7B.12 PRS Funds: Number, Core and Non-Core Funds, Objectives, Risk Profiles, Asset Classes, Authorisation and Naming
Key Takeaways
A PRS may comprise up to seven funds, or up to 10 funds if the PRS Provider offers both conventional and Islamic fund options, and it must always offer the three core funds.
Core funds must be named with the PRS Provider's name followed by "Growth Fund", "Moderate Fund" or "Conservative Fund".
The SC may revoke a PRS fund's authorisation if the fund is not launched within six months of authorisation, unless the SC has approved an extension.
A PRS fund may invest in derivatives provided its global exposure from derivatives positions does not exceed its NAV at all times.
Among index funds, emerging-market equity country index funds are described as very risky, while global bond index funds are less risky than equity index funds but riskier than cash management funds.
How Many Funds?
| Rule | Detail |
|---|---|
| Minimum | The PRS Provider must at all times offer the three core funds (conservative, moderate, growth) |
| Maximum | Up to seven funds in a scheme |
| With Islamic options | Up to 10 funds if the provider offers both conventional and Islamic fund options; alternatively a separate scheme can be set up for Shariah-compliant funds only |
The default option serves members who pick a provider but no fund (for example employer-channelled contributions), so contributions go to a fund suited to their age.
Objectives and Risk Tolerance
- The investment objective of the scheme and each fund must be stated clearly, specifically and sufficiently in the deed.
- Members have different objectives and risk tolerances. The PRS Consultant must explain the volatility of each fund and the possibility of substantial capital loss: higher potential returns come with higher risk.
- The age-based default may not suit everyone: some young members are risk-averse, some older members are not. Confirm the member is comfortable with a core fund's risk before recommending it.
| Core fund | Age band | Allocation focus | Volatility tolerated |
|---|---|---|---|
| Conservative | 55 and above | Conserving capital; mainly income-generating assets | Minimum |
| Moderate | 45 to 54 | Continue growing the portfolio in real terms without high market risk | Moderate |
| Growth | Below 45 | Grow the portfolio steadily; risks appropriate to returns | High |
Applying the default option
| Member | Default core fund | What the Consultant should check |
|---|---|---|
| Mr Tan, 30, very risk-averse | Growth (below 45) | Explain that the growth fund tolerates high volatility. He may actively choose the moderate or conservative fund instead, because PRS Guidelines paragraph 11.11 lets a member select any core fund regardless of age |
| Puan Rosnah, 56, other income secured, long horizon | Conservative (55 and above) | She accepts more volatility than the default assumes, so a moderate fund or a suitable non-core fund may fit better |
Risk and Return Profiles of Fund Types
| Fund type | Profile in the study guide |
|---|---|
| Cash management fund | Mainly money market instruments and deposits; low volatility; returns similar to fixed deposits; least risky |
| Country index fund – emerging-market equities | For example China's Shanghai Composite or India's Nifty; very volatile and very risky (100% emerging-market equities) |
| Country index fund – developed-market equities | For example the UK or Japan; more established companies; less risky than emerging markets but riskier than funds with less equity |
| Regional equity index fund | More diversification across countries (for example Asian REITs); less risky than a single-country index, riskier than bond funds |
| Global bond index fund | Many countries and issues; stable returns; less risky than equity funds, riskier than cash management funds |
Volatility measures how much a price varies over time. A volatile fund's daily returns move within a wide band; a less volatile fund's within a narrow band.
Asset Classes in PRS Funds
| Asset class | Key points |
|---|---|
| Bonds | Debt lent to a corporate, supranational or government borrower for a fixed period at a fixed rate; lower credit quality and longer maturity mean a higher expected interest rate |
| Equities | Ownership with a residual claim after all prior claims; returns from dividends and capital gains |
| Money market instruments | Highly liquid, maturity under a year: certificates of deposit, bankers' acceptances, treasury bills, commercial paper, repos |
| Collective investment schemes | Unit trusts, REITs, ETFs, wholesale funds, closed-end funds; offer professional management, cost sharing and diversification |
| Derivatives | Value derived from underlying assets (futures, forwards, options, swaps); listed or OTC, provided the fund's global exposure from derivatives does not exceed its NAV at all times; can hedge (for example a currency option on US dollar receivables) or speculate (for example bond futures betting on falling rates) |
| Real estate | Land and permanent fixtures (residential, commercial, industrial); prices driven largely by local factors such as jobs, crime, schools, property taxes, shops and road access |
Worked example: the derivatives limit. A PRS fund with a NAV of RM80 million may hold listed or OTC derivatives only while its global exposure from those positions stays at or below RM80 million, at all times. Under the commitment approach in the PRS Guidelines, global exposure adds up the absolute exposure of derivatives that are not netted or hedged, the net exposure of those that are, and certain cash collateral. The underlying of a derivative must be a permitted investment, or a commodity, index, interest rate or exchange rate, and commodity derivatives must be settled in cash.
Authorisation and Naming
| Topic | Rule |
|---|---|
| Authorisation | Core and non-core funds must be authorised by the SC; a scheme application must include at least the core funds; non-core funds can be added any time after |
| Revocation | False or misleading information or a material omission; the fund not launched within six months of authorisation (unless the SC approves an extension); breach of SC directions or the PRS Guidelines; or to protect the public or members |
| Core fund names | "(PRS Provider name) – Growth Fund", "– Moderate Fund" and "– Conservative Fund" |
| Non-core fund names | Must be not inappropriate and not misleading; the SC can require a change to the name of the scheme, a fund or a class of units |
The current PRS Guidelines (paragraphs 7.03A and 7.12, revised 1 October 2024) word two of these rules differently from the 2025 study guide. The six-month launch condition applies to any fund under a scheme, not only to core funds, and the non-core naming test is "not inappropriate and not misleading". The study guide's extra words, core funds and names that conflict with another fund, come from older wording.
FIMM's practice question: for Provider Delta, "Delta Growth Fund" and "Delta Moderate Fund" are acceptable core-fund names, while names such as "Delta Cash Management Fund" or "Delta FBMKLCI Tracker Fund" are not core-fund names.
A PRS Provider offers both conventional and Islamic fund options under one scheme. What is the maximum number of funds the scheme may comprise?
3
15
7
10
Which name is acceptable for a core fund of PRS Provider Delta?
Delta Growth Fund
Delta Cash Management Fund
Delta Asia Opportunities Fund
Delta FBMKLCI Tracker Fund
Which PRS fund type does the study guide describe as the least risky?
An emerging-market country equity index fund
A regional equity index fund
A cash management fund
A global bond index fund
Sections you finish are checked off in the contents.