Free Money

"There is no free lunch in the world", this had been the old teaching that our parents/elderly advised us. This the the word of wisdom, which I am nobody to challenge that. At the same time, we are using our creativity to scout for "free lunch" in the world. Lets start the series with the introduction to ASB investment by PNB

ASB loan - Amanah Saham Bumiputra for BUMIPUTRA only

So how's the free lunch work here? Nowadays some local banks such as RHB and CIMB offered ASB loan for those interested to invest in ASB but do not have capital, a chance to invest.


Here is how the magic works:
According to the ASB loan repayment plan with current BLR = 6.30%
Subscribe to ASB loan RM100,000 for 15 years.

Monthly installment for 15 years = RM786
Yearly installment for 15 years = RM786 x 12 = RM9,432
Average ASB dividend = 9.5%
Yearly dividend = RM100k x 9.5% = RM9,500

Net gain = yearly dividend - yearly installment
             = RM9,500 - RM9,432
              = RM68


You TOTAL investment is just RM786 x 12months = RM9,432 paid in advance for the first year.
The end of every year you gonna earn RM68 and  RM100,000 for you after 15 years!

Invest RM9,432 for the first year then sit there do nothing and get RM100,000 after 15 years, 

isn't it FREE MONEY??? 

Scenario A : 

You refuse that subscribe to ASB loan because you think you are not stupid enough to let bank earn interest on you. 

Let see!

You invest RM768 every month for 15 years
Yearly investment = RM768 x 12 = RM9,216
with 9.5% yearly dividend from ASB,
 RM9,216(FVIFA i=9.5%, n=15) = RM 281,458.767

Your asset after 15 years = RM281,458.767 

Scenario B, you apply for the ASB loan, 

Subscribe for ASB loan RM100,000 for 15 years
with the same commitment of RM768 monthly,

ASB year dividend 9.5% = RM9,500 reinvested into ASB fund for 15 years
                                      = 9,500(FVIFA i=9.5%, n =14) + 9500
                                      = RM265,785.11

Total asset after 15 years = RM265,785.11 + RM100,000 = RM365,785.11

Total asset in scenario B is 30% more than scenario A, you think you are acting smart, but the number tells!


Two assumptions made for calculations above:
First, assume that BLR is fixed at 6.30%
Second, assume that ASB is giving dividend 9.5% a year.

BLR will float freely, which when BLR increases, interest increases, and ASB dividend will increase too. If you are worried of the BLR fluctuation, subscribe to ASB Islamic loan, which fixed theprofit rate (int. rate).
The rule of thumb is to make sure ASB interest rate is higher than the BLR rate, then u are on the winning track for FREE MONEY.
For the past 2 years, BLR is below 6% and ASB is giving 8.75 and 8.55 respectively.

Question : What if i cannot afford RM786 installment every month? Should i choose ASB loan with lower amount or longer repayment period?

Try to choose the maximum ASB loan allowable for each individual which is RM100, 000. This is to maximize amount of dividend payout.
Our bank  understands your difficulty and has another attractive ASB package where you pay for 3 years interest before paying for principle+interest after 3 years.

For RM100,000 ASB loan (3 years interest + 14 years principle+interest)
Monthly installment for the first 3 years = RM429

Yearly installment for the first 3 years = RM429 x 12 = RM5,148

Monthly installment from year 4 - year 18 = RM989.00
Yearly installment from year 4-year18 = RM11,868

Yearly dividend for ASB @9.5% = RM9,500

For the first 3 years, you pay RM5,148 and receive dividend RM9,500 yearly.
Yearly earning = RM4,352
Total earning for first 3 years = RM4,352x 3 = RM13,056

From 4th year to 18th year, your investment per year = RM11,868 - RM9,500 = RM2,368
Your monthly investment = RM197.33

Your total investment = RM2,368x 14 - RM13,056= RM20,096

Invest total RM20,096 over 17 years and get RM100,000 after 17 years, with free cash flow of RM13,000 in first 3 years, isn't it FREE MONEY???  

For your information, the ASB loan is reducing balance method, which means you can pay more when you have extra cash aka. use your RM13,000 from the first 3 years to pay for your debt, which reduce your monthly installment later. However, I still advice you to buy extra ASB units for the RM13,000 you get from the first 3 years, which will be explain in the final scenario of the article.

Question : So what if I just want FREE MONEY and don't want to make repayment for the principle? 

We have all kind of request, earning free money without effort is frown upon, however to align with the topic of this article, i will still share how you can earn FREE MONEY without paying the principle, but for illustrative purpose only.

Subscribe to RHB EASY ASB loan (only RHB EASY offers first 5 years pay-interest-only loan)
RM100,000 for 5 years interest and 20 years interest+principle repayment plan.
Monthly repayment = RM429
Yearly installment = RM5,148
Yearly ASB dividend @9.5% = RM9,500

Total earning for 5 years = (RM9,500 - RM5,148) x 5 = RM21,760
At the end of the 5 years, cancel the ASB plan,
The bank will then proceed to sell the RM100,000 they hold on behalf of you as collateral, and charge 1% early exit fees (RM100,000 x 1% = RM1,000)

Total earning = RM21,760 - RM1,000 = RM20,760 FREE MONEY!!!

Over 5 years you paid (RM429x60 = RM25,740) and earned (RM9,500x5= RM47,500) which is RM20,760 net gained. ASB dividend is paying for your interest , isn't it FREE MONEY???

p.s. provided you have enough capital for first 12 monthly installment of RM429 per month.before you receive the dividend in the 12th month.

Question: If I have RM100,000, should i subscribe for ASB loan or directly buy RM100,000 ASB? 
Use ASB loan

Scenario A, Buy RM100,000 ASB

With RM100,000 investment in ASB , 9.5% yearly dividend compounded for 15 years = RM390,132
Total asset after 15 years = RM 390,132

Scenario B, Buy RM100,000 ASB and subscribe to RM100,000 ASB loan,

Use first RM100,000 to buy ASB, subscribe to RM100,000 ASB loan,
Yearly dividend = RM19,000
Yearly repayment = RM9,432

Net gain = RM19,000 - RM9,432) = RM9,568 per year for next 15 years
RM9,568 per year for next 15 years with 9.5% compounding
=  9,568 ( FVIFA i=9.5%, n=15)
= RM292,208.93

Total asset after  15 years = RM292,208.93 + RM200,000 = RM492,208.93

Scenario B has RM100,000 more than scenario A for using the ASB loan facility!!!

In short, try to maximize your ASB as early as possible, set it your target to maximize it with all the wealth you have, there is no country like Msia which offers such product at almost risk free.

Problem encountered: 
Most ASB loan subscriber are not discipline enough to save the dividend for consecutive year monthly installment. In fact, many of them will spend the dividend in less than 3 months they receive it, resulting in difficulty of ASB loan repayment, and fall into the trap of vicious interest cycle.
CAUTION : Remember,  the dividend from ASB does NOT belongs to you before you finish all your installment!!

Remember, whenever you have extra cash, try to buy the maximum ASB units (maximum RM200,000 per individual) possible, after that only you start to settle your ASB loan interest 5%, as it is based on reducing balance method. Unless you can get investment tool with GUARANTEE annual return more than 5% yearly.

Good luck and enjoy the road to wealth!