Excellentte Consultancy financial planner Jeremy Tan said: “ There are no alternatives to FDs since it gives an almost risk-free return, which no other asset classes can give out.” PETALING JAYA: The returns on fixed deposit appears to be diminishing, given the current low interest rate environment in Malaysia. This will put net savers at a disadvantageous position, even when the government is trying to spur more spending to boost the economy amid the raging Covid-19 pandemic. On Wednesday, Bank Negara decided to keep the overnight policy rate (OPR) unchanged at 1.75%. However, there are strong expectations that the OPR could see further cuts in the upcoming quarters this year. To put into perspective, interest rates in Malaysia have taken a steep fall within a short period of time during 2020, from 3% to the lowest-level ever at 1.75% at the end of last year, due to the pandemic. It appears that Malaysians, who were used to slightly higher risk-free return exposure, would now have to live with a lower interest rate regime, at least for the time being. At this juncture, people who traditionally were dependent on the interest rate returns from their fixed deposits (FDs) would by and large see their incomes affected. According to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, (pic below) the net savers came from various age groups, including the younger savers who are in their 20s or 30s. “Any cuts in the interest rate will put these groups on the losing end. The purpose of a rate cut is actually to spur spending, ” he told StarBiz.Pursuant to this, each person should keep his or her risks profile at the forefront of their mind should they decide to adjust their investment allocations to take on higher risks for a higher return. “I expect pensioners or retirees will also be impacted and many of them will need to adjust to the lower returns environment. “Hence, this will call for an adjustment in spending, or since they are left with no choice, many will have to spend their principal amount, ” he added. However, Lee said the low interest rates regime will not remain low forever. “The current low rates are due to the pandemic. “Once it goes up, one would have to start thinking of paying back the higher interest (especially for those with floating rate loans), ” explained Lee. Meanwhile, Excellentte Consultancy financial planner Jeremy Tan said: “ There are no alternatives to FDs since it gives an almost risk-free return, which no other asset classes can give out.” FD is an asset class by itself and the returns are fixed and depend on the duration, and the risk factor is also minimal. “Other investment options are of different asset classes with varying risk levels, ” added Tan. He noted that asset classes such as bonds, shares or unit trusts are not an alternative to FDs. “However, the other asset classes could form part of an investment portfolio to mitigate the risks and also, as a form of diversification for an individual financial goals to meet their objectives and needs, ” he said. Therefore, when considering other asset classes, it is important that one should invest in accordance with his or her risk profile that is correlated with their age group. For the younger savers, Tan said they might want to consider investing into the property market. “Investment in property has been a long-time favourite as there is a potential for rental yields and price appreciation despite this category having its own inherent risks. “The risks for this asset class include the non-completion of a property or even the interest rate rising again, ” he said. Tan added that property investment is for the long haul that requires a long-term commitment, including the upkeep and maintenance once it is completed. Property investment is also not considered a liquid investment asset class that can be quickly sold-off to realise its cash value, since it would take time to find buyers and complete the sale transaction. Another asset class that can be considered is unit trust, which has varying levels of risks within the category. “This is because one can be exposed to different asset classes such as bonds or the equity market which has a higher risk, ” said Tan. There are also fees and charges involved that one has to consider when deciding if he or she should diversify into unit trust investing, which in turn could affect break even point. There is also the option to invest directly into the stock market either individually or through a broker. However, Tan said this is a risky endeavour, especially for those without the experience, and the capital can easily be diminished if one is not careful or knowledgeable with investment in the stock market.
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