Market Linked Investments

Savings Accounts and Fixed Deposits offer investors a safe and secure means of parking their surplus funds while also providing a small quantum of growth. However, the main criticism of such investments is their small growth factor which mostly does not keep pace with inflation.

Market Linked Investments

Market Linked Investments

Market Linked Investments provide investors with the potential for enhanced returns and have proved attractive to a growing base of customers who are willing to accept the risks associated with them. Here, we will try and list the main types of market linked investments available in Malaysia:

Unit Trusts

These provide investors, especially small investors and those that do not have sufficient time to properly study the markets a chance to invest in stocks, shares, bonds and other capital-market instruments. Their professional management, high liquidity and small entry requirements (starting from as low as RM100) make them attractive to investors. There are hundreds of Unit Trust Funds with a variety of investment themes: predominantly equity, predominantly fixed income, balanced between equity and bonds, Asian markets etc.

REITs

Real estate investments, done wisely have the potential of providing exceptional returns through appreciation. However, even entry-level investment is prohibitively high keeping them out of reach of most investors.

Such investors can look to invest in REITs or Real Estate Investment Trusts, a collective investment vehicle which pools money from investors and uses the pooled money to buy, manage and sell real-estate assets like commercial and residential buildings or lots or land and other real-estate related assets like shares in real-estate companies.

Their shares are traded on the stock exchange making them highly liquid and governmental incentives like not having to pay stamp duty on property purchases and RPGT (Real Property Gains Tax) on selling property have added to their attractiveness as an investment option.

Capital Markets

Investors with a Central Depository System account and a trading account with any stockbroker in Malaysia can invest directly in Capital Markets instruments like shares, bonds and derivatives. Before doing so, it would be prudent on the investor’s part to gain a through knowledge of such instruments as investing in such potentially high-return instruments is associated with higher risk.

ETFs

Exchange Traded Funds consist of stocks, bonds or commodities based on an index. Generally there are three types of ETFs: equity ETFs, fixed income ETFs and commodity ETFs. They are open-ended investment funds that are listed and traded on the Bursa Malaysia. They offer investors exposure to a geographical region, market, industry or sector, commodity such as gold or oil or even a specific investment style such as growth or value. ETFs have the advantages of diversified exposure, cost effectiveness, simplicity and transparency.

Islamic Investments

Malaysia also offers a raft of Islamic investment options. The Islamic equivalents of Unit Trusts, REITs, ETFs and Capital Market instruments like Sukuk bonds and Islamic shares listed on Bursa Malaysia and the Bursa Suq Al-Sila’, an Internet-powered Islamic commodity trading platform provide one of the world’s widest range of Shariah-compliant investment options.

Benefits of Investing in Unit Trusts

Unit Trust Investment in Malaysia

Today there are about 42 Unit Trust management companies, both conventional and Islamic ones, that offer Unit trust investment services in Malaysia and about 370 billion units in circulation. These numbers are clearly indicative of the popularity of the investment mode; Unit Trust investments have enjoyed this popular reputation not just in Malaysia but also in other parts of the world,  where investors seek gains   with some risk mitigation assurance.

 How does a Unit Trust work?

A sum of money collected from people interested in investing, is broken down into units. The investing members are then assigned units, commensurate with their invested amount. This collected sum, is then invested by an investment manager for returns, that are shared with the unit holder. The more the units, the more an investor stands to gain from the returns. The trustee in the arrangement is responsible for monitoring the manager’s performance and in seeing that the trust is run as per the guidelines laid by the Securities Commissions and the Capital Markets & Services Act 2007.( “CMSA”)

The fact that a Trust is formed by a group of people offers a certain amount of safety in numbers, that investing in the market privately doesn’t, and that perhaps is a definitive character of a Unit Trust arrangement.

Benefits of Investing in Unit Trusts

Unit Trusts investments are usually profitable over longer terms but are not without their ups and downs. Like any other market product their value at a given time will reflect the market condition prevailing.  Still the benefits of a Unit Trust investment make them quite a product in the market. Here is a list of why you should consider a Unit Trust, if at all you are planning for an investment-

  • Ease of Liquidation- Unlike many other instruments Unit trusts enjoy a certain degree  of greater liquidity, that makes them easy to convert into cash at a short notice. They can sold ( wholly or in parts) at whatever the unit buying price is at that time. Also a unit trust manager has to buy back units from a unit holder on request.
  • The collective advantage- With a substantial amount pooled in collectively the Unit Trust investor is able to access areas and sectors that otherwise would disqualify smaller amounts. This gives the investor a piece of the action in the market, which for him or her would otherwise be ‘offlimits’, given his funds and his expertise.
  • The Professional angle- For someone starting for the first time, investment can be quite confusing; in most cases it leads to considerable losses before they begin to make profits. But as a part of a Trust, the investor has the advantage of professional expertise, professional research and market watch, that comes to him or her,by virtue of just being a unit holder. The investor doesn’t have to do anything if he or she chooses to, to invest. Typically units cost lesser than other investment and for that lesser price, a first time investor can get a whole bouquet of professional help.
  • The strict regulations-In Malaysia Unit Trusts are strictly regulated, so you can rest assured that there will be absolute transparency and honest dealing. Something that makes a big difference, especially in a situation when you are starting off without knowing head from tail of investment.