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Selecting a suitable investment policy for the fund

            Because of members’ difference in age, preferred level of risk and return from investment, the fund committee must select an appropriate investment policy for the fund that suits to members’ need. Therefore, you should set a procedure in selecting an investment policy as follows:

            1. Prepare fund profile 

                You should prepare a fund profile which contains at least the topics below: 

                1.1 Fund type: single fund or pooled fund

                1.2 Member information: classified by age, turnover rate, type of employment (permanent/daily/temporary) 

           2. Asset management company proposes a suitable investment policy

                2.1 Consider whether the proposed investment policy suits to the fund

                       For example; if the majority of fund members are at the age of 50 to 60 years old, given that most of the investors at these ages are typically concerned about maintaining their principle, the proper investment policy would be to emphasize on investment in fixed income funds which have lower risk. However, if they are at the age of 30 to 40 years old, the proper policy would be to emphasize on investment in equity funds since younger members have more time until retirement, they would prefer to invest in securities offering higher return although that means they would have to bear a higher level of risk. 

                2.2 Consider the diversification

                       You should consider whether your fund has properly diversified its asset allocation. To reduce the overall risk of the portfolio, the fund should not heavily invest in a particular asset class. Moreover, it is crucial that it has sufficient liquidity for payment to resigned and terminated members. You should also specify provisions for the fund’s asset allocation in a written contract which could be used when monitoring the fund’s investment.

                2.3 Consider the investment limitation

                      The investment limitation must be in accordance with the fund governing rules and laws.

           3. Identify benchmarks to be used when assessing fund performance

               You should consult with your fund manager and identify an appropriate benchmark to use as a tool when assessing the fund manager's ability in managing the fund’s portfolio. An appropriate benchmark should be in line with the investment policy. In case when the provident fund invests in more than one type of asset class, the appropriate benchmark should be a composite benchmark which is a weighted average of benchmarks corresponding to the asset allocation policy.

Benchmarks for assessment of provident fund performance can be classified by types of assets: click
last updated date 11/06/2553

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