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Whatever your investing goals are, we are here to help you. Go through the sections given below to get basic, easy-to-understand information about various investment related topics.
Learn about investing and how it can help your money grow
The world of finance can be complicated and quite intimidating at times. We believe investments, as a practice is inherently simple once you understand the basics of investments and the terms associated with them. While you contemplate or plan your investments, please understand that investing is not about „making quick money‟. Achieving your long-term financial goals requires sound planning. Every investment you make will have risks and rewards. These two factors will always go hand in hand. To learn more, read through the sections that interest you.
Basics of Investing
What is investing? Why bother investing? Understanding your needs
The Risk/Return Tradeoff Diversification Rupee Cost Averaging Asset Allocation
Mutual Fund Basics
What is a mutual fund? Benefits of investing in mutual funds Types of mutual funds Does investing in mutual funds mean investing in stocks?
What is a Shariah-compliant investment? What is an „Islamic Investment Fund‟? What is a Shariah Advisory Board?
Basics of Investing
decide to work overtime. Yes. and there are no guarantees. once you understand some of the most important concepts. And so that‟s what most of us do. making your money work for you maximizes your earning potential whether or not you receive a raise. sleeping. but investing is more than simply hoping luck is on your side. most of us were taught that you can earn an income only by getting a job and working. What is investing? What investing is not Why bother investing? Understanding your needs Types of investments What is investing? It‟s actually pretty simple: investing means putting your money to work for you–actually. you can also be earning money elsewhere. Part of the confusion between investing and gambling. There are many different ways you can go about making an investment. In this section we endeavor to educate current and potential investors on the practice of investing from the ground up. For example. it‟s the most important concept for you to understand. Quite simply. Develop portfolio strategy . bonds. since you cannot create a duplicate of yourself to increase your working time. reading the paper. real estate. This includes putting money into stocks. or look for a higher –paying job. What investing is not Investing is not gambling. mutual funds. however. So. he or she performs thorough analysis and commits capital only when there is a reasonable expectation of profit. Growing up. Even though this is a simple idea. or socializing with friends. there still is risk. may come from the way some people use investment vehicles. A „real‟ investor does not simply throw his or her money at any random investment. That way.We believe that investing can be fairly simple. Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win money. The point is that no matter the method you choose to invest. you need to send an extension of yourself–your money–to work. it could be argued that buying a stock based on a „hot tip‟ you heard from your colleague is essentially the same as placing a bet. the goal is always to put your money to work so it earns you an additional profit. it‟s a different way to think about how to make money. gold etc. while you are putting in hours for your employer. But there‟s a limit to how much we can work and how much money we make out of it –not to mention the fact that having a bunch of money is no fun if we don‟t have the leisure time to enjoy it.
we will look at three main categories: investment objectives. and your personality. to earn more money. the less proportion of your money shall be invested in risky assets. investing is becoming less of an extra thing to do and more of a necessity. investing is the only way they can retire and yet maintain their present standard of living. These objectives depend on a person‟s age. you can invest a larger portion of your money in considerably riskier investments. stage/position in life. you have the power of compounding on your side. However. Investment objectives Generally speaking. Similarly. Timeframe As a general rule. their investment horizon and your risk profile. she cannot risk losing her investment. By planning ahead you can ensure financial stability during your retirement. . Why bother investing? Obviously. A multi -millionaire is obviously going to have very different goals compared to a newly married couple just starting out. At the same time. and personal circumstances. timeframe. Therefore different types of investment solutions and methods are suitable for different types of investors. if you start when you are young. then you still have time to make up for losses and can therefore invest in aggressive investment vehicles like stocks. the longer the time you have to achieve a certain objective. or capital appreciation. they all come from diverse backgrounds and have different needs. Although there are many factors that determine which path is optimal for an investor. This means. Because the widow needs income from her investments to survive.Based on your objectives. the shorter your time horizon. The young executive. If your investment is for a long-term objective like retirement planning and you are still in your 20s. Understanding your needs Even though all investors are trying to make money. investors have a few primary objectives: safety of capital. the more conservative you should be. on the other hand. A 65-year-old widow living off her retirement savings is far more interested in preserving the value of investments than a 33-year-old business executive would be. has time on his or her side and can therefore risk losing his money simply because he has time to make more money An investor‟s financial position will also affect his or her objectives. the less time you have to achieve your objectives. Generally. For the average person. current income. for each of your goal to be achieved in what types of asset classes you should invest in. we will help you identify an ideal asset allocation strategy for each of your goals.
but there is some truth to an old investing maxim: you‟ve taken on too much risk when you can‟t sleep at night because you are worrying about your investments. While bonds provide a steady stream of income. This is an indicator of your investment personality. your investment is virtually guaranteed (or “risk-free” in investing terminology). When you purchase a bond. the term „bond‟ is commonly used to refer to any form of investment founded on debt. In return. As a result. Putting it all together: your risk tolerance By now it is probably clear to you that the main thing determining what works best for an investor is his or her capacity to take on risk. Of course. they fluctuate in value on a daily basis. you become a part owner of the business. you need to know how much volatility you can stand to see in your investments. Compared to bonds. Because there is little risk. The main attraction of bonds is their relative safety. they agree to give you interest on your money and eventually pay you back the amount you lent out. The core factors that define your risk tolerance are: > Investment Objectives > Timeframe > Your personality Types of investments Bonds Grouped under the general category called „fixed-income‟ securities. Stocks When you purchase stocks (or „equities‟). you are lending out your money to a company or government. This entitles you to vote at the shareholder‟s meeting and allows you to receive any profits that the company allocates to its owners–these profits are referred to as dividends. the rate of return on bonds is generally lower than other securities. there is little potential return. there is a price for this potential: you must assume the risk of losing some or all of your investment. if you are about to retire. stocks provide relatively high potential returns. however. Figuring this out is difficult. making you any money only by increasing in value and going up in prices – which might not happen. Your personality When investing. come at a cost. . Many stocks don‟t even pay dividends. then the opportunity to recover losses on your investments is limited and therefore it is critical to invest your assets conservatively. That is. The safety and stability. you are not guaranteed anything. When you buy a stock. If you are buying bonds from a stable government. stocks are volatile.On the other hand.
Mutual funds are all set up with a specific strategy in mind. and their distinct focus can be nearly anything: stocks. like risk return tradeoff. A common misconception is that higher risk equals greater return. In the investing world. It depends on goals. an individual investor needs to arrive at his own individual risk return tradeoff based on his investment objectives. gold. The risk return tradeoff is an effort to achieve a balance between the desire for the lowest possible risk and the highest possible return. debt. Hence. How do you know what risk level is most appropriate for you? This isn‟t an easy question to answer. income. Financial Concepts In this section we will go through some of the key financial concepts that you must be aware of before investing. risk means you have the possibility of losing some or even all of your original investment. the dictionary definition of risk is the chance that an investment‟s actual return will be different than expected. etc. you are pooling your money with a number of other investors. Just as risk means higher potential returns. his life-stage and his risk appetite. Low risks are associated with low potential returns. it also means higher potential losses. There are no guarantees. When you buy a mutual fund.Mutual Funds A mutual fund is a collection of stocks and bonds. bonds. Technically. The Risk Return Tradeoff Diversification Rupee Cost Averaging Asset Allocation The Risk Return Tradeoff Deciding what amount of risk you can take while remaining comfortable with your investments is very important. The primary advantage of a mutual fund is that you can invest your money without needing the time or the experience in choosing investments. and the list goes on. Practically. stocks and bonds. Risk tolerance differs from person to person. personal situation. The risk return tradeoff tells us that the higher risk gives us the possibility of higher returns. which in turn enables you (as part of a group) to pay a professional manager to select specific securities for you. High risks are associated with high potential returns. rupee cost averaging and diversification. . this is measured in statistics by standard deviation. that are especially useful for individual investors. We will discuss concepts.
then consider different types of equity funds. and fewer units at higher prices. This means you buy more units of the security at lower prices. and perhaps even some real estate. Buying at the absolute low and selling at the peak is nearly impossible in practice. Each asset . he or she will tell you that it is timing the market. stocks and cash. For example you could invest 30 per cent in equity schemes. Alternately you could invest only in mutual funds but of varied types. If you are investing in equity funds. Vary your securities by industry. Diversification essentially lowers the risk of your portfolio.Diversification Diversification is a risk-management technique that mixes a wide variety of investments within a portfolio in order to minimize the impact that any one security will have on the overall performance of the portfolio. stocks. income. mutual funds. No matter how much diversification you employ. The cost per unit/share over time therefore averages out. This principle is very powerful and works best over long periods of time. Rupee Cost Averaging If you ask any professional investor what their hardest task is. This reduces the risk of investing a large amount in a single security/mutual fund at the wrong time. diversification is not a foolproof guarantee against loss. It would be wise to pick investments with varied risk levels. This is why investment professionals preach Rupee Cost Averaging. Rupee Cost Averaging is the process of buying fixed amounts into a security/stock/mutual fund at fixed points in time regardless of the prevailing price. At the same time. this will ensure that large losses are offset by other areas. bonds. Diversification is the most important component in helping you reach your long-range financial goals while minimizing your risk. you could consider both long-term and short-term funds. Asset Allocation Asset allocation is an investment portfolio technique that aims to balance risk and create diversification by dividing assets among major categories such as money market. The Systematic Investment Plans (SIP) offered by mutual funds work on this principle and are therefore a highly recommended investment option. Trying to time the market is a very tricky strategy. There are three main practices that can help you ensure the best diversification: Spread your portfolio among multiple investment vehicles such as cash. This will minimize the impact of specific risks of certain industries. And if you are investing in income funds. investing involves taking on some sort of risk. Vary the risk in your securities. 40 per cent in debt/income schemes and 30 per cent in money market schemes.
The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. professionally managed basket of securities at a relatively low cost. Thus a Mutual Fund is a suitable investment for the common man as it offers an opportunity to invest in a diversified. In this section we endeavor to educate current and potential investors on the basics of mutual funds. What is a Mutual Fund? What are the benefits of investing in a Mutual Fund? What are the different types of Mutual Funds? What are the types of risks? What is a Mutual Fund? A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money collected in the fund is then deployed in investment avenues that help investors meet predefined investment objectives. money market or fixed income instruments. This mean that investors can sell their holdings in Mutual Fund investments anytime without worrying about finding a buyer at the right price. What are the benefits of investing in a Mutual Fund? The benefits of investing in Mutual Funds are as follows Access to professional money managers – Experienced fund managers using advanced quantitative and mathematical techniques manage your money Diversification – Mutual Funds aim to reduce the volatility of returns through diversification by investing in a number of companies across a broad section of industries and sectors. Mutual Fund Basics It’s common knowledge that investing in mutual funds is (or at least should be) better than simply letting your cash waste away in a savings account. that’s where the understanding of funds ends. This inherently minimizes risk.class has different levels of return and risk. for most people. Thus with a small investible surplus an investor can achieve diversification which would have otherwise not been possible Liquidity – Open-ended Mutual Funds are priced daily and are always willing to buy back units from investors. It is essentially a diversified portfolio of financial instruments – these could be equities. At the same time that one asset is increasing in value. another may be decreasing or not increasing as much. so each will behave differently over time. but. It prevents an investor from putting „all eggs in one basket‟. In the case of other investment avenues such as stocks .
and bonds. A Mutual Fund on the other hand allows even individual investors to hold a diversified array of securities due to the fact that it invests in a portfolio of stocks. Growth . Such schemes normally invest a majority of their assets in equities. an individual investor would not be able to diversify his investments (and thus minimize risk) across a wide array of securities due to the small size of his investments and inherently higher transaction costs. The portfolio is also disclosed regularly with the fund manager‟s investment strategy and outlook Well-regulated industry – All the Mutual Funds are registered with the Securities & Exchange Commission of Pakistan (SECP) and they function under strict regulations designed to protect the interests of investors Convenience of small investments – Under normal circumstances. By structure Open-ended Funds – An Open-ended Fund is one that is available for subscription all through the year. buyers are not necessarily available and therefore these investment avenues are less liquid compared to open-ended schemes of Mutual Funds Tax efficiency – Mutual Fund offers a variety of tax benefits. These do not have a fixed maturity. A Mutual Fund therefore permits risk diversification without an investor having to invest large amounts of money What are the different types of Mutual Funds? Mutual Fund schemes may be classified on the basis of their structure and their investment objective. Close-ended Funds – Closed-end Funds have stipulated / perpetual life based on the constitutive documents of the funds. This therefore results in paying lower brokerage due to economies of scale Transparency – Prices of open ended Mutual Funds are declared daily. Regular updates on the value of your investment are available. The market price at the stock exchange could vary from the funds‟ NAV due to stock market factors. the amount of investment made in securities is large. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices. Low transaction costs – Since Mutual Funds are a pool of money of many investors. These funds open for subscription only during a specified period and investors can initially invest in the funds at the time of the subscription and thereafter they can buy or sell the certificates of the funds on the Stock Exchanges. By investment objective Stock Market (Equity) Funds – The aim of Growth Funds is to provide capital appreciation over the medium to long term.
The value of the scheme‟s investments may be affected by factors affecting capital markets such as price and volume volatility in the stock markets. Balanced funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth. When this happens. how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised. These schemes generally invest in safer short-term instruments such as Treasury Bills. economic or other developments. These are ideal for investors as a means to park their surplus funds for short periods. Credit risk – In short. For Mutual Fund investments. when interest rates rise. Whenever the rate of inflation exceeds the earnings on your investment.schemes are ideal for investors who have a long-term outlook and are seeking growth over a period of time. Bond prices are influenced by movements in the interest rates in the financial system. risks would include variability. Inflation risk . bank deposits and cash. Capital appreciation in such funds may be limited. changes in government policy. Such schemes generally invest in fixed income securities such as bonds. Income Funds – The aim of Income Funds is to provide regular and steady income to investors. or repay your principal when the investment matures? Interest rate risk – Changing interest rates affect both equities and bonds in many ways. This change in price is due to „market risk‟. the stock prices of both an outstanding. term finance certificates and Government securities. preservation of capital and moderate income. highly profitable company and a fledgling corporation may be affected. Income Funds are ideal for capital stability and regular income. What are the types of risks? Risk is an inherent aspect of every form of investment. Generally. Money market Funds – The aim of Money Market Funds is to provide easy liquidity. or period-by-period fluctuations in total return. foreign investment. .Sometimes referred to as „loss of purchasing power‟. political. Market risk – At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. This proportion affects the risks and the returns associated with the balanced fund – in case equities are allocated a higher proportion. though risks are typically lower than that in a growth fund. not more. investors would be exposed to risks similar to that of the equity market. the prices increase. currency exchange rates. Such schemes invest both in equities and fixed income securities in the proportion indicated in their offering documents. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. interest rates. Balanced Funds – The aim of Balanced Funds is to provide both growth and regular income. prices of the securities fall and when interest rates drop. you run the risk that you will actually be able to buy less.
There are three principal rules which need to be adhered to when analyzing an investment from the standpoint of Shariah permissibility. Liquidity risk is characteristic of the fixed income market. Accordingly. The prohibition is bilateral. the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities. interest (Riba) is the return rather than profit. Investment risks . This is based on the principle that it is unacceptable in and of itself for same commodity. The conclusion then is that whenever capital is “lent” rather than “invested”. The first is the absence of interest (riba) in the investment. However. The fund manager may therefore be unable to quickly sell an illiquid bond and this might affect the price of the fund unfavorably. fasting and hajj. The Prophet Muhammad (P. including money.U. Radi-Allahu unhu. Liquidity risk .) said: ‘Seeking halal earning is a duty after the duty.Muslim scholars have put together the following benchmarks clarifying what is not acceptable as an investment under Shariah.’ In other words working to earn a halal living is itself a religious obligation second in importance after the primary religious obligations like prayers. What is a Shariah-compliant investment? What is an „Islamic Investment Fund‟? What does the portfolio of a Shariah-compliant „Income Fund‟ consist of? What are the portfolio constituents of a Shariah Compliant Equity Fund? What is UBL Funds SIRAJ? Who are the members on the Shariah Advisory Board of UBL Funds Siraj and what is their role? Watch our Shariah Board Members answer your most common questions related to Islamic Investments What is a Shariah-compliant investment? Investments which are in accordance with the Islamic Principles are called Shariah-compliant.Thinly traded securities carry the danger of not being easily saleable at or near their real values. .B. Shariah does not prohibit the making of a return on capital if the provider is willing to share in the risks of a productive enterprise. to increase in value merely by being lent to another person. which means that the lender cannot receive it and the borrower cannot pay it. investments will be predominantly in equities of select companies in the particular sectors. Shariah-compliant Investments According to Abdullah ibn Masud.H. The second is the potential for ‘unethical concerns’ in the investment mix. Islam has strictly prohibited interest (riba).In the sectoral fund schemes.
Ancillary Activity – Any business though not directly engaged in the above.g. retailers and distributors of pornographic material as well as firms involved in pornographic activity. against a fixed fee (known as the Management Fee). (Insurance companies are usually included in the this section too) Gambling – Casino and gambling outlets Pornography Manufacturers. derives greater than 5% of its income from the above. . they must carry a pro-rated profit actually earned by the Fund. so they are eligible to share proportionately the profit earned (or loss incurred) on their investment. Or any other forms whose activities the Shariah Board feels are prejudicial to the interests of Islam or Muslims. an Islamic investment vehicle. Tobacco – Manufacturers of tobacco and tobacco related products. In addition to insisting on investment contracts being put in writing. Islamic finance also places great emphasis on the validity and transparency of contracts. there are clear guidelines on ensuring that all terms and conditions of the investment contract are detailed in a manner in which no disputes can arise in the future. Therefore. In an Islamic Fund the investors have the relationship of partners amongst themselves. price. The Fund Manager of an Islamic Fund works as the investment agent and manages the investment activities on behalf of the investors‟ collective investment. An Islamic Fund can not offer a fixed return on investment. The concept of Islamic Mutual Funds has its roots in “Musharaka”. „Musharakah‟ is a word of Arabic origin which literally means sharing. What is an ‘Islamic Investment Fund’? The term “Islamic Investment Fund” means a joint pool wherein the investors contribute their money for the purpose of investment to earn halal profits in strict conformity with the precepts of Islamic Shariah. The final area relates to the nature of the contract between the parties involved. Any contract failing to pin down its key components (e. neither the principal nor a rate of profit (tied up with the principal) can be guaranteed (unless a capital protected fund). subject matter. Banks – and other banking Institutions involved in interest. In the context of business it means a joint enterprise in which all the investors or “partners” share the profit or loss of the joint venture. Alcohol – Brewers or distillers of alcohol or any firm exclusively involved in the production or sale of alcohol. delivery date etc) in a manner in which the uncertainty may cause a dispute between the contracting parties is guilty of containing “gharar” (Unacceptable Uncertainty) and is null and void in the eyes of Shariah.
For example. Sukuks (Islamic Bonds) and Ijarah (Islamic Leasing). Profits are also achieved by the dividends distributed by the relevant companies. the investors‟ money is invested in the shares of joint stock companies. the Islamic Investment Funds may accommodate a variety of modes of investments. These rentals are the source of income for the fund which is distributed to the subscribers.As opposed to conventional funds. textile. The instruments selected for investment by the Fund Manager are approved and monitored by the Shariah Advisory Board of the Fund as Shariah-compliant. and must not be retained. Dealing in equity shares can be acceptable in Shariah subject to the following conditions: The main business of the company is not in violation of Shariah. the proportion of such income in the dividend paid to the share-holder must be given as charity. What does the portfolio of a Shariah-compliant ‘Income Fund’ consist of? Islamic Income Funds aim to provide a regular source of income to investors while endeavoring to preserve the principal investment. Therefore. it is not permissible to acquire the shares of companies providing financial services on interest. If the main business of the companies is Halal. . In Ijarah. is the name of Shariah-compliant Investment Certificate issued by the Government or a private institution. if 5% of the whole income of a company has come out of interest-bearing deposits. or balanced. etc. such as equities. or the companies involved in some other business not approved by the Shariah (as mentioned earlier). insurance companies. motor vehicles. like conventional banks. funds are generally invested in low-risk assets such as Islamic Banks‟ Term-deposit accounts. The issuer pays periodic rentals which generate profit for the investors. also known as Islamic Bonds. 5% of the dividend must be given in charity. the subscription amounts are used to purchase assets like real estate. but they deposit there surplus amounts in an interest-bearing account or borrow money on interest. Sukuks. like automobiles. What are the portfolio constituents of a Shariah-compliant Equity Fund? In an equity fund. The profits are mainly achieved through capital gains (purchasing shares and selling them when their prices are increased. income. The ownership of these assets remains with the Fund and the rentals are charged from the users. Keeping these basic requisites in view. To achieve this goal. or other equipment for the purpose of leasing them out to their ultimate users. Such certificates normally represent investors‟ ownership in a fixed asset leased to the issuer. Islamic Funds are in total compliance with the Shariah rules and regulations to earn “halal” profits in strict conformity with the precepts of Islamic Shariah. Ijarah is the name of Islamic Leasing products issued by the Government or a private institution.
the result of our deep experience in the asset management sector and our strong commitment to values and ethics. If all the assets of a company are in liquid form. The Shariah Board separates the impure earnings from the capital gains and/or dividends and redistributes the rest to investors. Information Reporting The Board also prepares annual Shariah Audit and Review Reports concerning the Fund‟s activities. except on par value. At UBL Funds Siraj you can benefit from an investment experience that is highly personalized. called Zakat (purification). global and competitive. and this includes: Portfolio Purification Impure earnings from investments are to be purified through a donation to charity. i. Who are the members on the Shariah Advisory Board of UBL Funds Siraj and what is their role? All investments made in our Islamic Funds are approved and monitored by the Shariah Advisory Board (SAB) that comprises of renowned Islamic Scholars. in the form of money that cannot be purchased or sold. Monitoring Management The Shariah Board helps coordinate investment strategies and ensure compliance of the fund‟s activities in accordance with the Islamic guidelines.e. because in this case the share represents money only and the money cannot be traded in except at par. This is generally included in the Fund‟s Financial Statements. The shares of a company are negotiable only if the company owns some non-liquid assets. the Shariah Board determines and regularly monitors the criteria for the selection of companies or instruments in which the fund may invest. Maulvi Muhammad Hassaan Kaleem Muhammad Najeeb Khan The role of the Shariah Advisory Board is to ensure compliance with Islamic Shariah principles. . What is UBL Funds Siraj? UBL Funds Siraj is the Islamic investments division of UBL Fund Managers that is dedicated to offering innovative asset management and investment advisory services in accordance with the principles of Islamic Shariah. Adequate Selection of Investment Instruments Based on the Islamic Principles.
.Watch our Shariah Board Members answer your most common questions related to Islamic Investments Watch the exclusive series of videos featuring our esteemed Shariab Advisory Board Members answering to some of the most common questions related to Islamic Finance & Islamic Investments. Click Here to view the videos.
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