PRS (Part 4): Private Retirement Schemes in Malaysia – The Numbers
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Knowing how to calculate the numbers is vital in tracking your PRS performance.
In Part 4 of iMoney’s PRS Series, we examine pricing and performance for PRS plans, which are determined by something called Net Asset Values (NAV).
NAV is basically the net value of the portfolio of a PRS plan divided by the number of outstanding units. But if this doesn’t make sense to you, don’t worry. As a PRS contributor, all you need to know is that NAV is a really important number that is tabulated by PRS providers on a daily basis, which can affect your PRS contribution in the following 4 ways:
1) When You Contribute, You’re Actually Buying Units Based on NAV
First of all, understand that when you decide to make a contribution to a PRS plan, you are actually buying a certain number of units using this formula: Number of Units = Your Contribution / NAV
– Say you contribute RM1,000 to a PRS plan.
– If the NAV of the plan is RM 1, you will own 1000 units of the plan (RM1,000 / RM1).
– If the NAV of the plan is RM 2, you will own 500 units of the plan (RM1,000 / RM2).
2) NAV Allows You to Track the Performance of Your PRS Account
To track the value and performance of your PRS account, simply compare your PRS plan’s current NAV against the NAV when you first contributed to the plan.
– You own 500 units of a PRS plan with a NAV of RM2. Your account is worth RM2 X 500 units = RM1,000.
– If the NAV goes up to RM3, your account is now worth RM3 X 500 units = RM1,500.
– If the NAV goes down to RM1, your account is now worth RM1 X 500 units = RM500.
3) NAV Affects New Contributions to Your PRS Plan
PRS contributors may, at your discretion, choose to increase your contributions to a PRS plan. In such a case, the number of units you will be buying will depend on the NAV at the time.
– Based on the earlier assumption that you’ve contributed RM1,000 to invest in 500 units in a PRS plan that started out with an NAV of RM2.
– Say you decide at a later date to make an additional contribution of RM1,000 when the NAV increases to RM4.
– The number of new units you are buying = RM1,000 / RM4 = 250 units.Combined with your earlier contributions, your account is now worth RM4 X 750 units = RM3,000.
4) Dividend Changes the NAV of Your PRS Plan
Once in a while, your PRS provider may declare payment of dividends on your PRS plan. When this happens, the NAV of your PRS plan is reduced based on the value of the dividends.
– Say a PRS plan with an NAV of RM4 decides to declare a dividend of RM1 per unit.
– Should you hold 750 units, you will receive RM1 X 750 units = RM750.
– The dividend of RM1 per unit is deducted from the NAV of the PRS plan, as such, the NAV of the remaining account is now RM4 – RM1 = RM3.
– Hence, your account is now worth RM3 X 750 units = RM2,250.
So, these are the four basic things that you’ll need to know about PRS pricing and numbers. As you add on contributions and plans, things can get a little more complicated. But once you understand how the calculation works, you will be able to monitor your accounts and maximise your earnings better. Now, to learn about the risk of PRS plans, proceed to Part 5 of iMoney’s PRS Series.
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