All You Wanted to Know About Taking a Loan to Finance ASB Investment

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All You Wanted to Know About Taking a Loan to Finance ASB Investment

You might be aware that Amanah Saham Bumiputera, better known by its abbreviation ASB, is a popular investment tool in our country. It’s basically a unit-linked income equity fund which, in December 2017, announced a total annual dividend of 8.25% amounting to RM10.7 billion for the 9.1 million ASB account holders who own at least 145.6 units.

In fact, ASB has fetched an average annual dividend of 8.42% in the last 10 years (click here for an infographic on ASB dividends since its inception in 1990), the major reason why the relatively low-risk investment instrument remains so popular in Malaysia. People at times want to invest in the fund even if they don’t have savings in place to do so and hence rely on term loans offered by a number of banks meant specifically to purchase ASB units.

And like any other loan, even the ASB loans have their own set of pros and cons which must be carefully weighed before an investor takes a final call.

Read on as we explain the various pros and cons of going for a loan to finance ASB investment in order to help you make an informed decision.

Before digging further, let’s start with some basics.

Must read: ASB Investment FAQ: How to Buy Units, How Lucrative Are They?

What is ASB?

The Amanah Saham Bumiputera fund was launched on 2 January 1990 by Malaysia’s largest investment firm Permodalan Nasional Berhad (PNB) with the aim of safeguarding the financial health of Malaysian Bumiputeras by fetching competitive and consistent returns over a long period of time.

The price per unit of each ASB fund is fixed at RM1. In addition, there are no sales charges or unit redemption fees for this investment facility.

The minimum amount you can invest in ASB funds is RM10 while the maximum amount is RM200,000. However, there’s no limit on the total account value. This means that if capital gains are added to your account and if the amount exceeds RM200,000, you can still retain the funds.

On 2 April 2014, PNB debuted another investment option called Amanah Saham Bumiputera 2 (ASB2). ASB2 units are pretty much the same when compared to ASB units in terms of their aims and objectives. The only defining difference is that ASB2 units are mixed-type or mixed-asset funds.

It’s a fact that the government-supported ASB fund has fetched good returns in the past. To put things into perspective, the rate of ASB returns has dropped below 8% on only a couple of occasions since its beginning.

That said,  it’s not that it remains completely immune to risks. The value of ASB investments might fluctuate depending on the country’s economic health, overseas capital market performance, the performance of local stocks, etc., and past returns can by no means be seen as the sole yardstick to gauge the future performance of the fund.

So now that we’ve some clarity on the fundamentals of ASB investment, let’s discuss how ASB loans work.

Also read: 5 Smart Financial Tips for Those Who’ve Just Started Working

Using financing options for ASB investments

ASB personal loans are basic term loans wherein a bank provides you with financing to invest in ASB/ASB2 units. This loan facility is only open to Malaysian Bumiputeras. ASB loans work much like a personal loan in the sense that the borrower has to open an ASB account with the lending bank.

Apart from the regular monthly instalments, you may have to pay management or documentation fees for an ASB personal loan. While most of these loans have a floating interest rate that depends on the base rate (BR), the interest in itself works according to the reducing balance method.

Many ASB personal loan products even have a lock-in period in place. If you choose to settle the loan amount before maturity, you may have to pay additional charges. But once the lock-in period is over, you can settle the entire loan amount without having to worry about extra charges.

That’s not all. You can even choose to protect your ASB personal loan with insurance or takaful coverage. If you’re still feeling unconvinced about taking a loan to invest in ASB units, here are some pros and cons which you must consider.

Related: 7 Common Mistakes You Must Avoid While Applying for a Personal Loan

The pros of going for an ASB personal loan

  • A simple way to get capital when you have no savings to invest
  • Competitive, stable interest rates that have historically been lower than ASB dividends
  • Long-term financing for ASB/ASB2 investment
  • Flexible repayment tenures that go up to 30 years
  • High financing margin that can go up to 100%
  • Insurance/takaful protection of the loan amount in case of death or total permanent disability (TPD) of the borrower

The cons

  • Diminished returns margin as a major portion (of returns) will go towards repaying the loan, at least in the initial months and years
  • Interest rates can vary according to any change in the base rate
  • Missed interest payments can lead to penalties and decreasing credit score
  • Additional charges like management or documentation fees

Related: 5 Scenarios When Taking a Personal Loan Makes Sense

So is an ASB loan a viable option? Let’s see

As mentioned earlier, there are advantages and disadvantages to making ASB investments with a loan. Here’s a cash flow analysis to help you decide if an ASB loan is the way for you:

To begin with, consider CIMB’s ASB financing plan. The interest rate for this ASB loan is BR + 1.3% p.a. where the current base rate is 4.15%. Consequently, the interest rate for the ASB loan will be 5.45% p.a.

Now let us assume that you’ve applied for an ASB loan amount of RM100,000 that you’re looking to repay over 30 years. Your monthly instalment will be RM564.66 (using Equated Monthly Instalment formula) for the first 12 months. Thereafter, your ASB returns will cover a part or the whole of your repayments.

Now consider your ASB investment. The rate of combined returns (dividend rate + bonus rate) for the last 10 years is an average of 8.32% p.a (excluding the special 40th-anniversary special bonus of 1% that was given in 2017). This rate is a combination of the dividend rate and the bonus rate, which are 7.34% p.a. and 0.98% p.a. respectively.

For representational purposes, consider the cash flow analysis for the first year of investment:

  • Total loan repayment for the first year: RM564.66×12 = RM6775.92
  • Total ASB returns for the first year (7.34%/12) x 100,000 + (0.98%/12) x 100,000 = RM8320

So, your additional profit after loan repayment for the first year is RM8320 – RM6775.92 = RM1544.08.

Do note that this profit is just for the first year. As your investment matures, you can expect a much bigger profit margin. However, you’ll be well-advised to consider this option only if you think the returns fit your financial goals.

Disclaimer: The above is for representational purpose only. Actual figures may differ based on ASB loan lending rate. Please reach out to respective banks to get complete clarity on lending rate and / or loan repayment amount.

Related: 10 Signs You’re Bad with Money, and Simple Solutions to Fix the Problems

Top ASB personal loans in Malaysia

Here’s a table containing details of the top ASB loans in Malaysia:

Name of the loan package

Interest rates Minimum financing amount Maximum tenure option Lock-in period

Current Base Rate

CIMB ASB Financing B.R + 1.30% p.a. throughout the loan tenure RM10,000 30 years 4.15% as of 2 February 2018
RHB ASB/ASB2 Financing First 4 years = B.R + 1.55% p.a.

Thereafter = B.R + 1.15% p.a.

RM20,000 30 years 2 years 3.9%
RHB Easy-ASB/Easy-ASB2 Financing First 4 years = B.R + 1.55% p.a.

Thereafter = B.R + 1.15% p.a.

RM20,000 30 years 2 years 3.9%
Maybank ASB Loan For financing below RM30,000:

First 3 years = B.R + 2.30% p.a.

Thereafter = B.R + 2.35% p.a.

For financing above RM30,000:

B.R + 2.00% p.a.

RM10,000 25 years 3.2% as of 2 February 2015
Maybank Islamic ASB Financing-i For financing below RM30,000:

First 3 years = B.R + 2.30% p.a.

Thereafter = B.R + 2.35% p.a.

For financing above RM30,000: B.R + 2.00% p.a.

RM10,000 25 years IBR = 3.2% as of 2 February 2015
Affin ASB & ASB2 Financing For financing of RM10,000 to RM99,000: B.R + 1.10% p.a.

For financing between RM100,000 – RM200,000: B.R + 0.95% p.a.

RM10,000 30 years 4.1% as of 30 January 2018
BSN MyRinggit ASB For financing up to RM50,000: B.R + 1.25% p.a.

For financing between RM50,001 – RM150,000: B.R + 1.05% p.a.

For financing above RM150,000: B.R + 0.85% p.a.

RM10,000 30 years 4.1% as of 7 February 2018

Exercising financial discipline is the key

So if you’ve decided to invest in ASB using a loan, your journey to being financially secure doesn’t end just yet. Until you pay off this loan amount entirely, you’re sure to have a niggly feeling about the invested money not being yours. The best way out is to pay off the loan as quickly as you can.

Read our blog 5 Useful Tips to Become Debt-Free to learn tricks to accelerate your loan payoff.

There are bound to be some reservations when it comes to borrowing money and investing it in a savings scheme. But if you have in place clear financial plans and exercise financial discipline, an ASB personal loan may turn out to be helpful. Read our blog on 4 wise things to do with your salary to introduce financial discipline in your life.

In any case, exercising financial discipline will also be your main weapon if you want to boost your savings to fund your chosen investment, like ASB. That said, there are certain things you should never skimp on to “save money”. Click here to know more.

You may also like some of our other investment-related blogs:

All information provided in this article/blog, published on this website is strictly for general information purpose only. BBazaar does not provide any warranty about the authenticity and accuracy of such information. BBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Please visit the websites of respective banks/financial institutions for more details about products, and consult your financial advisor to get clarity on investment tools.

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