Najib’s borrow-to-invest scheme

What’s this? You invest RM5000 in Najib’s new Skim Amanah Saham Rakyat 1Malaysia (Sara) and you can earn RM134 per month for five years?

That works out to RM1608 per year (32 per cent per annum) for a return of RM8000 over the five years (assuming the monthly return is not re-invested).

Alternatively, if the RM134 per month is re-invested in addition to the initial RM5000 investment to give around RM13000 after five years, that would mean an effective compound interest of close to 20 per cent per annum.

No money to invest? No problem; you can borrow to invest. You make monthly payments of RM84 over five years (totalling RM5040) to repay your borrowing but you get back RM134 per month from your “investment”. Wah! So clever… Even EPF can’t beat that.

Only one problem: Where is PNB investing the money for it to earn such high returns to pay the investors?

Then again, the monthly return of RM134 – it is not going to be given out in cash, is it? More likely, it will be provided to participants in the form of additional Amanah Saham 1Malaysia units.

Najib’s borrow-to-invest scheme, managed by Amanah Saham Nasional Berhad, offers a total of RM500m in loans to 100000 households “based on the allocation of Amanah Saham 1Malaysia, i.e. Bumiputera – 50%; Chinese – 30%; Indian – 15%; Others – 5%”.

Is this a new unit trust scheme with guaranteed returns?

Wait a minute… the Sara website says:

Through this Scheme, eligible Malaysians will have the opportunity to apply for a RM5,000 loan from participating financial institution to invest in Amanah Saham 1Malaysia (AS 1Malaysia)I managed by Amanah Saham Nasional Berhad (ASNB)*, and will receive attractive incentive payments on their savings and investments.

*ASNB is a wholly-owned subsidiary of PNB responsible for managing the AS 1Malaysia unit trust fund.

So it is actually a loan scheme to invest in a unit trust fund managed by ASNB.

The Amanah Saham 1Malaysia fund was actually launched on 1 June 2009. It offers 10bn units for subscription at a fixed price of RM1 per unit.

Last September, Bernama quoted the PNB President/chief executive officer as saying that 55 per cent of the units had been subscribed and the quota given to the Chinese community has been fully taken up. But the Bumiputera and Indian quotas had not been fully subscribed.

Are they now offering loans so that the unsubscribed portions can be taken up?

And are the Sara returns guaranteed? The Amanah Saham 1Malaysia fund earns its income from the sale of shares (51 per cent), dividend income from investee companies (37 per cent) and investment in short-term instruments and other income (12 per cent). Last year, AS 1Malaysia yielded 8.6 sen per RM1 unit, but it gave out 6.5 sen per unit.

I notice the Sara website doesn’t say anything about fixed or guaranteed returns on the investment. Instead, the fine print states:

IThe Master Prospectus of the unit trust funds of ASNB dated 30 June 2011, the First Supplementary Master Prospectus dated 17 August 2011, and the Second Supplementary Master Prospectus dated 1 January 2012, have been registered with the Securities Commission Malaysia and are available at any office of ASNB and its agents. Units will be issued upon receipt of the registration form as enclosed in the prospectuses. Before investing, please read and understand the content of the above prospectuses. Total return on the investments may go down as well as up. Past performances of the unit trust funds of ASNB are not guarantees of future performances. Before investing, kindly consider the fees and charges involved. (Emphasis mine)

All said, Najib’s investment scheme raises all kind of questions. Is this a new scheme or an old one that has been repackaged? Guaranteed returns or returns “may go down as well as up”? And more importantly, how will PNB’s investment portfolio perform in the coming years? And will ordinary Malaysians’ investments in Sara be guaranteed by the government?