ASB Loan Financing - Good or Bad?

ASB Loan Financing – Borrow Money to Invest? Should You?

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After a deep dive on ASNB fixed price funds in the earlier post, it’s obvious that no Malaysian should rule it out as an investment option. But how about taking a loan to invest in ASNB fixed price funds? Many banks offer ASB loan financing to Bumiputeras who have limited funds to invest in ASB fund.

Sounds tricky?

It’s a real toughie especially for those who have been working their asses off just to reduce their debt commitments. 

Now let’s take a closer look at ASB loan financing. You’ll find out whether it’s worth it to take up a loan to finance your investment in ASB fund.

How Does ASB Loan Financing Work?

ASB loan financing is open to Bumiputeras only. It actually works a lot like a housing loan. Most banks offer a maximum loan tenure up to 30 years with a minimum financing amount of RM10,000.

Though all ASB loans use floating interest rates, the interest rates have been relatively stable in the past. The interest rates vary according to changes in Base Rate (BR). 

At the time of writing, there are six banks that provide ASB loan financing.

  1. Maybank
  2. CIMB
  3. RHB
  4. Ambank
  5. Affin
  6. BSN

Here’s the complete comparison of all ASB loan facilities in Malaysia.

As depicted in the table above, some banks require you to cover your ASB loan with insurance as well. After all, it acts as a safety net to cover the remaining loan balance in the event of unexpected circumstances.

Having said that, you can always settle the loan earlier so long it’s after the lock-in period. Unlike conventional housing loans, paying extra for monthly instalments does not reduce the interest portion.

Is ASB Loan Financing Good or Bad?

Each Bumiputera individual can invest up to RM200,000 in ASB fund. Many have been pondering whether getting an ASB loan is a good or bad option. 

Logically, so long the returns are higher than the loan interest, it should be fine. Isn’t it?

Well, the answer seems pretty straightforward. But it’s not surprising that many people would hesitate and worry about being tied up with a lifetime commitment unnecessarily. 

The table below shows the historical returns of the ASB fund for the past 10 years from 2009 to 2018.

ASB fund historical returns 2009 - 2018
ASB fund historical returns 2009 – 2018

Let’s do the simple math to see if ASB loan financing does more harm than good.

Scenario 1 – Invest via Savings

Ali has RM10,000 to invest in ASB fund now. He plans to set aside RM1,000 savings per month to increase his investment at the end of every year. 

Ali expects the fund to generate an average return of 8% p.a. based on historical performance.

Invest in ASB fund using own savings
Invest in ASB fund using own savings

Scenario 2 – Invest via ASB Loan

Ali gets an ASB loan of RM200,000 for 30 years with an average interest rate of 5.5% p.a. He needs to pay a monthly instalment of RM1,135.58 to repay the loan and interest. Similarly, the fund is assumed to generate an average return of 8% p.a.

ASB Scenario 2 - invest through ASB loan financing
ASB Scenario 2 – invest through ASB loan financing

After comparing both scenarios, we can see that the net cash flow in Scenario A is much higher than Scenario B over the 30 years.

But wait a second…

Don’t forget Ali doesn’t have to fork out any of his savings in Scenario B if he gets a loan to invest in ASB fund. In other words, he will have RM200,000 savings after 17 years on top of RM200,000 investment in ASB fund. Not to mention that he can invest his savings separately to earn extra returns every year.

How cool is that?

Guess the answer is pretty obvious now. Getting ASB loan to finance your ASB fund investment is definitely more beneficial than accumulating your investment through savings.

An average return of 8% p.a. seems too positive?

No doubt historical results do not guarantee future performance. What if ASB fund fails to generate such high returns every year? Worse still, the returns could be much lower than the loan interest rates.

In my humble opinion, it’s less of a concern. If such a thing does happen, you can always withdraw your RM200,000 investment in ASB fund anytime to repay the loan.

Two Key Factors to Consider Before Getting ASB Loan Financing

1. Liquidity

In fact, you should consider other factors before getting a loan to invest in ASB fund. If you invest today, the fund will only provide you cash returns after one year. 

In other words, you need to dig into your pocket to service the monthly loan repayments in the first year. 

Only get a loan amount that you are comfortable with. Failing to make repayment on time may cause dire consequences. Not only there are late interest charges, but it may also affect your credit score as well.

After first year, the cash returns will be sufficient to cover the loan repayments.

2. Debt Service Ratio

Getting an ASB loan is no different from other loans. It will be reflected in your credit profile. 

How much you can borrow from the banks depends largely on your debt service ratio. Probably you will have other financial goals like buying a new house or car some time in the future.

Be sure that your debt service ratio allows you to get a housing or car loan after getting an ASB loan.

Of course, you still have the flexibility to cash out your ASB fund investment anytime to cater to your needs.

Eligibility for ASB Loan Financing

Any Bumiputera above 18 years old with income is eligible to apply for ASB loan financing.

Documents required for application generally include a photocopy of identity card and latest 3 months’ payslip or other proof of income.

For those who are interested, you may refer to the following product disclosure sheets for further information.

Maybank – Product Disclosure Sheet (Conventional)

Maybank – Product Disclosure Sheet (Islamic)

CIMB – Product Disclosure Sheet

RHB – Product Disclosure Sheet

Affin Bank – N/A

BSN – Product Disclosure Sheet

Ambank – Product Disclosure Sheet (Conventional)

Ambank – Product Disclosure Sheet (Islamic)

Certainly, it’s better for you to visit the respective official portal for further details and make enquiries if you have any question.

Final Thoughts

If I were a Bumiputera, I will definitely apply for ASB loan financing to invest in ASB/ASB 2 funds. It indeed gives an excellent opportunity for Bumiputeras to take advantage of such investment with high returns. Yet, low risk. More importantly, it’s also like forced savings, give you peace of mind during the rainy days.

Feel free to share your thoughts!

8 comments

  1. Hello, I don’t really understand the figures in scenario b, a loan on 200,000 with interest rate of 5.5% per annum, does that not mean he has to pay back 211000? Where did the 408809 come from?
    Hope to hear from you soon

    1. Hi Reg, the interest for ASB loan is calculated based on reducing balance method, similar to the conventional mortgage loan for house purchase. You dont get RM11,000 as interest because 5.5% is the effective interest calculated on the basis that the loan repayment is made on a monthly basis. I have simulated the interest calculation based on 5.5% interest rate over a tenure of 30 years in the excel sheet for your better understanding. Please refer to the link below:
      https://worldbizweek.com/wp-content/uploads/2019/05/ASB-loan-calculation.xlsx

    1. Thanks for your feedback. It’s indeed a good idea to show an illustration of how the compounding effect through reinvestment differs between both scenarios. Will certainly add a comparison in time to come.

  2. Regarding ASB Loan, for the Net Cash Flow calculation, after you minus RM13,627. Isn’t the net cash flow should be RM55,190 instead of RM68,818? Please advised

    1. Hi Ahmad, you’re right…it was my mistake. The total net cash flow in Scenario 2 should be RM55,190 instead of RM68,818. I have rectified the error. Thanks for highlighting! =)

  3. paying extra for monthly instalments does not reduce the interest portion….For conventional asb loan by maybank, it does reduce the interest portion with extra payment before the due date for monthly installment…and you can pay extra anytime without informing the bank….as i myself have asb loan with maybank…

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