Progressive Investment plan – Overview

Investment is the term given to purchase a good/ an asset to generate an income not for today’s consumption but for tomorrow’s asset creation. Good investment planning paves a way to turn your dreams and aspirations into reality.

Progressive Investment Plan

Progressive Investment Plan is a 2-in-1 investment program that gives you the opportunity to find the investment that meets your financial personality and objectives. Here, funds are divided equally depending on the duration of each investment plan, where one part of the fund is invested in equity and the others remain in time deposit on a monthly basis.

Progressive investment options in Malaysia

There are a wide variety of investment options available in Malaysia. Let us take a look at it in detail.

Fixed Deposit

Fixed Deposits or Time Deposits offer a fixed and guaranteed rate of return on your investment. Almost all banks in Malaysia offer these types of accounts. Fixed deposits offer significantly higher interest rates than savings accounts while minimizing the risk associated with other high-risk investment products.

Unit Trust

Unit Trust is a form of collective investment that allows investors with similar objectives to pool their funds for investment. These provide small investors a chance to invest in stocks, shares, bonds and other capital-market instruments. Their professional management, high liquidity and small entry requirements make them attractive to investors. Unit trusts enable investors with limited time and knowledge to take advantage of the higher returns from the capital markets.

Gold Investment

Gold forms another great investment avenue. It has been an asset since the beginning of mankind’s evolution and across cultures. So, it is not surprising that gold is a favoured asset here in Malaysia as well. Gold investment can be made either in physical form or by means of “paper gold”. Physical Gold investments can be made by buying gold jewellery, gold coins, gold wafers and gold bars from jewellers. Investing in paper form is via Gold Investment Accounts of some banks.

An important point that investors should be aware of is that there will always be a difference between the selling and buying price of gold. This difference represents the profit for the Gold Trading organization. So, if you wish to ensure a profit make sure that the price at which you are selling is higher than the price at which you bought the gold.

No one can predict when the market rate will rise or fall and it depends on the market conditions. So invest a fixed sum of money regularly over a fixed period regardless of market conditions. These investment plans helps you to Invest progressively to manage market volatility.

Different Types Of Deposit Accounts In Malaysia

Different Types of Deposit Accounts in Malaysia

Different Types of Deposit Accounts in Malaysia

Fixed deposits or time deposits are fixed interest savings products. These accounts offer a fixed and guaranteed rate of interest on the amount deposited, for a fixed tenor. Fixed deposits, in general, offer much more attractive rates of interest than standard savings accounts while their guaranteed nature provides a favourable comparison to other high-risk, high-return investment products; this accounts for the popularity they have enjoyed with generations of Malaysians. Here, we will examine some of the different types of deposit accounts in Malaysia:

Conventional Fixed Deposits

These deposits offer a guaranteed rate of return which depends upon the tenor of deposit. Tenors, generally range from 1 month to 60 months. Clauses governing the various features of deposits like minimum deposit amount, tenor, premature / partial withdrawal, periodicity of interest payments etc differ from product to product and bank to bank.

Fixed deposit interest rates range between 1% to 4% depending upon tenor. There are also promotional instances of banks offering upto 6% interest rates on fixed deposits opened during promotional periods.

Foreign Currency Fixed Deposits

These deposits can be opened in a range of foreign currencies. You can either directly deposit foreign currency or open them in Ringgit which are then converted into units of the foreign currency of your choice. These deposits were introduced following the liberalization of the Foreign Exchange Administrative Rules on the 01st of April 2005.

They are used by those who have foreign currency earnings, wish to use them for hedging, wish to invest overseas, wish to fund their children’s education overseas, have business interests outside Malaysia or wish to earn higher interest than on normal fixed deposits.

Tenor varies from 7 days to 12 months.

Interest rate earnings could potentially go up to 8%+ (as it has in the past).

Interest is paid upon maturity.

Islamic Fixed Deposits

These are Shariah-compliant deposit products. The following flavours of fixed deposits are available under Islamic banking:

Mudharabah (or profit sharing) deposits – The customer invests money with the bank for a fixed tenor. The bank as the manager or Mudarib will invest the money in Shariah-compliant ventures. The profit will be shared between the customer and the bank as per a pre-determined profit sharing ratio.

There are three types of Mudharabah Deposit contracts of which, the Mudharabah General Investment Account (MGIA) is the most popular, especially amongst individual investors.

Profit is calculated on monthly basis. Hence returns from the investment may vary from month to month.

Murabahah (profit mark-up) deposits – These deposits involve purchase and sale of assets on a cost + profit mark-up basis with the deposited money. When such contracts involve two parties they are known as Bai Al-Enah and when they involve multiple parties they are known as Tawwaruq or Commodity Murabahah. Bai Al-Enah deposits use a wide range of assets (Sharia-acceptable) excluding gold and silver while Tawwaruq Deposits use “Halal” commodities.

Profit rate is pre-determined; it may be paid upfront or on a deferred basis depending upon the tenor of the deposit.

Wakalah Deposits – They are very similar to Contracts of Agency. The bank (Wakil) will manage and invest the funds deposited by you in Shariah-compliant investment activities to deliver “expected rate of returns”.

Deposit Protection

All the above types of fixed deposits are eligible for PIDM protection upto a limit of RM250,000 per depositor per member bank.

Cooperative Bank Deposits

These are fixed deposits invested with cooperative banks. They have tended to provide higher returns (with comparatively low minimum deposit requirements) than conventional banking deposits. Unlike the above types of deposits, they are not eligible for PIDM protection; you will, however, get protection from the Ministry of Finance under the Development of Financial Institutions Act (DAFIA).

Overdraft against Fixed Deposits

What is a Fixed Deposit?

A Fixed Deposit is a type of account that offers a fixed and guaranteed rate of interest on your savings or investment. They are either termed as Fixed Deposit accounts or as Time Deposits. Such accounts are offered by almost all banks in Malaysia.

Fixed Deposits offer significantly higher rates of interest than savings accounts while minimizing the risk associated with other high-risk investment products; this accounts for their popularity with Malaysians even today.

What is an Overdraft?

An Overdraft is a credit facility allowed to bank customers to draw more than what is in their account(s) up to the credit limit allowed by the financial institution. Overdrafts are available both in the form of unsecured (without collateral) and secured Overdrafts. Secured Overdrafts allow for favourable interest rates for the borrowers.

Overdraft against Fixed Deposits (O-FD)

OverDraft Against Fixed DepositsAn Overdraft against a Fixed Deposit is a type of a secured overdraft. Here the Overdraft is secured against the Fixed Deposit, i.e., the amount in the Fixed Deposit provides the bank with the security for releasing credit to the customer in the form of the Overdraft.

Benefits

* In most cases a secured Overdraft like an Overdraft against a Fixed Deposit provides the borrower with a more favourable rate of interest than in the case of an unsecured Overdraft.

* The borrower can access emergency cash without having to break the Fixed Deposit.

* The Fixed Deposit continues to earn interest. This can be offset against the interest charges on the Overdraft.

* Most O-FD products like Citibank’s “Overdraft against Time Deposit” charge interest only if the funds are used.

Islamic versions of the Overdraft against Fixed Deposit products are also available. These could be based on the Islamic principle of Wakalah (or Agency).

Points to note

* In accordance with the Rules of Association of Banks in Malaysia, most banks (some products do not carry this fee) levy a commitment fee of up to 1% on the un-utilised portion of the approved overdraft limit in excess of RM250,000.

* Once an Overdraft is availed against the Fixed Deposit, check whether Fixed Deposit interest earnings are based on the entire amount in the Fixed Deposit or the remaining Fixed Deposit amount minus the Overdraft availed.

Types of Fixed Deposit Accounts in Malaysia

Fixed interest savings products in Malaysia are termed fixed deposit accounts or in some cases, time deposits. We will take a quick look at the types of fixed deposit accounts, their chief characteristics, the benefits they provide and points where you would be advised to exercise caution.

Conventional Fixed Deposits

They offer a guaranteed rate of return based on the tenor of investment. Their tenor may vary from 1 month to 60 months depending upon the issuing bank and the particular product. Terms and Conditions (T&C) relating to minimum deposit amount, tenor, premature withdrawal, gifts, partial withdrawal, periodicity of interest payments etc vary from bank to bank.

You are advised to carefully go through the T&C before deciding upon a product that is most suited

to your present requirements.

# Interest may be paid monthly/half-yearly/upon maturity depending upon the bank and the T&C.

# Fixed deposit interest rates range between 2% to 4% depending upon tenor. There are also promotional instances of banks offering upto 6% interest rates on fixed deposits, opened during the promotional period.

Islamic Fixed Deposits

The following types of fixed deposits are available under Islamic Banking:

Mudharabah Deposits: Under this concept the customer/depositor will invest money with the bank for a fixed duration. The bank as the manager or Mudarib will invest the monies in Sharia-compliant avenues. The profits will be shared between the customer and the bank as per a pre-determined profit sharing ratio.

There are three types of Mudharabah Deposit contracts of which, the Mudharabah General Investment Account (MGIA) is the most popular, especially amongst individual investors.

# Profit is calculated on monthly basis. Hence returns from the investment may vary month-on-month.

Murabahah Deposits: Murabahah refers to buy/sell contracts at cost+profit mark-up (both cost and profit are disclosed). Murabahah fixed deposits involve purchase and sale of assets between 2 parties (known as Bai Al-Enah) or involving multiple parties (known as Tawwaruq or Commodity Murabahah). Bai Al-Enah deposits use a wide range of assets (Sharia-acceptable) excluding gold and silver while Tawwaruq Deposits use “Halal” commodities.

# Profit rate is pre-determined; it may be paid upfront or on a deferred basis depending upon the tenor of the deposit.

Wakalah Deposits: They are very similar to Contracts of Agency. Here, the bank acts as the Agent in charge of your funds. As your agent, the bank (Wakil) will manage and invest your funds in Sharia-compliant investment activities to deliver “expected rate of returns”.

Foreign Currency Fixed Deposits

These deposits have become popular since the liberalization of the Foreign Exchange Administrative Rules on the 01st of April 2005. Savvy investors use them for hedging purposes and for earning a higher interest than on normal fixed deposits.

They are also popular with those who have foreign currency earnings, wish to invest overseas, have business interests outside Malaysia and with people who wish to educate their children oveseas.

– Tenor varies from 7 days to 12 months.

– Interest rate earnings could potentially go up to 8%+ (as it has in the past).

– Interest is paid upon maturity.

* All the above types of fixed deposits are eligible for PIDM protection upto a limit of RM250,000 per depositor per member bank.

Benefits of Fixed Deposits

  • Interest rates are higher than for savings accounts.
  • Interest payment is guaranteed and protected from interest rate fluctuations.
  • Persons in their individual and joint capacity as well as businesses, associations, clubs, trusts etc can open Fixed Deposit Accounts.

Caveat Emptor

  • Check for hidden fees and charges.
  • Read the premature withdrawal clause(s) carefully to avoid stiff penalties.
  • Access to funds may be limited or not available until the account maturity date.
  • Check if the interest earned is subject to taxes like the Withholding Tax.
  • Mudharabah fixed deposits do not guarantee the principal amount. Moreover, if a loss is incurred, the depositor/investor bears the entire amount of the loss.
  • Investments in Wakalah deposits are not guaranteed to deliver “expected returns”.
  • Investing in foreign currency is subject to exchange rate risk.
  • Foreign currency accounts and their account-holders are subject to the guidelines under/issued by the Exchange Control of Malaysia (ECM) Notices and Bank Negara Malaysia.