Truly one of the greatest investments for eligible Malaysians, Amanah Saham. Did you know about it’s younger, better sibling ASB financing though? Unfortunately, some of you wouldn’t be able to participate in this and I really wish that wasn’t the case. For those of you that are, consider yourself fortunate!

To give a bit of context, all Amanah Saham funds (AS1M, ASB, ASB2,etc.) are managed by a fund manager named Permodalan Nasional Berhad (PNB). They were formed in 1978 as one of the instruments of the New Economic Policy.

From what I understand, these funds were created to encourage a behaviour not many Malaysians participate in – investing their hard earned money. Hol’ up, that’s what we do too!

In order to do this, they decided to create fixed NAV funds that return yearly “dividends”. What this means is each unit in Amanah Saham Bumiputera is fixed at RM1. Essentially, you can’t lose money investing in ASB.

With the launch of this product, banks came up with an idea. “What if we provided loans for Malaysians to invest in Amanah Saham, creating a win-win situation?” Thousands of the greatest minds as they brainstormed this concept and a product was born, ASB Financing.

What is ASB Financing?

 ASB Financing is a simple concept. Banks provide loans at a BR + x% rate (depending on bank) that will automatically be put into your Amanah Saham account as an investment in ASB.

When you look at your ASNB account, there will be a split between your cash investments and loan certificate. 

I have an ASB loan of RM100k. They split this amount to show you what portion of your account is available for withdrawal. For obvious reasons, the banks have agreements with ASNB that prevents you from withdrawing the loan amount of RM100k, meaning it’s sole purpose is as an investment in ASB.

If I default on my monthly installments, the banks can withdraw this entire loan certificate from my account meaning they have zero risk in disbursing these loans. That’s what I think at least.

For as long as I continue paying my monthly installments, this RM100k will be in my ASB account generating returns for me over the long run.

The Difference Between Standard ASB & ASB Financing

We need to get a little technical to understand this part but it’s important to understand why ASB Financing can be good for you instead of just telling you it, so stay with us!

This entire concept is called leveraged investing, meaning borrowing money from others to invest. For normal investments, we never recommend using this since you can lose a lot of money very quickly.

ASB is slightly different though. Since the funds are fixed at RM1/unit, we can’t lose money. So, we can utilize leverage to outsize our returns that couldn’t be achieved if we invested regularly. 

Let me give you a personal example of how this would work. I’ll work on the assumption of 6.5% ASB returns & 4.8% ASB Financing interest rates. This gives us a spread of 1.7%.

I’ve decided to apportion RM530 of my monthly income to invest in ASB. Let’s see the results:

Conventional ASB deposits

After a year, I would have RM6,360 of invested capital and (Insert complex calculations here) RM224 returns from ASB. This brings me to a total of RM6,583. Very nice results for a year of saving!

ASB Financing

If I use the same RM530/month and decide to go the ASB financing route however, things get better. With that monthly installment amount, I get an ASB Financing agreement worth RM100k. This nets me RM6,500 in dividends. 

On top of this, I’ve paid off RM1.5k of my RM100k loan. This means that if I decide to terminate the contract, I would get the money deposited into my ASB. This brings my total returns to RM8,000, nearly 23% higher compared to standard ASB deposits.

Do you get it? If not, don’t worry. 

How I Can Use ASB Financing To Have An RM1 Million Retirement Fund

First up, I need to see what my retirement timeline is. Being 24 this year, I have 31 years till I become 55. Let’s make it 30 for simplicity sake.

Over the next 30 years, I expect average ASB returns & ASB Financing interest rates of 6.5% & 4.8% respectively. These are pretty safe assumptions as although ASB returns were lower in 2019, interest rates have also fallen below the 4.8% mark.

Next up, I take up an ASB Financing amount of RM150k. Note that the highest loan amount you can take is RM200k, so you can earn more if you’re willing to set more money aside every month.

This leads to a monthly installment payment of roughly RM790, or RM9,500 . After 30 years, I’ve fully paid off my ASB loan and the net amount in my ASB is now…. RM992k. Without adding anymore funds, I’d be raking in RM65k per year in dividends alone and living like this.

Guess how much I’ve paid over the 30 years in installments? In comparison to my nest egg, I “only” paid a measly RM286k in installments. 

This is important because a lot of people seem to be of the idea that having loans and paying interest is a bad thing. In most cases, you’d be absolutely right. In this scenario however, paying the banks interest would net you RM700k in returns.

Let’s take a look at how much I’d have if I deposited this RM790 monthly instead of taking up the ASB Financing option.

You’d end up with RM851k after 30 years. A difference of 16% or a whopping RM140k. This difference leads to a lower yearly dividend payout of RM9.1k from year 31 onwards. We don’t know about you but that’s a lot to us!

If you take up the maximum RM200k ASB Financing instead, you’d end up with a cool RM1.3m after 30 years. We strive to be able to take this up but you’d have to fork out around RM1k/month to do so. Always good to have a goal! 🙂

Pros Of ASB Financing

1. Using Leverage To Generate Higher Returns

This article talks about this so no need for more explanation. You’d generate more returns compared to the conventional ASB over the long run.

2.Forced savings aka save first spend later

Since this is a loan, you have to pay it off every month. At least I hope you will.. For us, we set up a scheduled transaction through our bank to make sure the payments go off right after our salary comes in. This bodes well with our “Save First, Spend Later” concept.

Having said this, it’s important that you only commit to a loan amount that you’re comfortable paying off every month.

3.Build credit score

A lesser known benefit of applying for ASB financing is it’s easy to get approved for, even if you’re a fresh grad. This helps build your credit score initially and lays the groundwork to having a strong one. You can’t have a credit score if you don’t have a loan!

Cons of ASB Financing

1.Might affect future loan eligibility

If your salary is small yet you force yourself to take up a large ASB Financing loan, then hats off to you cause you’re doing an amazing job for your future.

However, the problem may arise when you try applying for your car or house loans. Since your ASB Financing loan is already a significant portion of your income, your debt to service ratio goes up. Do remember you can cancel your ASB loan at any time with no penalties though!

2. ASB returns plunge or interest rates skyrocket

A risk with ASB Financing is that it can under perform the conventional ASB deposit method. If the spread between the interest rate (4.8%) and ASB return (6.5%) becomes too small, your returns will deteriorate.

Likewise, larger spreads will generate even better returns that in the example we showed. At this current juncture, it’s still more profitable to go for ASB Financing. We closely monitor this every year and should our stance change, we will definitely keep you updated.  

There are no free lunches after all. We’re taking on small risks to get significantly higher returns, so our risk reward ratio is really good at the moment. 

3. Less liquidity

If you deposited money into ASB, you can withdraw it at any time you want. However, the monthly installments you pay to the banks if you take up the ASB financing option doesn’t go into your ASB account. You’d only get the lump sump dividend every January.

So, make sure you have your rainy day fund set up before you do this!

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That sums up this article! To recap:

1. ASB Financing will lead to higher returns over the long run with slight risks

2. Make sure you have your rainy day fund set up before going for ASB Financing

3. Manually depositing into ASB is still a good option. Investing even with lower returns trumps not investing at all!

If you have any questions or want to know how I came up with the calculations, feel free to drop a comment below and we’ll respond.

If you enjoyed reading this article, share with your friends and loved ones so they can go through it too! We’d really appreciate it 🙂

Other reads:

• How To Save Money – 4 Ways To Save Without A High Paying Job
• How Much Do You Need To Retire?
• 3 Reasons We Use Robo Advisors To Invest