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A Millenial's Guide to Stocks

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A Millennial’s Guide To Stocks

A Millennial’s Guide To Stocks

You would be missing out on a good avenue to grow your wealth if you think that investing in the stock market is an activity only suited to the older generation. Investing from a young age gives you the advantage of time, and building a good investment portfolio over a longer period will bring many financial benefits in the long run.  Read on to learn how to get started in stock market investing and you’ll be well on your way towards building a solid investment portfolio!

Understanding Stocks and Investments

Before you begin, it is important to know that investing in stocks is a long-term decision and as such, do not expect to reap fast rewards. The primary benefit of long-term investing is the compound interest earned, being the interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

 

You must also be willing to learn the skills required to invest, and take the time to do your own research on the best stocks in which to invest. Of course, if you like to keep abreast of current economic issues globally, investing in the stock market may be right up your alley as the economic standing of a country has an impact on share price movements.

 

 

Selecting The Right Stocks For Investment

In Malaysia, you can trade stocks through Bursa Malaysia by first opening a Central Depository System (CDS) account. To do so, you may enlist the services of an investment broker, open one yourself by visiting any investment bank branch, providing photocopies of your NRIC and paying a fee of RM10. Subsequently, you will receive your CDS account’s documentation by mail.

 

Next, determine the industry and companies in which you are keen to invest. Before deciding, carry out your due diligence by reading up on the past performance, cash flow and profitability of the companies to determine their value and overall standing.

 

Additionally, you should consider your risk appetite, which is the level of risk that you would be comfortable taking on. Assess whether you want a low-, medium- or high-risk investment. It is also helpful to familiarise yourself with the technical terms used in stock investments.

 

Before you can begin trading, you will need to acquire some stocks. The minimum number of shares or stocks that you can buy or sell per transaction is 100 units. For example, if the share is priced at RM1 per unit, you will need at least RM100 to make the purchase.

 

Now that you’re aware of the basics of investing, it’s time to take your first step towards becoming a shareholder! Remember, good investments will bring great rewards in the long term.

 

This article was contributed by www.CompareHero.my

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

How Does Equity Crowdfunding Work In Malaysia?

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Raising money can be the toughest part of starting and sustaining a business. No matter how brilliant your business idea is, execution will not happen without the funds.

If you do not have a truckload of cash sitting in your bank account, the next best thing is to look for investors. However, suitable investors are not easy to come by these days.

Which is why many entrepreneurs today are looking for alternative means for funding that will contribute to their financial success. One of the most popular methods of raising funds today is equity crowdfunding.

What is equity crowdfunding?

Equity crowdfunding is the process of obtaining smaller investments from a large number of people via the Internet, and in return, these investors will receive shares in the company.

Through equity crowdfunding, more people will be able to invest in businesses and start-ups that were previously only accessible to private equities and venture capitalists. For the entrepreneurs, this means it will be easier for them to launch their innovative ideas into sustainable businesses.

In Malaysia, equity crowdfunding is regulated by the Securities Commission, and we are the first country in ASEAN to enact a regulatory framework in 2015. Currently, there are six equity crowdfunding platforms registered with the Securities Commission.

With an established framework and regulated operators, more firms will be able to raise growth capital and unleash innovation using the equity crowdfunding method.

equity crowdfunding

https://www.imoney.my/articles/equity-crowdfunding-in-malaysia

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Have You Started Investing?

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Have you ever dreamed of being able to travel the world? If yes, are you still dreaming or have you made it come true? Regardless, I’m sure we can all agree on one thing: Being able to travel comfortably usually requires you to make an “investment”, be it your time and effort in saving money for the trip, or actually investing your money, where you can then use the returns or dividends to finance your trip.

Some of the most common ways to achieve your long term financial goals include savings & fixed deposits, investing in property (a second home, perhaps?), and of course, unit trust funds & investing in the stock market.

However, fixed deposits tend to yield average returns, and while buying a second home is a simple enough investment option, the 2016 property market is expected to be a bit subdued, so your rental returns may not be enough to offset your monthly mortgage, leaving you in more debt.

And then there are stocks, unit trusts, bonds, derivatives, and other investment products. Well, they can get complicated, no?

Enter InvestSmart, an investor empowerment initiative by Securities Comission Malaysia (SC), organising seminars for retail investors (like you and me) so that we, the public can be better educated on investment methods, taking control of our finances and  being fully responsible for our own investment decisions and (hopefully) achieving future wealth.

The seminars will cover basic fundamental topics such as how to:

  • Understand the role of market sentiment, technical analysis and identify the trading risks involved;
  • Spot the right opportunities for trading or investing;
  • Conduct fundamental research on listed companies in Bursa Malaysia, and
  • Distinguish between stock trading and stock investing.

These seminars are held NATIONWIDE every SATURDAY and will equip investors with the necessary skills, knowledge, and tools needed to exercise good judgement and discretion in making sound investment decisions, very important not only to new and aspiring investors, but perhaps even the seasoned veterans as well. Guess what, you can even keep up with InvestSmart via Facebook! Find out where the next seminar is happening, or when InvestSmart’s Mobile Kiosk will be coming to a location near you at https://www.facebook.com/InvestSmartSC. Interestingly, InvestSmart has also roped in local celebrities Neelofa, Aaron Aziz, Scha Alyahya, Awal Ashaari, Shaheizy Sam and Elfira Loy to promote simple and witty investment messages on Instagram, so be sure to follow them!

Based on what I’ve read on the InvestSmart website so far (www.investsmsartsc.my), I’d say that articles such as 5 Investment Tips For Beginners would be really great if you are looking to kick-start your investment knowledge with the basics.

Do yourself a favor and check out www.investsmartsc.my and do plan to attend their events to learn more. The future is in your hands!

Disclaimer: This story was edited/written by InvestSmart, a Securities Commission Malaysia initiative and featured on featured on KYspeaks, a Malaysian blog

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Making Dividend-Paying Stocks Work in Your Favour

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This article is sponsored by Securities Commission Malaysia, under its InvestSmart initiative

Dividend-paying stocks play an active role in a long term investment portfolio because they may provide a somewhat predictable stream of income, can be used as a potential indicator of capital appreciation and is a key diversification method for weathering portfolio volatility.

Here are the factors you should consider when deciding which dividend-paying stocks would work best in your favour:

1. The higher the dividend yield, the better

The dividend yield of a stock depends on your purchase price. If your stock’s price rises after a dividend announcement, the dividend yield will drop.

You can find out the dividend yield of a stock just by reading the company’s past annual reports. You can also calculate the dividend yield ratio by dividing the total dividend of the financial year (not calendar year) by your buying price.

2. Mid- and large- cap stocks

Lookout for stocks offered by large, mature companies capable of providing stable revenue, profits and cash flow, as they are typically considered the best dividend-paying stocks. These companies are no longer expanding aggressively; therefore the majority of their earnings are distributed to investors in the form of dividends.

On the other hand, a small, high-growth company may require more financial resources to grow and expand their business. They tend to not distribute gains to their shareholders, instead using them to reinvest into the company to boost growth.

3. Ability to be consistent in paying out dividends

The company you intend to invest in should have a long and stable track record of paying dividends. It would not be too beneficial for you as an investor if the company is large and successful, but only makes sporadic dividend payments to their investors.

The best way to decide if the dividend-paying stock is worth your while is to check if the company issuing has been paying consistent, growing dividends to its investors over a period of at least five to 10 years.

If you want your investments to be a stable source of income, then focus on and invest in companies that are stable enough to finance their growth without compromising on dividend policy.

4. Sustainable and strong company fundamentals

A company’s historical data is important, but it will never guarantee that the company will always perform as it has in the past. Besides the dividend yield and consistency of dividend distribution, investors should also look into the overall aspects of the company’s fundamentals and ensure that they are healthy.

Even if a company has a consistent dividend pay-out policy, deteriorating fundamentals such as declining revenue, reduced profits and inconsistent cash flow may affect its ability to sustain its dividend pay-outs in the long term.

The less revenue or profit a company makes, the less dividends you will receive. Companies with weak fundamentals may also see their stock price affected as investors may no longer find it financially attractive. A fall in stock value will then eat into any dividend gains you might have had in the beginning.

Therefore, always make sure that the company you want to invest in is fundamentally and sustainably strong, robust and will continue to do so for many years to come.

5. Low capital expenditure

To reasonably foresee if the stocks you are buying will be able to deliver the dividends that you are expecting, it pays to look into the company’s capital expenditure (CAPEX).

A company with a high CAPEX indicates that it is in a growth stage and has been continually reinvesting its profits back into its business instead of distributing them as dividends to its investors.

On the other hand, if a company has a low CAPEX, it could mean that it’s no longer looking at aggressive expansion and is unlikely to reinvest its earnings. Thus, they would be more likely to pay good dividends.

6. Stable cash flow

When it comes to evaluating cash flow, choose large, stable companies that produce high amounts of free cash flow annually.
Smaller companies that are still expanding may have negative or inconsistent cash flow, and hence, will not be able to consistently pay dividends to its investors.

Analyse the company’s balance sheet to determine the net cash or net debt position of the company. This figure will give you a rough idea of how long the company can maintain its dividend pay-out even when cash inflow is low or negative.

Conclusion: Always do your homework!

As investors, we all love earning dividends. Besides the thrill of watching your stocks rise higher in value, you equally look forward to receiving passive income in the form of dividends from your investments every year.

We must always scrutinise the companies we are looking to invest in based on our objectives. If you are focused on dividends and it looks like your stocks are not meeting a few of the points above, do not hesitate to invest in different stocks or sectors. Remember, investing for dividends is a long term game filled with changes, volatility and the need for constant diversification!

 

https://www.imoney.my/articles/making-dividend-paying-stocks-work-in-you...

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

What to Invest in if You Choose to Reduce Your EPF Contribution Rate

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Securities Commission MalaysiaInvestSmart

 

Let us assume you are an employee under the age of 60 today who opted to reduce your statutory contribution rate from 11% to 8%. The reduction is effective for 22 months, starting from March 2016 to December 2017.

This means you would be contributing RM30 lesser into your EPF account for every RM1,000 in monthly salary. You are free to choose how the RM30 should be spent.

Let us assume that your monthly salary is RM10,000. In the 22-month period, you would be collecting RM6,600 in cash which would have been contributed into your EPF account if the statutory rate remained at 11%.

Extra Cash-in-Hand = RM10,000 x 3% x 22 months = RM6,600

Should You Accept the Cash?

We believe it is subject to your own circumstances. There is no perfectly right or wrong answer to this question.

Here, we would like to share 5 things that may influence your decision on whether to utilise the cash or put it back into your EPF account. They include:

#1: Is this RM6,600 Disposable Cash?

Perhaps you might be facing some financial difficulties. You may have outstanding credit card debt which is charging you 18% interest per annum. You may have other debt repayments such as mortgages, hire purchase loans, and other personal loans. The extra RM300 a month could be used to service them, thus lightening your financial burden.

Perhaps you may be underinsured today. You could get yourself a decent life and medical insurance package for RM300 a month. This is crucial to safeguarding your financial future. Here, we will leave the talking to your life insurance agent.

For the 2 cases above, we believe it is wise to keep the RM300 a month by choosing the 3% reduction. However, if you are financially secure and intending to invest the RM300 instead, then let us shop around for investment vehicles that would give the best bang for your buck.

But first, what would your expected returns be if your money is parked in your EPF account?

#2: Keep the Money in EPF

Over the past 5 years, the EPF Board has declared above 6% in dividend rates to its contributors.

Year20112012201320142015
DividendRates (%)6.006.156.356.756.40

Source: kwsp.gov.my

The Track Record

Next, we should find out how efficient the EPF Board is in growing its investment assets and increasing its return on these assets (ROI) over the last 5 years.

Based on its annual reports, the EPF Board had grown its investment assets from RM440.52 Billion in 2010 to RM636.53 Billion in 2014. ROI from investment assets has increased gradually from 6.08% to 7.25% during the period.

Year20102011201220132014
InvestmentAsset(RM Billion)440.52469.22526.75589.87636.53
ROI (%)6.086.586.876.977.25

Source: Annual Report 2014 of the EPF Board

Therefore, if we were to invest the RM6,600 on our own, we should set a minimum targeted investment return of more than 6% per annum. This is because it is the annual dividend rates that we would be expecting had we left the money parked inside our EPF account.

#3: Invest in Unit Trusts

Today, unit trust is a popular investment vehicle. If you buy unit trust, you are entrusting your capital to a fund manager who would be doing the investment for you. These investments include equities, bonds, and money market funds. Before investing in unit trust, there are a few things that you need to consider. They are:

Fees

For a start, you will incur 3 different fees when investing in unit trust. First, there is a one-off sales charge for buying units of a unit trust fund. Often, it is about 5% of your investment capital if the fund requires active management. Secondly, there are 2 recurring fees for holding onto your investment in a unit trust fund. They are trustee fees and management fees which are payable on an annual basis. These fees would range from 1% – 2% per annum. Hence, you may want to assess the impact of the 3 fees mentioned on your returns for investing in unit trust.

Performance

If you pay a combined 6.5% in fees, you would need to achieve 7.0% returns on your unit trust investment to break even in your first year of investing. Thus, you need to find a unit trust fund that consistently achieves double-digit investment returns to enjoy meaningful gains on your investment in unit trust. The calculation below explains why you need 7.0% to cover the 6.5% fees incurred in your first year in unit trust investment.

Investment Capital = RM10,000

Combined Fees in Year 1 = 6.5%

Starting Capital = RM10,000 – RM650 = RM9,350

Returns Required to Break Even in Year 1 = RM650 / RM9,350 X 100%

= 6.95% (rounded up and it is 7.0%)

How Does it Compare to EPF Returns?

Before investing in any fund, it is a great idea to compare the investment portfolio of the EPF against the funds promoted to you. We believe the EPF has a good and solid track record in generating investment returns compared to most unit trust funds in the market. However, for this point, please do not take our word for it. It is always important to do your homework first before investing.

#4: Invest in Shares

Basically, there are many skills that you should arm yourself with in order to do well in the stock market. Among the two most important are Fundamental and Technical Analysis.

Fundamental and Technical Analysis in Investing

Fundamental analysis is the foundation of solid investing. In simpler terms, it involves understanding and interpreting the financial reports of public listed companies. Doing this helps investors differentiate between stocks that achieve consistent growth in profitability and mediocre ones that do not. In addition, this knowledge helps in identifying stocks that choose to pay high level of dividends or in reinvesting profits into other profitable investments.

The inability to read financial reports would increase the risk of making a bad investment decision in the stock market.

Meanwhile, technical analysis involves the study of stock price charts. Here, technical investors want to identify the current price trend. Basically, there are 3 types of price trend. They include uptrend, downtrend and sideway trend. Through identification of price trend, technical investors would be able to position themselves to profit when the uptrend in share price is beginning or to protect profits when share price is beginning to move on a downtrend.

The inability to identify price trends would cause investors to overpay or undersell their shares, thus, impacting their investment returns.

Portfolio Management

The long-term goal of making investment decisions is to avoid making investment mistakes. The key to ensuring investment mistakes are kept to a minimum is to diversify your investments. This involves having adequate diversification in your stock portfolio, and buying shares with a good margin of safety.

Learning before Investing

While it is possible to make good returns with some luck, the truth is that you will need to devote time and effort to do your homework first before investing in the stock market. Investors who do not do their homework are often known as ‘naked investors’. To them, stock investing is indeed very risky.

If you are not familiar with any of the skills mentioned above, we recommend that you at least try reading about them first before putting your hard-earned money in stocks. However, if shares are not your cup of tea, then consider alternative investment options such as property, gold, silver or other investment products. But a word of caution: With so many options available, please ensure that you fully understand the investment product before putting your money into it!

Investing Can Be Profitable if You Make Informed and Smart Investment Decisions!

Regardless of your choices, the level of returns ultimately depends on whether you are a savvy investor who makes informed and smart investment decisions. If you are not, the question would then be how devoted you are towards educating yourself to become a better and savvier investor.

If you are willing to learn, you must start by attending classes, lessons or seminars on the subject of investing. In general, various sources of information are available through online materials, books, workshops and more.

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Special Purpose Acquisition Companies (SPACs): What Are They?

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securities-commission-malaysia      invest smart

Before investing in a company, there are many things to consider such as the company’s profit track record, its business model, annual earnings, growth projections and its P/E ratio. However, for Special Purpose Acquisition Companies (SPACs), none of this information would be available during its initial public offering (IPO).

Without all the necessary information to make an investment decision, what can potential investors rely on? Read on to find out.

What are SPACs?

A SPAC is a corporation which has no operations or income generating business at the point of IPO and has yet to complete a qualifying acquisition (QA) with the proceeds of such offering. In simpler terms, a SPAC is basically a publicly-traded buyout company that raises money to pursue a merger or acquisition of an existing company. SPACs raise monies through an initial public offering (IPO) for an unspecified acquisition in a targeted industry.  A substantial portion of the monies raised would be placed in a trust and if an acquisition is not made within a specified period, the monies held in trust would be returned to investors.

SPACs have no operations or income generating business at the point of its IPO, but will utilise proceeds from the IPO to undertake mergers or acquisitions. It is effectively a group of experienced industry specialists coming together to raise money through investors for a business venture, and the success of the SPAC is entirely dependent on the quality of its management team.

A SPAC operates like a reverse IPO. As it has no assets prior to its IPO, its listing is also sometimes referred to as a ‘blank cheque IPO’. Investors in a SPAC typically buy a unit and receive a warrant, which trades separately and can only be exercised when the company completes a takeover. Once the qualified acquisition has taken place, the shares will continue trading as a regular listing on the stock exchange.

The structure of SPACs is similar in most countries, with about 90% of the IPO funds held in a trust until a takeover target is found. Because the IPO proceeds are invested in Government bonds or money market funds until the SPAC makes an acquisition, in theory the returns should mirror those of a fixed-income fund, but that is not necessarily always the case.

Suitability of SPAC for investing

A SPAC must place at least 90% of the gross proceeds raised in its IPO in a trust account immediately upon receipt of all proceeds. The monies in the trust account may only be released by the custodian upon termination of the trust account. The trust account may only be terminated if the QA is completed within the permitted time frame, or upon liquidation of the SPAC.

From the SC’s perspective, the suitability for listing of a SPAC is assessed on a case by case basis, and may take into account any factor it considers relevant. The SC may refuse to approve an application notwithstanding the requirements contained in the Equity Guidelines if the SC has reason to believe that the approval of the application would be detrimental to the interest of investors or contrary to public interest. In assessing the suitability for listing of a SPAC, the SC will take into consideration, among others:

  1. Experience and track record of the management team;
  2. Nature and extent of the management team’s compensation;
  3. Extent of the management team’s ownership in the SPAC;
  4. Amount of time permitted for completion of the qualifying acquisition prior to the mandatory dissolution of the SPAC;
  5. Percentage of amount held in the trust account that must be represented by the fair market value of the qualifying acquisition; and
  6. Percentage of proceeds from the initial public offering that is placed in the trust account.

Under the SC’s Equity Market Guidelines, SPACs are given 36 months from the date of the IPO listing to make a QA by utilising up to 90% of its funds or a minimum of RM150 million.

Additionally, the resolution on the QA must be approved by a majority in number of the holders of voting securities representing at least 75% of the total value of securities held by all holders of voting securities present and voting either in person or by proxy at a general meeting duly called for that purpose.

Why should investors consider investing in a SPAC?

With the stringent regulations put in place by the SC in its approval process, the emphasis is on ensuring that the management team’s experience and track record commensurate with the SPAC’s business objective and strategy, whilst the management team’s compensation and reward structure commensurate with the potential returns to public shareholders. Ensuring the needs, interests and concerns of investors are met will also ensure that the potential of SPACs can be fully realised.

Aside from its investment value, SPACs have an important role in encouraging and stimulating the growth of their respective industries. This is because their key management consists of experts in the field. Thus, they are able to exploit the opportunities available and create values based on their strong foundations in trade and market knowledge.

SPACs also offer an opportunity to invest in a potentially high growth company with a risk exposure of about 5% to 10% (not guaranteed), while the returns can be as high as 3 to 4 times (not guaranteed) depending on the value created upon the SPAC’s QA.

Additionally, the funds raised from the IPO are “protected” as they are placed in a trust fund which will be returned to investors if and when the SPAC cannot meet the deadline set. All investments to be made by a SPAC will be scrutinised by independent third party experts, the regulator and even shareholders themselves.

SPACs represent a promising new investment platform for investors with a stronger risk appetite and looking to get into an investment at the earliest possible opportunity.

What should investors pay closer attention to when investing in a SPAC?

1. Low-Cost Entry

Imagine being offered the opportunity to buy into Facebook when Mark Zuckerberg was still in his Harvard dormitory (or Bill Gates or the late Steve Jobs, for that matter). Unlike traditional IPOs which bring established capitalised assets, employee productivity and revenue streams to the market, SPACs offer investors a unique opportunity to buy into a company at the beginning of its business development and growth cycle. Due to the fact that they have nothing (hold no assets) at the time of listing, SPACs present a unique opportunity for retail investors to participate in the start-up of established and operational private companies that are usually only accessible by private equity or hedge funds.

2. The Management Team

The founding stockholders or promoters, who usually hold up to a 20% stake in SPACs, are the brains behind the operation of a SPAC. They would bring with them a distinct blend of first-hand industry knowledge and experience, asset transaction and risk management expertise and experience, their own entrepreneurial spirit, and profit motivation and a desire to create value for their shareholders.

3. Risks & Returns

SPACs may be asset-less at the time of listing, but they do have a business plan that is as detailed and robust as that of any IPO. No two SPAC business plans, models and strategies would be alike. However, due to market pressure to execute a QA quickly after listing, SPACs can fail at the point of making their QA because the due diligence process was rushed, or they bought a QA that was in a sector that was outside of the management’s expertise. As a shareholder, one would need to understand the SPAC strategy and realise that selecting the right asset that fits the SPAC strategy may take additional time to ensure that quality assets are delivered and shareholder value is not compromised.

Conclusion

So, can SPACs offer investors a higher payout upon completing a successful QA and forging a sustainable business model? The quick answer is “Yes, it may be possible”. However, understanding and judging the management team’s experience, track record and ability to execute its acquisition and growth strategy is the most important key to enjoying great returns from SPAC investing.

Since investors receive warrants which are immediately tradeable (but only exercisable after a QA is complete), some investors prefer to take a position on a SPAC’s warrants. Whilst warrants are cheaper than shares, the risk is that the warrants would expire worthless if no acquisitions are made.

Also, because the IPO proceeds placed in trust are invested in Government bonds or money market funds, returns would typically mirror that of a fixed-income fund until the SPAC concludes its QA. Only then will the shareholders get to enjoy dividend pay outs similar to other share investments. Investors must be willing to put their money away and be patient until the SPAC either completes its QA or liquidates itself (which could take up to three years).

There are rewards and risks associated in any capital markets trade. Ultimately, it is the responsibility of the SPAC Management Team and the regulators to present all the factors clearly so that investors can make their own informed decision.

We have all heard it: Nothing ventured, nothing gained. What do you stand to gain if you undertake the risk of investing your money?

https://www.imoney.my/articles/special-purpose-acquisition-companies-spacs-what-are-they

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Investment Guide: Investing In Shariah-Compliant Investments

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securities-commission-malaysia    invest smart

Investment Guide: Investing In Shariah-Compliant Investments

Ethical and responsible investing is not a foreign concept. Globally, investors are showing interest in investments that cover a whole range of ethical options, from investing in businesses which cause the least environmental damage to those that safeguard human rights, or promote corporate governance and shareholder advocacy.

One of the most common options investors now look to are Shariah-compliant investments. These not only cater to Muslims, but also to other investors who are looking for more responsible investments in the portfolio.

The main objective of Shariah-compliant investments is to provide an avenue for investors who are sensitive to Shariah requirements on their investments. A Shariah-compliant investment should be free from activities prohibited by Islam such as usury (riba), gambling (maisir) and ambiguity (gharar). It should also exclude investments in companies or sectors primarily involved in Shariah non-compliant activities such as products or services related to conventional banking, conventional insurance, gambling, alcoholic beverages and non-halal food products.

The principles of Shariah investing don’t prevent an investor from operating profitably. The end goal of Shariah-compliant investing is the same as any other investment, which is to seek capital gains for its investors.

Here are six Shariah-compliant investments that you can consider investing in:

The principles of Shariah investing don’t prevent an investor from operating profitably. The end goal of Shariah-compliant investing is the same as any other investment, which is to seek capital gains for its investors.

Here are six Shariah-compliant investments that you can consider investing in:

1. Shariah-compliant securities (from companies that have passed Shariah screening)

The screening methodologies used by the Shariah board are as follows:

a. Business activity screening

The following screens have to be fulfilled to ensure Shariah-compliance:

  • Cumulative revenue from non-compliant activities and non-operating interest income should not exceed:
5% of total income, applicable to the following business activities• conventional banking;
• conventional insurance;
• gambling;
• liquor and liquor-related activities;
• pork and pork-related activities;
• non-halal food and beverages;
• Shariah non-compliant entertainment;
• interest income from conventional accounts and instruments;
• tobacco and tobacco-related activities; and
• other activities deemed non-compliant according to Shariah.
20% of total income, applicable to the following business activities• hotel and resort operations;
share trading;
• stockbroking business;
• rental received from Shariah non-compliant activities; and
• other activities deemed non-compliant according to Shariah.

b. Financial ratio screening

The following screens have to be fulfilled to ensure Shariah-compliance:

  • Cash over Total Assets
    • Cash will only include cash placed in conventional accounts and instruments, whereas cash placed in Islamic accounts and instruments will be excluded from the calculation.
  • Debt over Total Assets
    • Debt will only include interest-bearing debt whereas Islamic debt/financing or sukuk will be excluded from the calculation. Both ratios, which are intended to measure riba and riba-based elements within a company’s balance sheet, must be lower than 33%.

If it exceeds the percentage allowed, the company or investment will be considered Shariah non-compliant.

You can visit Securities Commission’s official website to find out which Shariah compliant stocks you can invest in.

2. Islamic exchange-traded funds (ETFs)

Islamic ETFs only track an Islamic benchmark index where the index constituents are comprised of companies which are Shariah-compliant. In addition, Islamic ETF is managed under the Shariah principle and guidelines, and overseen by an appointed Shariah committee. The Shariah committee conducts regular reviews and audits on the Islamic ETF to ensure strict compliance with the Shariah principles and practices.

Following are Islamic ETFs that are managed under i-VCAP Management Sdn Bhd that you can invest in:

  • MyETF Dow Jones Islamic Market Malaysia Titans 25
  • MyETF MSCI Malaysia Islamic Dividend
  • MyETF MSCI SEA Islamic Dividend

3. Islamic real estate investment trusts (REITs)

Investors can look towards Shariah-compliant iREITs as a means of diversifying their portfolio into properties while still complying with the requirements of an Islamic fund. This will be a new investment opportunities in collective real estate investments through a Shariah-compliant capital market instrument.

Popular property types within Shariah-compliant iREITs include industrial properties such as factories and warehouses, and healthcare properties such as hospitals and nursing homes. Shariah-compliant REITs are known to refrain from hospitality and entertainment-oriented properties such as hotels, serviced residences, alcoholic beverages dealers, karaoke lounges, wine cellars and gambling premises.

Following are Islamic REITs that you can invest in:

  • Al-‘Aqar Healthcare REIT
  • Axis-REIT
  • KLCCP Stapled Securities

4. Islamic unit trust funds

Islamic unit trust funds are a collective investment fund that offers investors the opportunity to invest in a diversified portfolio of Shariah-compliant shares and fixed-income securities as well as other Shariah-compliant money market instruments. For investments in local listed securities or stocks, the Islamic unit trust fund’s screening methodology will be based on the list of Shariah-compliant securities issued by the Shariah Advisory Council (SAC) or the SC while for unlisted securities/stocks and investment in foreign listed securities/stocks, the screening methodology is determined by the Shariah board or the appointed Shariah Committee.

5. Sukuk 

Sukuk commonly refers to the Islamic equivalent of bonds. However, as opposed to conventional bonds, which merely confer ownership of a debt, Sukuk grants the investor a share of an asset, along with the commensurate cash flows and risk. As such, Sukuk securities adhere to Islamic laws, prohibiting the charging or payment of interest.

In Malaysia, the issuance of sukuk is regulated by the Securities Commission Malaysia, through the framework provided under the Guidelines on Unlisted Capital Market Products Under the Lodge and Launch Framework. The structure of sukuk must be confirmed and approved by a Shariah Adviser who is appointed by the issuer. A Shariah Adviser can be an independent Shariah Adviser approved by the SC or a Shariah Committee attached to a financial institution that operates Islamic banking activities approved by Bank Negara Malaysia.

Retail bonds and sukuk are governed under the Guidelines on Issuance of Private Debt Securities and Sukuk to Retail Investors. Some examples of sukuk issuers are:

  • A public company listed on Bursa Malaysia (PLC);
  • A bank licensed under the Banking and Financial Institutions Act 1989 or Islamic Banking Act 1983;
  • Cagamas Berhad; and
  • An unlisted public company whose bond and sukuk issuance is guaranteed by Danajamin Nasional Berhad, Credit Guarantee and Investment Facility or any of the eligible issuers above.

Investors can generally expect the following characteristics in bonds and sukuk:

Bonds and sukuk issued or guaranteed by the Malaysian GovernmentBonds and sukuk issued by other Issuers
• Low credit risk

• There will be exposure to market risk (e.g. interest rate risk) and fluctuation of bonds and sukuk prices

• Investors can expect guaranteed returns at pre-determined rate throughout the tenure of the bonds and sukuk
• Credit risk will be dependent on the credit rating of the issuance (where rating is required) and the credit worthiness of the issuer

• There will be exposure to market risk (e.g. interest rate risk) and fluctuation of bonds and sukuk prices

• Investors can expect guaranteed returns at pre-determined rate throughout the tenure of the bonds and sukuk
• Return of Capital

• Return of principal invested is guaranteed if held to maturity

• Where bonds and sukuk are sold prior to maturity, the principal returned will be dependent on the market price at that time
• Return of Capital

• Subject to the terms and conditions of the bond or sukuk, the principal invested will be returned at end of tenure provided the issuer does not default on the bond or sukuk concerned.). This is why it is important for investors to monitor the credit rating of the issuance (where rating is required) and the credit worthiness of the issuer)

• Where bonds and sukuk are sold prior to maturity, the principal returned will be dependent on the market price at that time

 6. Islamic venture capital

A venture capital is a form of equity financing in which the investor actively participates in the venture being financed. The objective is to add value to the recipient company during the financing period, so that the venture capitalist can sell his share later on with positive returns. From an Islamic point of view, venture capital is based on equity financing (sharikat’inan). Combining economic viability and Islamic preference, the following Shariah principles and concepts will apply to Islamic venture capital investments:

1. Musharakah

A partnership between two parties (or more) to finance a business venture whereby all parties contribute capital. If the venture is profitable, the profit will be distributed based on a pre-agreed ratio. In the event of a loss, the loss shall be shared on the basis of capital contribution.

2. Mudharabah

A contract made between two parties to finance a business venture. The parties are a rabb al-mal (investor) who solely provides the capital and a mudharib (entrepreneur) who solely manages the project. If the venture is profitable, the profit will be distributed based on a pre-agreed ratio. In the event of a loss, it should be borne solely by the investor, to the extent of the capital contribution.

3. Wakalah

A contract which gives the power and rights to another party to act on their behalf, based on the agreed terms and conditions.

The activities of the venture companies must be Shariah-compliant. Non-permitted Shariah activities include:-

  • financial services based on riba (interest);
  • gambling or gaming;
  • manufacture or sale of non-halal products;
  • non-permissible entertainment activities;
  • manufacture or sale of tobacco-based products;
  • stockbroking or share trading in Shariah non-compliant securities; and
  • hotels and resorts

Shariah-compliant investment can be diversified and perform on par with conventional investment. These products are also flexible instruments which are open to investments across all investor classes, irrespective of their religious beliefs. The Shariah-compliant investment and financial products are expected to grow by leaps and bounds over the years, and to not miss out a piece of the pie, it pays to understand how they work.

You don’t need to have thousands of Ringgit lying around to start investing. You will be surprised to find that you can start with as little as RM1,000 to see returns!

https://www.imoney.my/articles/investment-guide-investing-in-shariah-compliant-investments

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Is It Time To REIThink Your Investments?

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Are you unable to afford investing in property because of the huge costs involved? Well, the good news is youcan indirectly invest in property via a Real Estate Investment Trust (REIT)!

These may include office buildings, shopping malls, apartments, hotels, resorts, warehouses or storage facilities.

Unlike other real estate companies, a REIT does not develop real estate property to resell them for profit. Instead, a REIT buys and develops properties to operate them as part of its own investment portfolio.

Check out our infographic below to find out how it works.

 

https://www.imoney.my/articles/is-it-time-to-reithink-your-investments

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Investing With Ringgit Cost Averaging: The Good, The Bad And The Ugly

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Investing With Ringgit Cost Averaging: The Good, The Bad And The Ugly

 

If you think you need a pool of cash to get started in the world of investment, you may want to read this. Ringgit cost averaging (RCA), a commonly adopted investment technique, may just help you realise your investment dreams without first having a million bucks.

What is RCA?

Ringgit cost averaging means investing a fixed amount at fixed intervals. For example, putting RM200 every month into your unit trust fund investment, as opposed to putting a huge sum of money into the investment fund at one go.

Essentially, what this translates to means you end up buying more units when the unit price is low, and when the price is high, you would be buying fewer units.

There are two strategies to RCA. Some investors may invest 20% of their monthly income religiously until they retire, while others believe in RCA a set sum of money. For example, instead of investing RM2,400 in a lump sum, you may break it down to RM200 monthly for 12 months.

Investors consider the first strategy a sensible approach to investing because they will be committing a fixed amount of their salary every month toward their financial goals, be it retiring in the Bahamas or buying their dream five-bedroom bungalow.

On the other hand, the rationale behind the second strategy is in hoping that market volatility  would work in the investor’s favour, because they would automatically be purchasing more shares when the price is low, and fewer shares when the price is high. This method  helps to spread out the risk factor over a period of time, and is especially useful if an investor is unsure of whether  to do a bulk purchase at that point of time.

How does it work?

The table below depicts how an investor averages out the unit price over a number of months by investing in  a  fixed, monthly amount amidst Ringgit price fluctuations.

ringgit cost averaging

Table 1: Ringgit cost averaging

Looking at Table 1, does the RCA method really yield higher returns compared to lump sum investing? The answer is yes and no. The success of any investment really just depends on the market and timing. In the case of RCA, it primarily reduces your timing risk.

If you invested a lump sum of RM2,400 in January of the first year, the  number of shares you could buy with that amount would have been 4,000 units. However, using the RCA method, you would instead have a total of 4,418 units by the end of the first year with the same amount invested.

What are the pros and cons of the RCA method?

ringgit cost averaging

How do you win at this game?

Returns are not guaranteed with the RCA method, or with any other investment strategy for that matter. If the fund price of the investment units decline and do not manage to regain their standings, you could stand to make losses. However, in general, the RCA method does reduce the risk of investing all your assets at the peak of the market cycle.

Here are a few things you should consider in order to make gains with the RCA method:

  1. The higher the investment amount, the longer the investment time span. If you are planning to invest a large amount, RM100,000 for instance, you may want to spread it out over a period of 36 months — or three years — making it a monthly investment of RM2,777.77.
  2. Diversification is key. The RCA method alone is insufficient to minimise your risk. You will need to diversify your investments into various categories and rebalance this basket at least once a year.
  3. Understand your investment. Even with a relatively lower risk method such as the RCA, investors should still take the time to fully understand their investments.
  4. Letting go when objectives have been met. Every portfolio has its objectives. If you are investing with an objective to purchase property, you should sell off your investments once your returns are adequate for your objectives. Not selling means  assuming more risks than is necessary. You can always commence another portfolio which adopts a similar methodology for a different objective.

Who should adopt this method?

The RCA method works best for these types of investors:

  • Investors who have a store of cash for investing or a constant cash flow and are interested  in  high risk investments (to reduce their risk);
  • Investors who are not adept at forecasting short-term market movements;
  • Investors who are unsure of the right moment to make the move into investing; and
  • Investors who have a long-term investment horizon.

If you fall into any of the categories above, you should consider the RCA method of  investing. Do not, however, limit yourself to just one  investment  strategy. Different investment products, or even funds and shares, may require different methodologies.

The RCA  is far from being the perfect investment methodology. Some people are quick to dismiss it, while others use it without fail in all their investments. Making the most of the RCA method is in knowing when to use it. The best investment strategy, if used for the wrong purpose will  still lead to losses. It would also be wise to remember that you  need not employ just one lone strategy, successful investors utilise a mix of investment approaches and  consider their risk appetites and  level of understanding before making their investment decision.

https://www.imoney.my/articles/investing-with-ringgit-cost-averaging-the...

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Investment Guide: Understanding The Prospectus

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securities-commission-malaysia      invest smart
 
Investment Guide: Understanding The Prospectus

The Securities Commission Malaysia (SC) has always advocated that investors should conduct their own due diligence by researching, evaluating risks and returns and understanding the potential investment before making a decision.

To do this, one of the most powerful documents you should get your hands on is the prospectus. By reading the prospectus, you will know exactly what the investment intends to do with your money.

What You Should Pay Attention To

A prospectus contains forward looking statements, consisting of predictions about future business conditions. While no one can predict the future, management is often in the best position to see new trends that may be occurring and to speak about what the company has planned. Fortunately, you don’t need to be able to predict the future when reviewing the prospectus. Instead, just focus your attention on these key sections:

1. Investment objective

This section covers the primary goal(s). For example, some funds will aim to achieve short-term growth while others may focus on long-term stability.

Investment objectives will vary from one investment to another. Certain investments may attempt to generate income for their investors, while others focus on reaping tax benefits or are geared towards capital appreciation or preservation.

Ensure that the investment’s objectives match your personal investment objectives. For example, a fund with an objective of capital growth would not be a good fit for a 60-year-old retiree who needs regular income from investments to cover his day-to-day expenses. On the opposite end, a young investor with time on his side would not feel too worried when faced with higher risks or inconsistent returns in trying to achieve his investment objectives.

2. Investment strategy

How does the fund plan to accomplish its objective? When designing its strategy, the fund will strongly take into consideration its asset allocation and investment restrictions (i.e. investing only in a specific industry). For example, if its objective is to generate income, it would most probably adopt a strategy of investing in fixed income securities such as bonds.

The prospectus usually doesn’t specifically indicate what stocks or bonds it will invest in, but simply describes the types of assets to be purchased, such as corporate bonds or small cap stocks. This will give you an idea of the types of assets that they will be buying into.

A fund’s investment strategy should be in sync with your personal investment style. Although a small cap fund and a large cap fund both aim for long-term capital appreciation, they each use very different strategies to attain this goal. Before choosing one type of investment over another, make sure that you are comfortable with the investing style and are confident with the perceived performance.

3. Fees and expenses

Funds charge their investors a variety of fees and expenses, all of which are documented in a detailed breakdown in the prospectus. This should make it easy for you to compare fees and expenses across other investment schemes. Remember, fees and expenses can eat into your total investment return from the fund, so remember to compare the fees and expenses for all the investment funds that you are interested in.

4. Risks

This is one of the most important sections in the prospectus as it describes the level of risk that the investment is exposed to. It details the specific risks associated with a particular investment, such as credit risk, interest rate risk and/or market risk. if a fund invests a large portion of its assets into foreign securities, take note that this may pose a significant foreign exchange risk, country risk as well as political, economic or social instability risk.

As investors have varying degrees of risk tolerance, this information can help you decide the level of risk you that you can cope with in your investment portfolio.

investor profile

To get the most out of this section, you should familiarise yourself with different kinds of risk, why they are associated with a particular investment, and how they would fit into your overall portfolio.

5. Performance

This section indicates the fund’s performance over the last one year, five years or ten years (depending on how long the investment has been around).

While historical performance is not necessarily an indicator of future results, you need to know how the fund performed in the past before you can make a calculated and informed investment decision. Depending on the age of the fund, its average annual returns will be provided, including a comparison with its benchmark index over the same period.

You can judge how well the investment has performed compared to its index. Other useful information such as the investment’s volatility, dividend payments, and turnover is also indicated here.

In addition, keep in mind that many of the returns presented in historical data do not account for tax, while some funds present data based on an after-tax return. As an investor, read the fine print to see whether the taxes have been taken into account.

6. Distribution policy

Should a fund prove successful or profitable, it may choose to reward investors in the form of realised gains, dividends, or interest (subject to what is indicated in its distribution policy). Some funds may distribute returns directly to investors, while others would reinvest the distributions back into the investment.

7. Management

This is your opportunity to find out more about the people in charge of your money.

Additionally, you can find out about his or her experience and qualifications. From this, you can try to make sense of his or her past strategies and results and use it as a guide to make an informed investment decision.

Conclusion

Reading a prospectus will require your effort, time and concentration but the rewards will be worth it. And although it may seem like a difficult task, reading a prospectus is all about knowing exactly what to look out for.

You can obtain the prospectus directly from the investment company or fund by requesting it via mail or email. Alternatively, you may acquire a copy from a certified financial planner or advisor. Many fund companies also provide PDF versions of their prospectus on their websites.

After reading (and understanding) the prospectus, you will then have a better idea of how the investment fund functions, the risks it may pose, its historic performance, fees, strategy and many more. Most importantly, you will be able to determine if the potential investment is indeed the right choice for you.

*Screenshots taken from an actual Prospectus.

https://www.imoney.my/articles/investment-guide-understanding-the-prospe...

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].