 2015, will witness many ASEAN businesses and trade transactions happening through the the country. With goliath projects underway for the ASEAN region, it may be wise to look at riding this wave sweeping through the region. With the total output of ASEAN recorded at about USD 2.7 trillion, the vibrant aura of the region is far from fading. Moving over to south Asia, India,  poised to be the next global super power is seeing a massive national level clean up which is raking in Foreign Direct Investments (FDI). With political stability in place, business proliferation clearly indicated and more importantly a focused and sensible captain of the ship, this argosy is definitely bound to sail great distances. With market giants from India buying out Europe and other parts of the world, stability and growth may be synonymous to the Indian market for the next 3-5 years.

So, let those bickering bicker and bite each other’s heads off.  At the end of the day, they are not the ones paying our bills!

By,

Ashveen Chakravarthy Sekaran

KNOWING ENDOWMENTS

Money…. The artificial resource that has become the basis of life. We spend most of our lives sowing time and effort to reap cash gains. Do we get enough of it? That may depend on the “variables” called the “needs” and “wants”.  However, the recent cry from people, politicians and nations have been unanimous. They all “don’t have money”.  Well, with the cost of living rising and implementation of the poorly planned GST coming to play, purchasing penthouses and diamond rings is going to be difficult for the everyday Joe…

The thought of saving was strongly reaffirmed when we were all educated that in order to purchase a $25 million dollar ring, one has to be diligent enough to save since childhood. With that thought in mind, we need to also know that merely saving it up in a bank account is not going to cut it. With the current rate of inflation recorded at 6%, the actual value of a person’s savings of $10,000 dwindles to a mere      $ 7,339 in just five years. Meaning, your $10,000 will only buy you products worth $7,339 in 5 years. If you place it in a fixed deposit, the dwindling effect is cushioned a little as it drops to $8587. Sure, you are better off keeping it in the fixed deposit. But that is the same as keeping someone who is medically critical from the needed medical aid for the fear of the medical aid itself killing them. Your money needs professional attention… Don’t deprive it.

Options for making one’s money grow are aplenty! But whether or not they are applicable to the current trend is subject to questioning.  It is one such outdated option that what i would like to highlight in this article. The ENDOWMENT PLAN.  Of course, now they come with much fancier names such as the “Guaranteed Cash Back Plan” or “Cash Promise Plan”. These are normally promoted and offered via insurance companies. One such company that is all set at promoting this is Hong Leong Assurance (HLA). You do have almost all the insurance companies offering such schemes. However, the recent blatantly misleading information fed by the representatives from HLA has what has caught my attention. And I have a gut feeling that many reading this article, may have actually invested in this particular product.  Well, let’s have a mini postmortem shall we?

The product promises:

• 1.       Guaranteed cash returns (annual  cash back and one lump sum at the end of the tenure)
• 2.       Insurance coverage
• 3.       Investment returns

Rather than putting it into mere words, I have made a table and then gone on to giving a step by step explanation.  The following is based on an actual quotation tabled to me. Observe:

TABLE 1

Year	Premium (MYR)	Yearly Cashback (MYR)	Death Benefit (MYR)	Total & Permanent Disablement (TPD) (MYR)	Surrender Value ( A) (MYR)	Surrender Value (B) (MYR
1	15,221	3100	116,250	15,221	7,060	6,817
2	15,221	3100	113,150	30,442	16,355	15,740
3	15,221	3100	110,050	45,663	26,711	25,545
4	15,221	3100	106,950	60,884	38,994	37,041
5	15,221	3100	103,850	76,105	52,217	49,220
6	15,221	3100	100,750	91,326	66,258	61,937
7 . . .	0	3100	97,650	0	67,270	61,583
25	0	3100	41,850	0	98,171	52,119
Total	91,326	77,500	41,850	0	98,171	52,119

Scenario A

Based on what they said:

1)      You would need to pay for only 5 years and wait for your money to grow for the next 25 years.

2)      The annual cashback of MYR 3,100, withdrawable every year, amounts to  MYR 77,500

3)      Surrender value A or B based on market performance. But Surrender Value A is what is normally highlighted.

Scenario B

What the table actually shows is:

1)      What you paid for 5 years will be paying for insurance charges, commissions, service charges, policy charges and etc.

2)      You will be collecting MYR77,500 in total via the annual cashback.

3)      TPD cover stops at year 6.

4)      Insurance reduces as years progress (by MYR 3,100). Meaning, should the policy holder, for example, kick the bucket in year 20 (before the maturity of the policy), he will be receiving either

a.       A : MYR 89,901 (if the market performs well)           or

b.      B:  MYR 58,290 (if it performs not that well).

Therefore the total collection would be the MYR 3,100 x 20years = MYR 62,000 + The death benefit of either  A or B.

If A: MYR 62,000 + MYR89,901 = MYR 151,901 and if B :   MYR 62,000 + MYR 58,290 = MYR 120,290

5)      Total return  for 20 years on scenario is A: 66.33% and B: 31.72%. So the simple average for 20 years is A: 3.317% per year and B: 1.59% per year.

6)      Should all be well and good for the 25 year tenure (which we all hope for), the policy owner would receive either

A: MYR 98,171 or

B: MYR 52,119.

So, with the annual collection of MYR3,100  which he had been receiving, the total growth would be:

a.       Scene A : (MYR 3,100 x 25 years) + MYR 98,171 = MYR 175,671.00

b.      Scene B : (MYR 3,100 x 25 years) + MYR 52, 119 = MYR 129,619.00

7)      Now, given that you have paid RM 91,326 in total in premium for the first 5 years, the actual total return on your premium is on A = 92.36% and B = 41.93%.

a.       Simple average:

                                                              i.      Scene A  = 3.69% per year for 25 years

                                                            ii.      Scene B = 1.68 % per year for 25 years

So in short, this investment provides marginal yet expensive cover and market returns that are substantially low.  With only being able to grow your money at 3.69% per year for 25 years (although markets have been giving substantially more in such long periods), nobody can afford that diamond ring that he/she dreamt of since childhood. So think wisely before investing. After all, my team and i do provide non-obligatory investment advisory services.

Written By,

Ashveen Chakravarthy Sekaran

DEC 10^th, 2014

P.S. Just in case you are planning to save up to buy a $25million ring in 50 years, and let us say there is an investment that is giving 10% returns per annum (we have been giving more), you would need to save $ 1,443.05 per month. So, start saving ;)

CODE RED

RED has been the colour of choice in the global stock markets as of recent. Stocks and indices seem to be having a blood bath while chaos dominates the world. How far are we from salvation? Well, I wish I knew the answer to that. But to make it simple, things aren’t going to be rosy anytime soon. Hate to be the bearer of bad news but someone had to rip the band-aid off. However, there may be some things to look out for in the coming economic horizon. There is still plenty of room to make your money grow besides having it drained out by excessive government spending. So where are these investment zones you ask? Well, let us look into Malaysia, Indonesia and Sri Lanka, shall we?

Malaysia

Let me paint you a mental picture of the problem at hand. Imagine that Malaysia is like a beautiful garland. The different cultures, races and people are the various flowers that make this garland, with peace and harmony being the string that binds them together. Well, this is not the problem. The problem is that now, there are monkeys in the picture. We all know what happens to the garland when the monkeys come. The lack of wisdom, competence and the constant need to mark their territories seem to be hindering certain decision makers from making the decisions the country badly needs. The “spend now, take later” policy that was implemented during the last general election has come to fruition. And now, it is time to harvest. As the harvesters celebrate, the following things shall come to be: Reduction in petrol subsidy (note that they did not increase the price), reduction in sugar subsidy (to curb diabetes and to increase people’s libido), electricity tariff increase (to reduce subsidies to industries),  toll price hike (EPF needs to make for its losses somehow), introduction of the GST (to prevent the country from declaring bankruptcy and to identify national traitors) and last but not the least, the increase in people’s salary ( yeah right…. ). Now, the whole idea of there being two sides to a coin is very much applicable in this situation. Malaysia is going to gain strength as a stable investment hub. Why? Well, let us look at the sectors where the prices are increasing. They are all goods and services where people, whether they like it or not, have to use.  Hence, as much as people would fret and whine about it, they will still continue to use these goods and services. Furthermore, with Bank Negara’s potential increase of the Overnight Policy Rate (the OPR is the interest rate charged by Bank Negara Malaysia to the commercial banks ) from 3% to about 3.25-3.5% next year, there may be a lot of investment opportunities coming your way. However, the domino effect of the price hike may also eat into the pockets of the average income earner. Hence, the Malay-sian dilemma.

Indonesia

I still have my bets on this one! The recent super devaluation of the Rupiah was due to the current account deficit of Indonesia. Before going further, it may be helpful to know what a current account deficit means. A current account deficit occurs when a country’s cost of imports exceed the cost of exports. Meaning, the amount spent to import goods and services, is more than the income earned by exporting goods and service from the country. If the income from exports is more than the cost of imports, then the scenario would be called a current account surplus. So, Indonesia’s predicament is just like most of our new income earners globally. They spend more on refurbishing themselves with gadgets and gizmos which cost them more than their salaries. Currently, the current account deficit of Indonesia stands at US$ 8.4 billion (which is 3.8% of the GDP, Gross Domestic Product). It has decreased compared to last year where is was US$ 9.9 billion (4.4%of the GDP) showing signs that it is recovering. And recently, Bank Indonesia a.k.a the Indonesian Central Bank had increased the interest rate. Now, this may in fact act as a catalyst to reduce the exports and create more demand for locally produced goods and services which would curb the demand for imports. This would certainly aid the current account deficits tremendously. But what is more exciting is that the increase in interest rates might stir more activity in the market making way for new investment opportunities to form. I still have my bets on this nation to do really well in the coming years. And since prices are at a low now, I am literally going on a shopping spree. The long term investor may look into this option as well.

Sri Lanka

A country of beauty and splendor, Sri Lanka has been marching through the economic front with a very stable economy. The end of the civil war brought about both good and bad. Good was the economic potential and avenues for social and economic growth. It was bad because of the media attention that started befalling the nation due to the lack of clarity surrounding the war scene. The growth of the nation started a little higher than the current estimates which still stand at an expected growth of 7.5%. The constant development, despite global scrutiny, has been the key factor or attraction for most global investors. Over the years, the economy has proven itself to be pretty resilient towards any political happenings within the nation. The recent CHOGM 2013 (Commonwealth Heads of Government Meeting) that was held in Sri Lanka had ushered in an international crowd of potential investors who may be investing in the activities that are aimed at rebuilding the nation. But there is still a slight shadow befalling the nation when David Cameron’s visit to the war affected areas created a bigger platform for global outcries and a potential inquisition waiting to happen. Whatever the outcome may be, Sri Lanka is still going to serve as a good investment hub due to many economic factors. As I have always believed, emotions and Investments are two things that are never best put together.

Perhaps, RED is the colour in the stock markets now. But with proper calculated risks taken on your investments, you may eventually be the one painting the town RED.

Written By,

Ashveen Chakravarthy Sekaran

December 3, 2013

Private Retirement Scheme (PRS)

                As the Private Retirement Scheme (PRS) fever kicks into the work place, I receive general inquiries from many on whether or not this scheme is worthwhile. As many would already know by now, I am rather inquisitive by nature. And as much as I would like to take the word of another as the absolute truth, I still love being Sherlock Holmes from time to time. Granted that me being Sherlock Holmes has gotten me into some sticky situations and tiffs in the past, all I can say is “well… it was a learning curve and was worth every bit!”. 

                So snooping high and low, I’ve managed to gather the needed information on the PRS. And to be honest, I am trying to figure out the actual purpose as to why the Securities Commission of Malaysia promoted this… Having done the number crunching, I can say that whatever was spent on setting this up was a complete waste. Let me lay it for you… For the purposes of the discussion, I shall weigh the PRS to the retirement scheme that I design for the simple reason of it being my own. The Private Retirement Scheme will be referred to as PRS while Ashveen’s Retirement Scheme will be referred to as Ash-RS (I was thinking of ARS but decided otherwise….. for obvious reasons…)

                First and foremost, let us look at the similarities:

Similarities of PRS and Ash-RS:

·         Purpose of building  long-term savings

·         Neither capital guaranteed nor protected

o   What this means is that even if this fund is offered by a mutual company which is a wholly - owned subsidiary of a bank, there is no guarantee or protection on your capital. So even if the mutual company were to go bust, the bank is not going to step in to pay up. 

·         Price is based on a daily unit price. Meaning it would follow the market index if invested in the capital market funds…. 

Sounds very much like mutual funds, don’t it? Well, here are the differences between the PRS and Ash-RS:

Differences:

Feature	PRS	Ash-RS
Sales charge	Up to 5%	Up to 6.5%
Management Fee	Up to 3% per annum	Up to 1.5% per annum
Trustee Fee	Up to 0.06% per annum	Up to 0.08% per annum
Withdrawal Fee	8% per withdrawal	none
Switching Fee	Min RM25 per switch	6 free switches, RM25 thereafter
Withdrawal	Account A: Upon retirement Account B : Once a year	No restriction
Private Pension Administrator (PPA) Fee	0.04 % per annum	none
Fund Types	Pre-designed	Flexible

                

            The funds in the PRS would be automatically split into two accounts called Account A (70%) and Account B (30%). Similar to that of the EPF, Account A can be withdrawn only upon retirement while Account B only ONCE a year with an 8% tax charged on it (which I personally find utterly ridiculous).  

                Investments are to allow a person to have financial freedom not just when they retire but also along the journey towards retirement. A young cousin of mine once asked me, “What is the point of saving when you don’t spend it?” As much as I would like to disagree, I’d have to completely agree with him. The investment that one chooses should give the flexibility to the investors on how to handle their money. As much as forced savings is the only way to ensure that one’s livelihood after retirement is preserved, that savings should also give allowance for certain unavoidable expenditures along the way. After all, we never know when an emergency may occur. 

                So, like I was saying, we need adequate flexibility in investments and the PRS has failed in that aspect. The features are really not that great either marking the launch of it rather insignificant.

By,

Ashveen Chakravarthy Sekaran

July 8, 2013