Understanding the “out-of-market" period

What is the "out-of-market" period?

If a member wishes to effect a transfer of MPF funds to an alternative provider, the member needs to provide transfer instructions to the existing MPF trustee. After validation of all relevant documentation, the funds in the member's MPF account will be redeemed and the cash proceeds will be transferred to the new trustee. The new trustee will then purchase funds according to the member's investment instructions. During the period between the redemption of funds by the former trustee and the purchase of funds by the new trustee, the member's MPF account balance will not be invested, resulting in a period when the member’s MPF funds are "out-of-market".

The out-of-market period typically last one to two weeks

The out-of-market period typically lasts from one to two weeks, depending on the operational efficiency of the different trustees. Also note that the exact dates when the former trustee redeems MPF funds and the new trustee invests the proceeds will not be known in advance. With the introduction of the eMPF platform and with MPF trustees gradually joining the platform, the time required for members to switch MPF trustees or schemes is expected to decrease, thereby reducing the duration of the out-of-market period. However, since transferring assets to a different trustee always involves selling one fund and buying another, the out-of-market period will not completely vanish.

It is worth noting that if a member adjusts their investment portfolio within the same MPF scheme, this will not result in an out-of-market period. This is because the MPF trustee typically purchases new funds on the same day as the existing funds are redeemed.

The out-of-market period can lead to ‘selling low and buying high’

Investment markets are unpredictable, and even a short time out-of-market can have an impact on investment returns in the short term – either positively or negatively. During an out-of-the-market period, members may unintentionally avoid a downwards market adjustment or miss out on a market upswing. For example, the stock markets in China and Hong Kong experienced significant volatility in September and October this year. If an out-of-market period coincided with a significant market upturn and the funds transfer was completed at or near the market peak, this would have resulted in a situation of "selling low and buying high", thereby negatively impacting investment performance. Conversely, had the transfer occurred after the market peak, the reverse would have happened, and the member would have been better off since the investment units would have been sold at a higher price and repurchased at a lower price. Members should be aware of the implications of the out-of-market period when switching MPF schemes, although there is little one can do to totally avoid this period of heightened risk.

Carefully consider switching MPF schemes

To minimize the risks associated with the out-of-market period, members should approach switching trustees with caution and consider various factors in advance. In addition to considering investment returns, members should also evaluate factors such as the range of funds available, fund management fees and other charges, the trustee’s administrative processes, and customer service, etc. By evaluating the provider using these metrics, it should help to reduce the need to switch trustees in the future, thereby minimizing periods when the member’s funds will be out-of-market.