This is really a busy month and i am preparing for my coming ACCA exam.Totally exhausted with all those hectic revision.
Today, i want to discuss about a PNB product, Amanah Saham Bumiputera (ASB). Those bumiputera out there must have heard about this scheme before. It is the best investment in the town for those who are really prudent. Why i say so? because its risk is near to zero (backed by government) and the return is quite high. The maximum investment for an individual is up to rm200k.
There are 3 local bank currently providing this scheme in the market. They are CIMB bank, Maybank and RHB bank. Should we take up the loan? Does it really worth to take the risk? Let us carry out some research here.
CIMB bank BLR-1.65% longest tenure 20 years
Maybank BLR-1.65% longest tenure 25 years
RHB bank BLR-1.55% longest tenure 20 years
EasyRHB BLR-1.00% longest tenure 20 years
All loan package is built-in with MRTA insurance, thats mean if you are deceased (touchwood). Your dependent can inheritate the loan borrowed and no need to repay the remaining obligation. The loan is collateralise by certificate, if you default the loan payment for a consecutive of 3 months period, the bank has the right to cancel the loan on behalf of you. Since the bank got the certificate as collateral, the loan is also easy to be approved.
Let us look into the past return of ASB,
Year | Dividend (sen) | Bonus (sen) | Total (sen) |
1990 | 8.00 | 6.00 | 14.00 |
1991 | 8.50 | 4.00 | 12.50 |
1992 | 7.50 | 5.00 | 12.50 |
1993 | 9.00 | 4.50 | 13.50 |
1994 | 9.50 | 4.50 | 14.00 |
1995 | 10.00 | 3.00 | 13.00 |
1996 | 10.25 | 3.00 | 13.25 |
1997 | 10.25 | 1.25 | 11.50 |
1998 | 8.00 | 2.50 | 10.50 |
1999 | 8.50 | 1.50 | 10.00 |
2000 | 9.75 | 2.00 | 11.75 |
2001 | 7.00 | 3.00 | 10.00 |
2002 | 7.00 | 2.00 | 9.00 |
2003 | 7.25 | 2.00 | 9.25 |
2004 | 7.25 | 2.00 | 9.25 |
2005 | 7.25 | 1.75 | 9.00 |
2006 | 7.30 | 1.25 | 8.55 |
2007 | 8.00 | 1.00 | 9.00 |
2008 | 7.00 | 1.75 | 8.75 |
2009 | 7.30 | 1.25 | 8.55 |
2010 | 7.50 | 1.25 | 8.75 |
Based on the historical performance, the dividend has never dropped below 7.00% p.a. Besides, the bonus are counted based on the average historical savings inside your ASB account for the past 10 years. Thats mean the longer you save, the higher the bonus will be.
The interest for the loan is count based on reducing balance method. Therefore, the longer you finance the loan, the interest will be lower. Whereas, the ASB investment is based on compound interest basis.
I personally found that CIMB has better offer. Let me do an assumption here, the bank loan is based on compound interest basis
Take up ASB Loan rm100k, Interest BLR-1.65% throughout the tenure,
Monthly commitment will be rm657 for 20 years.
rm657X12mthsX20years= rm157,680
substitute into compound interest formula,
rate of interest for bank is unknown for compound interest basis,
P(1+r)^n
100,000(1+r)^20= 157680
r= 2.303%
In worse scenario, we still can get 7% dividend from ASB scheme. After doing some calculation and logic thinking, my conclusion is taking up the loan is more profitable than self savings. It is a simple arbitrage, you use a lower cost of financing to invest in a higher return investment. It is leverage on bank resources to earn more money.
To take up this loan, we must be very patience and discipline, do not use the dividend to cover personal expenses or spend on luxury (before the maturity of the financing) but retain it in the subsidiary bank account.
The risk to be considered are:
1. OPR shoot up, BLR will goes up proportionately, but for short term it is unlikely. Since our government is encouraging foreign direct investment (FDI), We need more foreign fund to encourage GDP growth. interest too high will drive out foreign investor.
2. ASB dividend drop to a certain unexpected level. Refer to historical return, I think the chance of occurence will be very low. (if this really happen, you can cancel the loan at any time, since the lock in period is 3 years, there will be no penalty after 3 years if you cancel the loan.)
Below is my strategy.
(1) Create an Airasia savers account from CIMB, so that you can earn higher interest for the fund inside your subsidiary bank account. (since the interest rate p.a. is 1.6%, quite high for savings account though) for the sole purpose of financing this loan. (dont get an atm card to avoid temptation on spending it and can save rm8 annual atm charge.)
(2) Dont take full rm200k instead of taking rm100k loan from the bank, so that if you have more cash flow every month, you can pump the money inside the account until rm200k full. Finance it for a tenure of 20 years. (the longer the tenure, you will have more free cash flow every month).
(3) Monthly commitment is rm657 (based on BLR-1.65%), thats mean ur yearly commitment will be rm7,884.
e.g. if you can save rm300 every month, you can transfer it to the subsidiary bank account monthly. Take out rm4,284 (rm7,884-rm3,600) from your ASB account and inject to your subsidiary bank account. It your monthly savings is not enough to cover the loan, transfer the ASB account fund to your CIMB bank account as a last resort. Maintain a fixed float of at least rm1,000-1,500 inside the account as a cushion for margin of safety.
(4) Arrange standing order with the bank to debit the monthly commitment of rm657/month from the subsidiary account.
(5) After 1 year, let say ASB will declare dividend of 7% (worse scenario, the yield will be higher if dividend higher), so you will get rm7k and havent taking account of the bonus and your existing savings inside the ASB. Then take out the dividend of that year and transfer to the subsidiary account and let the bank direct debit again.(maybe you need to contribute more rm600-700 yearly from your own pocket if worse scenario happened).
Do this consistently and let the compound interest do the job, after 20 years, the rm100k all is yours. Although rm100k may not be as much as today value due to inflation. But you can hardly find any investment better than this in the town. Your initial capital is only rm7.884-10,000 and get rm100k ROI after 20 years. (Thats mean your ASB is compounded at 12.00% at least if you substitute in the compound interest formula.)
If any bumiputera investor wishes to take up this loan, feel free to contact me, i can introduce a financial consultant to you all.
Happy investing. =)