Amanah Saham Bumiputra (ASB) is one of the safest, most popular investment instruments introduced targeting Bumiputras where the capital invested is guaranteed. For investment newbies and those with low tolerance to risks, ASB can be regarded as a safe bet. But is it, really?
This is because a sum of the money we invest (our own money) in the ASB account will then be reinvested by the company in the Bursa Malaysia stock market. This means that despite ASB being the safer option for low-risk investors, the return is still not guaranteed. You might earn a 10% return, but only 8% in the following year.
In contrast, ASB Financing (ASBF) is an ASB investment loan facility. This allows you to make investment loans with selected banks such as RHB, CIMB, Maybank, Maybank, and others by purchasing the ASB investment certificates.
Basically speaking, you borrow a specific amount of funds from the selected banks to make the ASB investment. This facility offered by some Malaysian banks also allows the public to invest in ASB on a lump sum basis.
Let’s say you applied for ASBF and the funding is approved. Once it has been approved, there will be two outcomes: you gained debt in addition to the funds borrowed. For example, if the approved financing is RM100,000, then the RM100,000 will be invested in ASB but it will be considered a debt, so you’re obligated to pay monthly instalments according to the set period.
ASB vs ASBF: Which one is the better option?
For ASB, you’ll only be investing with your own hard-earned money. If you can afford to invest RM500 a month, then that will be the amount invested in the ASB account.
In cases where you’re facing salary deduction or any other financial crisis where you’re unable to invest the same amount of RM500 a month, it will still be fine, though the dividend rate of ASB would be slightly lower. For example, an annual investment of RM1,200 with a dividend rate of 5% would only earn you a return of RM60.
Meanwhile, ASBF requires you to invest with the money funded/lent by the bank. This means it will be a long-term financial commitment where failure in paying off the monthly instalments consistently could result in financial issues.
If your monthly instalment is RM400, then you should make sure to pay the exact amount consistently. This is highly important considering that your CCRIS record will be affected. As a result, you’ll find it more difficult to apply for car or home financing in the future. That said, the dividend rate for ASBF is higher than ASB. So, if your approved financing amount is RM10,000, with a dividend rate of 5%, you will earn RM500.
In essence, ASB may be the better option for those who are new to investment, had a tight budget yet are still able to set aside some money, and preferred the freedom to invest in whatever amount they see fit without the additional pile of debt.
As for ASBF, only proceed with caution if you’re certain that you can afford to make the monthly instalments without fail. Your main goal when taking out ASB financing is to earn higher dividend returns. The higher the amount invested, the higher the dividend rate will be earned. This is also known as compounding interest.
How much money will be deducted from your bank account if you get ASBF?
The actual amount depends on your ASB financing rates. Here’s an example of how much you’ll be paying the loan off, assuming you took a 20-to-30-year ASB financing:
RM10k ASBF (min amount): RM4x to RM5x per month
RM50k ASBF: RM2xx to RM3xx per month
RM100k ASBF: RM4xx to RM5xx per month
RM150k ASBF: RM6xx to RM8xx per month
RM200k ASBF (max amount): RM9xx to RM1,1xx per month
So, judging by the amount stated, ask yourself whether you could really afford to get ASB financing and make the monthly instalments without fail.
Avoid getting ASB financing if…
You have unstable income with barely any savings to keep you afloat in tough times. Since ASBF requires you to make a consistent monthly instalment, you’ll only be burdening yourself financially.
Whether you’re dealing with a pay cut, are being laid off, settling high medical bills or any other financial emergencies; none of that matters to the bank. You are still obligated to pay the instalments no matter what. Otherwise, your CCRIS record will suffer.
You may want to start off with a normal ASB saving minus the financing. All you need to invest is RM100 or however much you can afford into your ASB account every month.
Additionally, you might also want to consider other risks such as fluctuations in bank profit rates or fluctuations in dividends. In a nutshell, it all really boils down to YOU. You’re the only one who knows how much income you have and earn, how much monthly commitment you can afford and what your goals are for getting the financing.
There’s no denying that ASB financing could still be profitable if the dividend rate is higher than the bank's profit rate, and vice versa. Ideally, invest for the long term and do not use the dividends earned to pay off your monthly instalments. Think of your ASB financing as the same as home or car financing. Smart financial management is key.