Invest Made Easy
Investing In Amanah Saham via Personal Loan, should you or should you not?
Shane My
Publish date: Tue, 22 Jan 2013, 01:47 AM
Shane My
0 271
Like many of us, we seek for financial security and ultimately financial freedom. This blog is intended to act as a journal of investment as I journey towards that dream. At the same time, I hope that the articles written here would also benefit many others who share the same vision as me.
I've had a discussion with a friend of mine on whether to take up a personal loan to invest into Amanah Saham Bumiputera (ASB). I was curious to find out how much the returns would be for this friend of mine if he takes up a personal loan to fund his ASB investment. We also discussed a few scenarios of investing and tried to calculate what is the actual value of investment after 20 years.
We came up with a few scenarios such as:
1. Taking up a RM100,000 personal loan and servicing the loan with his own cash while the RM100,000 is invested into ASB. Annual dividend from ASB is also reinvested.
2. Taking up a RM100,000 personal loan and utilizing the annual dividend from ASB to pay off the personal loan. Whatever balance from the dividend after paying of the personal loan is reinvested into ASB.
3. Not to take up a personal loan, instead using his own cash to invest monthly into ASB. The amount to invest is equivalent to the amount to be paid monthly for a personal loan.
4. Not to take up a personal loan, instead using his own cash to invest monthly into Fixed Deposit. The amount to invest is equivalent to the amount to be paid monthly for a personal loan.
5. Not to take up a personal loan, instead using his own cash to invest monthly into Unit Trust. The amount to invest is equivalent to the amount to be paid monthly for a personal loan.
Next, we managed to find the personal loan details from Maybank as shown below:
Personal Loan Details:
Loan Amount : RM100,000
Tenure of Loan : 20 years
Interest Rate for Loan : BLR - 1.65%
Monthly Payment* : RM658/month
*Monthly payment value obtained from Maybank ASB Monthly Loan Table (updated 12/05/2011)
 |
| Financial Freedom after taking up a personal loan?? Hmmmm |
Some assumptions on the investment returns (annual % returns) have to be made to ease the calculation process:
Expected Annual % Returns:
1. ASB Average Dividend Payout : 8%
2. Fixed Deposit : 3.5%
3. Unit Trust - Equity Based : 10%
Results from our calculation:
Scenario 1 (Using own cash to service your personal loan for investment in ASB)
1. You service your personal loan using own cash on a monthly basis.
2. ASB Dividend Payout is reinvested for the next 20 years
Calculation:
1. Loan amount + interest paid : RM658 x 20 years x 12 months = RM157,920
2. Investment value in ASB after 20 years : RM492,380.28
3. Actual Value in 20 years (Item 2 - Item 1) : RM492,380.28 - RM157,920 = RM334,460.25
Scenario 2 (Using ASB dividend to service your loan)
1. You service the personal loan using the dividend given by ASB
2. If the dividend is insufficient you will need to top up using your own cash. If sufficient, the extra is reinvested.
Calculation:
1. 1st Year Loan payed using own cash : RM658 x 12 months = RM7,896
2. Dividend Earned after 1st Year: RM8,000
3. Balanced Yearly Dividend to be reinvested (Item 1 - Item 2) : RM104
4. Value in ASB after 20 years : RM105,106.81*
6. Actual Value in 20 years (Item 5 - Item 4) : RM105,106.81 - RM7,896 = RM97,210.81
*The value RM105,106.81 is derived from the balanced yearly dividend reinvested into ASB.
Scenario 3 (Using own cash and investing monthly into ASB)
1. You decide not to take any personal loan, instead you invest RM658 (equivalent to your loan amount) on a monthly basis into ASB
Calculation:
1. Calculated using IME's Investment Calculator based on 8% return from ASB
2. Actual Value in 20 years = RM387,575.43
Scenario 4 (Using own cash and investing monthly into Fixed Deposit)
1. You decide to invest RM658 (equivalent to your loan amount) on a monthly basis into the bank Fixed Deposit.
2. By saving in the Fixed Deposit, your money is secured from any risk
Calculation:
1. Calculated using IME's Investment Calculator based on 3.5% return from Fixed Deposit Rate
2. Actual Value in 20 years = RM228,239.98
Scenario 5 (Using own cash and investing monthly into Unit Trust)
1. You decide to invest RM658 (equivalent to your loan amount) on a monthly basis into the Unit Trust.
2. You are exposed to risk related to investing in Unit Trust. 10% returns is the average return taken based on investing into High Risk - Malaysia Equity Unit Trust.
Calculation:
1. Calculated using IME's Investment Calculator based on 10% return from Unit Trust
2. Actual Value in 20 years = RM499,664.69
Overall Summary
This is the summary table of Investment Value After 20 Years for all 5 scenarios:
| Type of Scenario | Investment Value After 20 Years (RM) |
| Scenario 1 (Personal Loan, Own Cash, ASB) | RM334,460.25 |
| Scenario 2 (Personal Loan, Dividend Used to Pay Loan, ASB) | RM97,210.81 |
| Scenario 3 (Own Cash, Monthly, ASB) | RM387,575.43 |
| Scenario 4 (Own Cash, Monthly, Fixed Deposit) | RM228,239.98 |
| Scenario 5 (Own Cash, Monthly, Unit Trust) | RM499,664.69 |
What you can see here is that it is a better choice to invest consistently every month into ASB via Scenario 3 instead of taking up a personal loan to fund an investment via Scenario 1. The risk of taking a personal loan is that you have no choice but to service that loan for the next 20 years. Say you default on your loan payment, the consequences would most likely be for the bank to blacklist you and your guarantor has to pick up your shit burden.
On the other hand, by practicing discipline and investing consistently every month, you will be debt free. Furthermore in the event of a financial emergency, you need not worry about having money to service your loan debt.
If you find that the 8% returns from ASB is too low, you can also consider investing in unit trust fund that is "capable" of providing higher returns. However I would like to highlight that investing in ASB is less riskier then investing in Unit Trust. ASB has perform consistently and should be able to provide 8% returns annually. On the other hand, the 10% annual returns from Unit Trust is an annualized value and this figure might change according to various investment risk such as recession, economy downturn, political instability, bull run, bear run, etc.
Scenario 2 is an option of making almost RM100,000 in 20 years without the need to fork out any money, except for the 1st year personal loan repayment.
Choosing the right method of investing depends on a few factors. Some of us are risk takers while some are not. Some of us have the means to invest large amount of money while some of us can barely save. Albeit all these factors, the most important decision you have to make NOW is whether to start investing for your future or wait till it is too late.
Cheers and happy investing!
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Discussions
Be the first to like this. Showing 7 of 7 comments
your analyses are not deep enough - comparison should be based on percentage return per annum on capital. another better option, for higher percentage return per year, is to take loan for 20 years then terminate after 3 years (so that no penalty imposed) & repeat the processes till 20 years..
2013-01-22 08:30
hi there hampas, i thought i did make a comparison based on return per annum per capital. see scenario 1.
as for taking loan and terminating after 3 years, can you explain further on this concept?
2013-01-22 15:01
walau ... here for share investment sharing . how come become a unit trust ?
2013-01-22 15:05
Share investment is all but one of the various kind of investment. There is no harm to know about others right? :)
2013-01-22 15:17
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
ngohieng
However, if u calculate based on the return of investment: it's highest for senario 2. U only need ur cash for the first or second year. Subsequently, the return from the dividend can be used to service the loan. Senario 2 gives u the most return with minimal initial investment. The remaining cash, can be used to invest in equities... Correct me if i'm wrong
2013-01-22 07:00