ISB535

By:

® RIKINORHAKIS BIN RIDZWAN @ FACULTY OF BUSINESS MANAGEMENT 2020

 TOPICS:

1. Introduction to Islamic
Financial Planning 5. Takaful Planning
2. Financial Needs Analysis 6. Haj Planning
7. Retirement Planning
3. Personal Investment
8. Sadaqah and Wakaf
Instruments
9. Assets Redistribution in Islam
4. Zakat and Taxes Planning

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 CHAPTER 3:

Personal Investment Instruments

3.1 Introduction to investment, risk & return (calculation),
financial system & securities market
3.2 Equity Investment
3.3 Unit trust investment
3.4 Property investment
3.5 Short-term investment

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 3.1
INTRODUCTION TO INVESTMENT
What is investment?
Risk taking financial activities perform by an individual or companies with
the expectation for a positive changes in the value of their principal amount
Categories of investment?
(1) financial assets/real assets; (2) high or low risk; (3) short or long term; (4)
direct or indirect; (5) debt or ownership
Investment vehicles?
(1) equities (common shares); (2) fixed income securities (bonds); (3) unit
trust; (4) tangibles (properties); (5) derivatives (forward, futures)

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 RISK & RETURN
Return
• The benefits or reward an investor received from the investment over
the period of time-the income receive from investment
• 2 components: (i) current income (dividends, profits); (ii) Capital gain
Capital Gain = Selling price – purchase price
Or:
SP – PP
Capital Gain/Loss (in %) = x 100
PP
Where:
SP = Selling Price
PP = Purchase Price
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 RISK & RETURN
Measurement of Return
• Holding Period Return (HPR) is the total return earned from holding
an investment instrument for a specified period.
• It includes both current income and capital gain.
Holding Period Return I + (SP – PP)
= x 100
(HPR) PP
Where:
I = Income
SP = Selling Price
PP Purchase Price

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 RISK & RETURN
Risk
• Risk is a chance that the actual return may differ from what is
expected
• It is total variability of return
• If total variability of return increases, the risk increases and vice versa

“HIGH RISK, HIGH RETURN”

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 RISK & RETURN
Sources Risk
PURCHASING
BUSINESS RISK FINANCIAL Risk LIQUIDITY RISK
POWER RISK
Inability of a Associated with The risk involve The potential
company to the way in the loss of inability of the bank
maintain it’s which a income and to meet its funding
competitive position company principal is requirements arising
and the growth or finances its caused by the from cash flow
stability of its operation decreasing in the mismatches at a
earnings purchasing power reasonable cost
of a dollar
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 RISK & RETURN
Sources Risk
SYARIAH COMPLIANCE
INTEREST RATE RISK MARKET RISK
RISK
The risk of loss of principal The risk of loss of The company’s failure to
bought about by changes principal bought about comply with Syariah rules
in the prevailing interest by changes in the and principles as
rate paid on new securities prevailing interest rate determined by Syariah
that are currently being paid on new securities regulatory bodies of
issued that are currently being BNM, SC and the banks’
issued own Syariah council

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 RISK & RETURN
Measurement of Risk
• Standard deviation-measure of dispersion (variation) of returns of an
asset’s average or expected return
• A larger standard deviation indicates a greater absolute dispersion of
investment return, thus higher the risk.
• Standard deviation (s)
𝑡𝑜𝑡𝑎𝑙 𝑜𝑓 (𝑟𝑒𝑡𝑢𝑟𝑛 𝑓𝑜𝑟 𝑎𝑛 𝑜𝑢𝑡𝑐𝑜𝑚𝑒 −𝑎𝑣𝑒𝑎𝑟𝑔𝑒 𝑟𝑒𝑡𝑢𝑟𝑛)2
= √
𝑛𝑜.𝑜𝑓 𝑖𝑛𝑐𝑜𝑚𝑒 −1

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 FINANCIAL SYSTEM & SECURITIES MARKET
Financial System
• A mechanism where funds can flow effectively from the surplus units
to the deficit units.

RM RM
Surplus units Financial Institution/Bank Deficit units

• Monitored by a supervisory authority to ensure rules and regulations

are followed by the participants.

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 FINANCIAL
SYSTEM:

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 FINANCIAL SYSTEM & SECURITIES MARKET
Securities Market
• Security market can be defined as a mechanism for bringing
together buyers and sellers of financial assets in order to
facilitate trading
• Security market can further divided into:
a) Money market-where short term securities are transacted
b) Capital market-where maturity instruments is long term

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 FINANCIAL SYSTEM & SECURITIES MARKET
Securities Market
• Classified into two: (1) Primary market; and (2) Secondary market
PRIMARY MARKET SECONDARY MARKET
 new market of securities offered to the
 the trading of previously issued
public or IPOs through investment bank or
securities
other representative , from the issuer of
those securities
 IPOs is when a company sells (floats) its
 Listed in KLSE
stocks to the public for the first time
*IPOs = Initial Public Offering (process of offering shares of a private corporation to the public in a new stock issuance

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 FINANCIAL SYSTEM & SECURITIES MARKET
Bursa Malaysia
• A securities exchange for investors to buy and sell shares and
other instruments such as loan stock, debenture stocks,
warrants and bonds
• It owns Bursa Securities Berhad
• Provides facilities for investors to trade in the stock market
through two boards and an exchange–Main Board and the
MESDAQ exchange

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 FINANCIAL SYSTEM & SECURITIES MARKET
THE MAIN BOARD
Comprised of large capitalization
companies –paid up capital RM 60
million
Divided into eleven sectors-consumer
products, industrial products,
construction, trading/services,
infrastructure, finance, properties,
hotels, plantations and mining
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THE SECOND BOARD
Listing for small but viable companies;
to obtain funds from the public for
expansion
Comprised of 7 sectors
Listing requirements: minimum issued
and paid-up capital of RM 40 million
 FINANCIAL SYSTEM & SECURITIES MARKET
Securities Commission
• It is formed to rationalize and streamline the legislation and
regulatory framework of the Malaysian capital market.
• Set up in March 1993 under the Securities Commission Act 1993.
ROLES OF SC
1. Advises Ministry of Finance matters relating to 5. Suppress illegal and
securities and futures contract industries improper practices among
2. Regulate issue of securities, futures contract and unit securities communities
trust scheme matters 6. License and supervise licensed
3. Supervise and monitor the exchanges, central persons in the capital market
depository and the clearing houses 7. Suggest reform of law in the
4. Promote and encourage proper conduct of members capital market
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 3.2
EQUITY INVESTMENT
Common Stock
• Also known as ordinary shares
• Common stocks denote an equity (ownership) interest in the
corporation
• The stock holders are the owners of the corporation
• Entitled to the remaining assets after all claimants (including
preferred stockholders) are satisfied
• Common stockholders, as the owners, have a control of a corporation
at least in principle

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 EQUITY INVESTMENT

• They have limited liability whereby in the event of

difficulties, creditors have recourse only to the assets of the
corporation
• Obtain incremental profits of the corporation
• Provide higher returns-short/long term
• Preferred by retail and institutional investors
• Popular in the secondary market and in primary market

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 EQUITY INVESTMENT

Investing in the Stock Market

• Bursa Malaysia Securities Berhad provides facilities for
investors to trade in the stock market through the Main
Market and the ACE Market
• The Main board & the second board were merged to become
Main Market
• MESDAQ exchange was changed to ACE Market

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 EQUITY INVESTMENT
Trading Procedures in Stocks
Open an Account-a Placing an Order (WinScore)
Trading Account & Engage Remisier or comprised of name of share,
Central Depository licensed dealer number of lots and the CDS
System (CDS) account number

T+3 Trade Confirmation Order Confirmation

Contract Notes:
(Transaction (Remisier will then will be routed back to
printed & sent
& Settlement confirm with the the stock broking
to the investor
Date) investor) company-Match order

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 Stock Performance Indicator-Indices
• An index or averages track the performance of a security such as the

EQUITY INVESTMENT
common stock
• It can be used to understand the behavior of the instrument on a
daily, monthly, yearly or whatever period an investor or analyst would
want to study
• Examples: Dow Jones Industrial Average, FBM KL Composite Index,
Nikkei Index, DAX, S&P Index, Hang Seng Index and the FTSE 100
• It is derived by measuring the market capitalization of selected stocks
listed in the main market of the stock exchange
• Investors may also understand the condition of stock market in other
sectors of the economy by referring to other various sectoral indices
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Advantages & Disadvantages of Common Stocks

Voting and
Easy trade and low
Higher returns preemptive High liquidity Variety of choices
transaction costs
rights
Stock price are more Give an Only find a stock A stock order can Many choices of
volatile which can opportunity for broker, open a be easily matched shares to be
give opportunities to an investor to trading and the CDS especially during selected in terms
investors to gain increase its accounts and when strong market of types, price,
profits from the shareholding to trade just need where volume of sector and level of
capital gain made to call the remaisier business is high risk

High risk Lower current income Valuation problem

Can be effected by A growing company which is Difficulties in predicting
changes in domestic or trying to keep pace with the the expected future
foreign economic competitive requires the profit earnings, where an analyst
situation, uncertainties in to retained instead of paying out may have difficulties in
political scenario, etc. for dividend determining its true value
 EQUITY INVESTMENT
Syariah Screening Process
• Provide guidelines to screen out companies conducting non-Syariah
compliant business activities.
• It is important for the investors to select the stock of companies
which do not involved in: (1) Riba (Interest); (2) Maisir (Gambling); (3)
Gharar (Uncertainty); (4) Producing & selling of non-permissible
products (i.e.: pork, alcoholic beverages); (5) Conventional insurance;
(6) Entertainment which contravene with Syariah principles; and (7)
Producing & selling of tobacco

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 EQUITY INVESTMENT
Types of Common Stock
Blue-chips Stocks Growth Stocks Income Stocks
These are stock that Growth stocks are those  Some stocks are known for
belongs to large, well- that have recorded a its stable records of paying
established and higher than average higher than average
financially strong sales, earnings and dividends
companies dividends  Income stocks have this
They have a long and These are stocks which characteristic and suitable
stable record of earnings the companies are for investors seeking for high
and consistently paying normally aggressive and and reliable dividend
dividends research oriented payment

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 EQUITY INVESTMENT
Types of Common Stock

Cyclical stocks Defensive stocks Speculative stocks

 Stocks that are more  The opposite of the  Stocks that the prices
responsive to the cyclical stock which is move drastically due to
changes in the less affected by the both fundamental and
economy are called changes in the psychological factors and
cyclical stocks economy therefore can be risky

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 EQUITY INVESTMENT
Factors Effecting Stock Prices
1. Economic Factors:
refers to the interpretation of
economic variable such as GDP,
interest rate, unemployment
rate, money supply, etc.
4. International stock
market condition: a
nation’s stock market is also
directly related to the
performance of other bourses
performance
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2. Industry Outlook:
looking on how competitive
is the business, the
regulatory condition. The
industry life cycle, etc.
5. Crowd psychology:
sentiment of the market-the
strong feeling to buy or to
sell can be motivated by
greed, fear or hope of the
investor
3. Corporate Earnings: the
financial analysis will help investors
understand the earnings condition,
sales level, dividends, etc.
6. Geopolitical scenario:
stability of political scenario such as
smooth transaction of changes in
leadership or minimal changes in
business policy is more favorable
among investors especially the
foreign fund managers
 EQUITY INVESTMENT
Stock Investment Strategies
Buy and Hold Strategy High Current Income Quality Long-Term Growth
The most conservative Objective is to obtain  Unlike the income seekers,
strategy and the objective is a high and an investors who are concern
to preserve principal increasing trend in with capital gain may go for
amount or the capital the dividends. The the shares that provide a
outlay; invest in blue-chips most important is consistent appreciation in
shares, (shares of high investors concern on value, capital gain may be
capitalization and belongs to the safety of their prime objectives and this
companies with strong principle and stability category is less conservative in
financial condition of income. nature

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 EQUITY INVESTMENT
Stock Investment Strategies
Aggressive Stock Management
 For the short-term traders;
characterized by aggressive investing
and suitable for those who has the
time and skills to trade; investors are
fully invested in bullish market; high
level of risk
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Speculation and Short-Term Trading
 Speculators are normally short-term and
capital gains may be their sole-objective,
investment in speculative, small cap and
technology stocks which are more volatile and
provides more opportunities for capital gain;
some traders trade on market psychology; the
risk is the highest and demands for substantial
knowledge, skills and time
 EQUITY INVESTMENT
Fundamental Analysis
• A process of gathering and studying all information with the purpose
of determining the intrinsic value of a security
• 3 categories of fundamental analysis:

Economic Industry Company

Analysis Analysis Analysis

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 FUNDAMENTAL ANALYSIS

Economic Analysis
• A study on economic situation of the global economy first,
and then analyze the domestic economy
• Understanding of government’s fiscal policy on taxes,
spending and borrowings
• The analyst will look into the information such as Gross
Domestic Product (GDP), Interest rates, Industrial production,
Money supply, Consumer Price Index, Producer Price Index,
Balance of Payments and Unemployment

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 FUNDAMENTAL ANALYSIS

Industry Analysis
• Areas that need to be evaluated include: (i) nature of industry; (ii)
government policies on the industry; (iii) labor issues; (iv) demand or
supply scenario; (v) technological development; and (vi) supply of raw
materials
Maturity /
Initial Stage Expansion Stage Declining Stage
Stabilization Stage
 new entrants;  grow at a rapid rate; products  slow growth in  demand for products is
 uncertain widely accepted; sales; diminishing and sales
future;  risk is lesser as the company  business overall dropped drastically;
 risky; started making profits; is stabilizing;  most riskiest to invest;
 minimum  may start to declare dividends;  dividends paid  may go bankrupt if no
opportunity to  competition may also be high out; less risk new product
invest so reduced profit margin introduced
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 FUNDAMENTAL ANALYSIS

Company Analysis
• Process of selecting, evaluating and interpreting financial data of a
firm as a basis of making financial and investment decisions
• The main source of information in company analysis is the Annual
Report: BALANCE SHEET, INCOME STATEMENT & STATEMENT OF
CASH FLOW
• Most widely used tools in analyzing companies is the Financial Ratio
analysis such as:
3. Leverage or 4. Profitability 5. Common
1. Liquidity ratios 2. Activity ratios
Debt ratios ratios Stock ratios
Meetings current Efficiency in asset Level of Performance on a
Earnings level
obligations ability management borrowing per share basis

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 EQUITY INVESTMENT
Technical Analysis
• It is process of determining future value of a security based
on historical financial data recorded on charts
• Normally search for any meaningful patterns and trends
from the charts constructed and look for an indicator or
‘trigger’ to make important investment decision
• The technical analyst try to form the price estimates

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 Technical Analysis
Chart Formations and Trading Decision
• The role of chartist who will identify chart formation and then looks
for a ‘breakout’ which is a point that deviates from the pattern
• Chartist will also make attempt to determine the support and
resistance level
• Support: a price level or area which a stock has difficulty to fall below.
This line is derived by joining successive lows
• Resistance: a price level where the price has difficulty to rise due to
many sellers entering the market

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 EQUITY INVESTMENT
Investing Tips

1. Do some research about 5. Do not be afraid in selling

the stocks losing stocks
2. Do not pay too much on a 6. Past performance is no
single stock guarantee
3. Seek for assistance from 7. Keep an eye on your
professional advisor investment
4. Admit your mistakes

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