Topic 5: Financial

Products and
FM
FINANCIAL MATHEMATICS
Investments
MTES3213

Z u l a tf i b i n M a t R i p i n
 What is an Investment Product?
• An investment product is a product offered to
investors based on an underlying security that is
purchased with the expectation of earning a
favorable return.
• Investment products are based on a wide range
of underlying securities and encompass a broad
range of investment objectives.

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Understanding Investment Products

• Investment product is the umbrella term for all the stocks,
bonds, options, derivatives and other financial instruments that
people put money into in hopes of earning profits.
• The types of investment products available for individual and
institutional investors can differ significantly but the basic profit
motive is behind all of them.
• A wide range of investment products exist within the
investment universe to help investors meet short-term and
long-term investment goals.
• Overall, investors purchase investment products for their capital
appreciation potential and income paying distributions.

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Forex Investment :
1. Foreign Exchange (FOREX)
• Foreign exchange (more commonly
known as Forex) investment plays with
the concept of trading currency (like how
someone can trade stocks). All currencies
have an exchange rate, you can say it is
the price of the currency. The more
expensive the currency’s exchange rate,
the greater is the currency’s value.
• To invest in forex, you will always have to
trade in pairs. For example, you purchase
$10 to sell it in the future at higher price
as you predict that USD exchange rate
will go up against MYR. Based on your
prediction, the higher USD goes up
against MYR, the greater your profit.
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FR
• A currency’s exchange rate is
determined by the country’s economic
strength and their global business
power. The stronger the country, the
higher is its exchange rate.
• An example of an exchange rate is
MYR/USD = 0.24
• This means, you will need 1 MYR to buy
USD 0.24. The currency on the left (MYR)
is called base currency and the currency
on the right (USD) is called quote
currency.
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Forex Investment :
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• Create a trading account
with your preferred
provider/choose broker
• Download Metatrader 4.0

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Forex Investment :
FR

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Forex Investment :
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Risks of Forex Investments
• Forex trading is highly sensitive to change in • Because of the extremely high leverage
exchange rate. you have in forex trading (100:1), you
• The exchange rate of a currency changes can lose all your money in a very short
rapidly and depends on various factors such as amount of time.
political stability, foreign investments, global
news, etc. • Risky Mode – 10
• If a currency unexpectedly falls, you have to
bear the loss no matter what as it is a
decentralized investments.
• However, you also have the option to diversify
your risk by investing in different position of
currencies and trading in more than 1 pair.
• As long as you are in constant vigilance on
world trade news, you can maintain a
moderately high risk high return investment
capacity.
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Forex Investment :
FR
Who Should Invest in Forex
• Forex is a high risk high return investment and hence only suitable if you are an
experienced investor with extensive knowledge on global trades and world economy.
• Must have insight on how and when the exchange rate moves up and down by
observing their historical pattern combined with external trade and global business
factors.
• It is highly recommended that you only explore this option once your money
foundations are set in place and you have additional money that you can afford to
lose.
• Required Budget to Invest in Forex
• You can open trade with ‘mini’ forex account with as little as RM 100.

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Forex Investment :
FR
Top 5 FOREX in Malaysia
• Octa
• XM
• Fxpro
• RoboForex
• HFM

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Stocks Investment :
FR
2. Stocks
• If you are looking to invest in a company then you can simply buy their shares from
the stock market.
• Of course, you must have knowledge of how the stock behaves as the stock price is
closely related to the company’s reputation and performance.
• If the company does well, your stock price will increase and you will enjoy capital
gain on increased share price and vice versa.
• Plus, you are entitled to dividend earning at year end.

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Stocks Investment :
FR
Features of Stock Investing in Malaysia Chart Title

• Stocks are riskier due to their volatility in the

market
• Tends to provide higher return compared to
other securities
• You can either manage the shares online or hire
a broker at a fee to do your job
• You can keep the shares for as short as a few
minutes or retain it for decades.
• However, if you like to enjoy dividend earnings
and significant capital gain, then you should plan
to hold onto the stocks of the company for as Category 1 Category 2 Category 3 Category 4

long as it makes sense (or be like Warren Buffet

where most stocks never get sold)

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Stocks Investment :
Risks of Investing in Stocks in FR
Malaysia
• The price of a stock depends on a lot of factors such as how many people want to
buy the stock, the company’s performance, economic conditions, etc.
• Hence, you can rule this as one of the riskiest investment, especially if you have no
trading experience.
• However, shares have relatively high returns compared to others to compensate for
its risky nature.
• Risky – 8

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Stocks Investment :
Risks of Investing in Stocks in FR
Malaysia
• The price of a stock depends on a lot of factors such as how many people want to
buy the stock, the company’s performance, economic conditions, etc.
• Hence, you can rule this as one of the riskiest investment, especially if you have no
trading experience.
• However, shares have relatively high returns compared to others to compensate for
its risky nature.
• Risky – 6

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Stocks Investment :
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Who Should Invest in Stocks in Malaysia
• People who have stock knowledge and can study stock patterns to choose potentially
profitable shares
• Knows how to read company reports and familiar with the terminologies involved
• Do not depend on the investment return for day to day expenses
• Required Budget for Stock Investing in Malaysia
• There is no cap on your budget, the only requirement is that you have to buy 100
units (1 boarding lot) of any share you choose to purchase.

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Stocks Investment :
FR
Top 5 Stocks in Malaysia
• Astro Malaysia Holding Bhd
• AirAsia Group Bhd
• Malakoff Corporation Bhd
• Magnum Berhad
• CMMT or Capital and Mall Trust

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Stocks Investment :
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How to Invest in Stocks in Malaysia
• To get started, you need to open a Central Depository System (CDS) account and a
trading account with a stockbroking firm that is registered in Malaysia.
• However, if you can, we suggest that you open an account with TD Ameritrade to get
access to buying of stocks from around the world.

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Real Estate Investment :
FR
3. Real Estate
• Having a roof over you is a common dream of everyone.
• So, buying a property may come naturally to you and renting it to gain some extra
income is the most common and oldest way to capitalize from your asset.
• Rental properties offers you both short term rental income and long term capital
appreciation earnings.

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Real Estate Investment :
FR
Features of Property Investment in Malaysia
• There are many types of properties for rent such as condominiums, apartments, terrace
houses, bungalows, etc.
• Different properties may hold different rental income
• You need to buy property in a location that has high demand for rentals and most preferable
by tenants
• Calculate Net Rental Yield before investing in rental properties to make sure that you can earn
marginable income from rental after covering for your expenses.
• Net Rental Yield (NRY) = (Annual Rental Income – Annual Expenses)/Total Property Cost x 100%
• The net rental yield will show your rental income as a percentage of your total property value
after deducting any expenses involved. For example, if you buy a property for RM 300,000 and
have a 3% NRY, it means you are earning RM 9000 (300,000 x 3%) per year on your investment
after deducting all expenses.
• You can sell the rental property at any given time and earn a profit if your property has
appreciated in value since you purchased it.
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Real Estate Investment :
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Risks of the Property Investment in Malaysia
• Rental income must count for certain elements to work as a profitable investment.
• Suppose, if you took loan to buy the rental property, then the monthly rental income
should be higher than your monthly loan instalment to yield positive earnings.
• You should factor in economic and political shocks as these may affect your rental
rate
• Risk of finding reliable tenant who gives rent on time is also a crucial factor
• There could be a situation where the supply of homes is higher than the demand.
When this occurs, your property value may go down and the rent that people are
willing to pay may also go down.
• Medium Risk – 3

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Real Estate Investment :
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Who Should Make Property Investments in Malaysia
• This option is viable for all Malaysians considering you have the eye and dedication to
do background research on which properties have highest rental demands.
• If you seek for an asset where the chances of capital guaranteed and increase in
value over time are high, then property is the best way to go.
• If purchased properly, properties rarely depreciates in value and you can sell it for
significant marginal profit if you don’t like the rent the property anymore.

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Real Estate Investment :
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Required Budget for Property Investment in Malaysia
• Property price differs depending on location of your choice.
• As of late 2018, an average Malaysian home cost RM 293,000.
• We have provided a list to look at the highest and lowest average price of houses
depending on their location for your reference:

Location Kuala Lumpur Putrajaya Selangor Johor Labuan

Highest Average 550,000 400,000 382,000 345,000 325,000
Price (RM)

Location Kelantan Kedah Melaka Perlis

Lowest Average 175,000 180,000 200,000 210,000
Price (RM)

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Real Estate Investment :
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Top 5 Locations for Property Investment in Malaysia
• As of 2017, the following 5 properties have the highest rental yield and therefore
ideal for investment (as per this article):

• | Taman Desaru Utama | Kota Tinggi, Johor | Terrace House | 10.90% |

• | Kiara Ville | Mont’ Kiara | Condominium | 10.60% |
• | Taman Tasik Semenyih | Semenyih, Selangor | Terrace House | 10.30% |
• | Taman Damai Jaya | Skudai | Terrace House | 9.40% |
• | Berjaya Times Square Serviced Residence | Bukit Bintang | Condominium | 7.20% |

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Real Estate Investment :
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How to Start Investing in Properties
• Research on high demand properties and areas which are populated with tenants
• Survey the property market with help of online portals like iProperty & Property Guru
• Contact with property agents to determine an ideal rental area with maximum
amenities
• Follow these 12 steps to buy the house
• Survey for current rental rate for your property
• Open accounts in online platforms such as Mudah or connect with agents to find
tenants
• Draw proper agreements with tenants to earn rentals

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U n i t Tr u s t I n v e s t m e n t :
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4. Unit Trust
• If you've ever visited any blog in the United States, you will hear the term mutual
fund quite often. However in Malaysia, we call mutual funds, unit trusts.
• Unit trusts are same as Amanah Saham Funds where you put money in a collective
investment pool with other investors who share the same appetite of security
portfolio as yours.
• The fund manager invests this pooled fund into diverse portfolio of assets including
cash, bonds, shares, properties, etc and you receive a yearly return from your
invested fund in form of income distribution.

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U n i t Tr u s t I n v e s t m e n t :
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Features of unit trusts investing in Malaysia

• There are many features of unit trusts and some of these features may differ from one unit
trust to another. However, here are the more common features of unit trusts:

• A unit trust includes various type of securities at different risk level to diversify your risk
• Each unit of your fund will provide equal return, so the more unit fund you hold, the greater
the return
• You have a variety of unit trust funds to choose from such as South American bonds,
European banks, commodities. However, if you are new to investing, you can go for low-cost
index funds

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U n i t Tr u s t I n v e s t m e n t :
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You can receive return from the invested funds in 3 ways:

• Dividends on stocks and interest on bonds paid out as yearly distribution

• Capital gain if the fund sells securities that have increased in price
• If fund holdings increase in price and you sell the unit trust fund shares for a profit in
the market

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U n i t Tr u s t I n v e s t m e n t :
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Risks of unit trust investing in Malaysia

• Unit trust funds are not as safe as saving accounts.

• It is real investment as you are investing in a basket of securities and therefore has
the chance of gain or loss as the securities impact in the market.
• The longer your mutual fund’s duration, the greater the risk. Plus, you have to pay a
fee to your fund manager and have associated charges to maintain the fund.
• Medium Mode – 5

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U n i t Tr u s t I n v e s t m e n t :
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Who is most suitable for unit trust investments in malaysia

• Unit trust funds are not as safe as saving accounts.

• It is real investment as you are investing in a basket of securities and therefore has
the chance of gain or loss as the securities impact in the market.
• The longer your mutual fund’s duration, the greater the risk. Plus, you have to pay a
fee to your fund manager and have associated charges to maintain the fund.
• Medium Mode – 5

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U n i t Tr u s t I n v e s t m e n t :
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How much should you have to invest in unit trusts

• Most institutions will ask you to start with a minimum of RM 1,000.

• However, there are some banks and institutions who agree to let you invest as low as
RM 100 per month on their mutual fund such as CIMB-Principal Bond Fund or
Amanah Mutual Berhad.

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U n i t Tr u s t I n v e s t m e n t :
Historical return of the 20 best unit trust investments in Malaysia FR

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U n i t Tr u s t I n v e s t m e n t :
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How to start investing in unit trusts in Malaysia

• There are a few different ways for you to invest in unit trusts in Malaysia. If you
would like to do this yourself, you can sign up on online platforms like Fundsupermart
or eUnittrust to start investing in unit trusts.
• Or you can directly call companies and banks dealing with unit trusts to open a unit
trust account and start investing.
• Another way to invest in unit trusts is through your investment linkedin medical card.

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U n i t Tr u s t I n v e s t m e n t :
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• Thank you.

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