Buying an exchange traded fund that tracks the S&P 500 has become a common way for Malaysian investors to gain exposure to global markets. That type of investment may eventually appear inside the country’s voluntary retirement savings system.

The Securities Commission Malaysia is studying whether exchange traded funds, known as ETFs, could be included in the Private Retirement Scheme, potentially expanding the types of investments used to grow retirement savings.

Exchange Traded Funds Explained

An exchange traded fund, or ETF, is a fund that tracks an index or a basket of assets and trades on a stock exchange like a share.

Many ETFs mirror a market index such as the S&P 500 or track specific sectors like technology or healthcare. Instead of a fund manager actively selecting investments, the fund follows the performance of the underlying index.

Because ETFs track an index rather than rely on active management, they typically charge lower fees than traditional unit trust funds.

Over long investment periods, lower annual fees can have a noticeable effect on how much retirement savings grow.

Review Reflects How Malaysians Are Investing Today

Securities Commission Malaysia chairman Datuk Mohammad Faiz Azmi said the regulator is reviewing whether ETFs should be included in Private Retirement Scheme portfolios.

Malaysia currently has 13 ETFs listed on Bursa Malaysia. However, many investors prefer buying foreign listed ETFs that track global markets.

Funds that track the S&P 500, for example, allow investors to gain exposure to large United States companies such as Apple, Microsoft, and Amazon. These investments are usually purchased through overseas brokerage platforms, which require investors to convert ringgit into US dollars.

Allowing ETFs within the Private Retirement Scheme could eventually provide similar market exposure within a ringgit based retirement account.

Lower Fees Could Strengthen Long Term Retirement Savings

Private Retirement Scheme funds today are mainly structured as actively managed unit trust portfolios.

Management fees for these funds vary by provider but often fall around 1% to 1.5% annually. By comparison, many global index ETFs charge significantly lower fees, sometimes below 0.1% per year.

While the difference may appear small annually, the impact becomes larger over a 20 to 30 year retirement period as fees compound alongside investment returns.

If ETFs are eventually allowed within the scheme, providers could build retirement portfolios that track global indices or specific sectors at lower cost.

However, contributors would still invest through PRS funds managed by approved providers rather than directly selecting individual ETFs.

Private Retirement Scheme Complements Employees Provident Fund

The Private Retirement Scheme is a voluntary savings programme designed to supplement the Employees Provident Fund, Malaysia’s mandatory retirement system.

Under current guidelines, PRS funds may invest in transferable securities, money market instruments, deposits with financial institutions, derivatives, and real estate.

The Securities Commission has said it is reviewing the structure of the scheme to give contributors greater flexibility in how retirement savings are invested.

Expanding the list of eligible assets could allow PRS providers to introduce portfolios that reflect how many Malaysians already invest outside their retirement accounts.

What This Means For Private Retirement Scheme Contributors

For now, Private Retirement Scheme contributors cannot invest in ETFs within their accounts, and the proposal remains under review.

Even if the change proceeds, the shift would likely appear gradually through new PRS funds that incorporate ETFs rather than an immediate overhaul of the system.

In the meantime, contributors who already hold PRS accounts may want to review the fees and asset allocations of their current funds. Over a 20 to 30 year investment period, differences in management costs and portfolio structure can affect how retirement savings grow.

The ongoing review reflects growing interest in low cost index investing among Malaysian retail investors. Whether ETFs become part of PRS will depend on how the Securities Commission balances investor choice with the stability expected of retirement savings.

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