We’ve covered the basics like 5 simple steps to start investing and how to choose a stock to invest in. It’s now time to learn about the various investment products offered by Bursa Malaysia, and you’ll soon be on your way.
Ideal investing platforms for passive investors
If you’ve ever felt indifferent, clueless or ignorant towards the term ‘investing’, you are not alone! Hectic work schedules, endless household chores, and a bustling social life has pretty much left us with little time to spare for investing. If time constraints are your biggest concern, did you know you can still invest without having to monitor your investments on a weekly basis?
Wait, what? But how will we know when to buy or sell our stocks, isn’t that what investing in stocks is all about? Say hello to passive investment products such as Real-Estate Investment Trusts (REITs), Exchange Traded Funds (ETFs), and Exchange Traded Bonds and Sukuk (ETBS). Bursa Malaysia offers these products with a lower capital requirement than you might think.
Without having to invest too much time and money to start your investment, it is actually quite easy to start your investment portfolio with these three products.
Investing alternatives that do not require much time
Real-Estate Investment Trust (REIT)
REIT is a fund or a trust that owns and manages income-producing commercial real estate (shopping complexes, hospitals, plantations, industrial properties, hotels and office blocks).
REIT’s trading mode is similar to stocks, subject to the same trading procedure, payment and settlement rules (T+3). You need to open a CDS account and a trading account with a Participating Organisation like a stockbroking firm registered in Malaysia, if you do not have one.
There are about 14 REITs in Malaysia up for you to choose from, spread across retail (shopping malls), office, hospital, factory and maybe a combination of these categories in terms of property management.
Governed by the rules of the Securities Commission, REITs must distribute at least 90% of its net income to the unit holders every quarter when the result is announced. This is where dividend and dividend yield come into play when investing in REITs.
Trust management will declare the distributable dividend per unit after the REIT has announced its latest quarter result. With capital as low as RM200, you can initiate your investment in REITs and be rewarded with stable dividend coupled with capital gain (share price appreciation) over time.
And also, the higher the dividend yield, the more attractive and higher value for you to invest in the REIT. (Dividend Yield = Dividend Per Unit (DPU) / Price Per Unit or Share)
For more information on the listed REITs in Malaysia, you can visit this website and find out the portfolio comparison and latest updates for each company.
Exchange Traded Funds (ETFs)
First of all, it is important for you to know what an index stands for because the ETF is a combination of index funds and stock’s features.
An index is made up of a basket of securities (e.g. bonds, commodities, equities) that shows the movement or change in a specific securities market. In other words, several stocks or bonds are chosen to benchmark or reflect the movement of a specific investment market.
Generally, there are three types of ETFs: equity ETFs, fixed income ETFs and commodity ETFs. These ETFs consists of baskets of stocks, bonds or commodities based on an index which instantly offers broad diversification and averts the risk involved in owning stock of a single company.
Interestingly, buying ETFs does not impose sales charge and it only involves less than 1% management fee which makes it super affordable for you to start investing and make recurring income for your money!
Currently, there are eight ETFs available on Bursa Malaysia for investors and most ETFs pay dividends to shareholders half yearly or yearly depending on management. The whole procedure of investing in ETFs is the same as buying a stock. Do take note that the capital gain (fund price movement) will depend on the ups and downs of the underlying baskets of stocks, bonds or commodities.
Here are some things you need to figure out before investing in any ETFs:
- Investment objective and strategy of the ETF
- Information on the index that the ETF is tracking
- Dividend policy
- Fees and charges that will be borne by investor
- Sources of trading information of the ETF
- Information about the management company
Exchange Traded Bonds and Sukuk (ETBS)
ETBS are fixed income securities, also known as bonds or sukuk, listed and traded on the stock market. ETBS are issued either by companies or governments (the issuer) to raise funds for their needs. Sukuk refers to issues that comply with Shari’ah principles.
Unlike stocks or ETFs, bonds and sukuk are actually like debts, where investors borrow money to the issuers and provide bonds or sukuk with agreed requirements such as fixed or floating rates (coupon interest), coupon frequency and also maturity date of the bond or sukuk.
However, investing in bonds and sukuk has the same liquidity as stocks and ETFs as you can trade on daily basis under real-time volume and prices. This allows you to adjust your portfolio with easy accessibility aided by transparent information that is available on Bursa Malaysia.
ETBS are traded in a minimum board lot size of 10 units per lot size. Given the principal price of RM100.00 per unit, each board lot will cost RM1000, excluding transaction costs.
To ease your investment in ETBS, here are some key factors you need to consider before investing:
1. Price and Yield
Investors want as high a yield or return for their investment as they can get, so when ETBS prices are low, investors are willing to pay less for an ETBS and therefore getting a better yield. In contrast, a high ETBS price means returns are lower, as coupon payments for an ETBS are generally fixed to the principal value of the bond.
2. Interest Rates
When interest rates change, ETBS prices change in response. Assuming the average interest rate available to investors goes up, the ETBS’ current yield will become a less attractive investment. This would result in investor demand falling off, causing a decline in the ETBS price until the point where the yield becomes competitive with prevailing rates. The reverse occurs if interest rates go down.
Essentially, credit risk is the likelihood that the issuing entity will or will not be able to repay principal amount and its interest elements at maturity. This particularly applies to corporate ETBS, because corporations have more risk than most governments.
ETBS are evaluated and rated by several agencies, including Malaysian Rating Corporation Berhad (MARC) or Ratings Agency Malaysia Berhad (RAM) for Malaysia while Moody’s and Standard & Poor’s for international rating. A top rating (AAA) means the ETBS carries the least credit risk. If a company’s rating is downgraded, the ETBS will normally fall in price because investors won’t pay as much for them.
The future is always less certain than the present. In the financial world, uncertainty translates into risk. Consequently, ETBS with long maturities have somewhat more risk and tend to be priced lower (or have higher yields). As these ETBS eventually start to approach their maturity date, their prices start to get close to the par value. That’s because investors know they will soon be getting their money, and little credit risk remains.
With the availability of these products that offer stable income and low capital, there is no doubt you should start allocating some money from your monthly disposable income and grow your wealth today!