Features of Constituent Funds 成分基金的特點
Employer sponsored, master trust and industry schemes may each contain several constituent funds through which members choose how to invest contributions and accrued benefits. Funds within the same scheme must have different investment policies. Every constituent fund, and every investment option combining constituent funds, including the Default Investment Strategy, must be available to all members of that scheme.
A constituent fund may hold investments such as equities and bonds directly, or invest through one or more approved pooled investment funds and/or index-tracking collective investment schemes approved by the MPFA. It must be governed by Hong Kong law, denominated in Hong Kong dollars and have at least one regular dealing day each month. Hong Kong dollar denomination does not require all underlying investments to be Hong Kong dollar assets.
Constituent funds must generally be unitised. The exception requires a fund to be both non-investment-linked and provide an investment guarantee. Unitised funds use forward pricing: the transaction price is determined after the relevant valid instruction. For non-unitised funds, investment returns must be credited to members’ accounts at least monthly.
On every dealing day, master trust and industry schemes must make the latest available offer and redemption prices, or net asset value per unit, of unitised constituent funds publicly available free of charge through suitable channels, such as websites, newspapers or telephone hotlines. Approved trustees of employer sponsored schemes may use other methods to inform members. Every MPF scheme must also offer at least one MPF Conservative Fund.
Types of Constituent Funds 成分基金的種類
An MPF Conservative Fund aims to limit market fluctuations and earn a net return comparable to banks’ Hong Kong dollar savings rate; it provides no investment guarantee and may lag inflation. All assets must be Hong Kong dollar investments, confined to short-term bank deposits or qualifying short-term debt securities issued or guaranteed by governments or comparable authorities, or meeting the MPFA’s minimum short-term credit rating. Average remaining portfolio maturity cannot exceed 90 days, equities and commodities are prohibited, and monthly reporting to the MPFA is required. Monthly administration expenses cannot be deducted from the fund unless earnings exceed those calculated using the prescribed savings rate. Initial fees, redemption charges and bid-offer spreads are prohibited.
Guaranteed funds may protect total contributions alone, through a capital guarantee, or contributions plus an investment return, through a return guarantee. A ‘hard’ guarantee offers a minimum net return without qualifying conditions; a ‘soft’ guarantee requires stated conditions, such as a minimum investment period and/or qualifying events, including reaching 65 or early retirement at 60. Most available guaranteed funds have soft guarantees. Switching out during the minimum period, including through an employer’s scheme switch, invalidates the guarantee. Redemption without qualifying for it reflects actual investment returns, which may exceed or fall below the guaranteed level. Reserve charges or guarantee fees are deducted from fund assets, although some funds waive the reserve charge. Members still face guarantor default risk despite requirements for supporting assets. Guarantee features may change subject to necessary regulatory approval and advance notice under the governing rules.
Money market funds mainly hold short-term instruments such as treasury bills, certificates of deposit and commercial paper. They generally have lower risk, but can still lose money or lag inflation. Bond funds mainly hold debt securities, prioritising interest income over capital growth, and face interest rate and credit risks. By the maturity of their underlying bonds, long-term bond funds invest in bonds with at least 10 years to maturity, medium-term funds in bonds with 3 to 10 years, and short-term funds in bonds with less than 3 years. Longer maturities generally mean greater price sensitivity to interest rates, while higher credit ratings generally indicate lower credit risk.
Mixed assets funds combine equities and bonds, with risk and expected returns usually between those of bond and equity funds. A higher equity share generally raises risk, while investing across countries helps reduce concentration risk. Target date funds progressively reduce equities and increase more conservative assets, such as bonds, as the target retirement date approaches. Equity funds mainly seek long-term capital growth through shares, whose prices can fluctuate sharply over short periods. Index-tracking funds primarily seek to match an equity or debt securities index, using index-weighted holdings or a representative sample of its securities. Any fund choice should reflect the member’s financial circumstances and investment objectives.
Practice
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