TIME VALUE OF MONEY

LIQUIDITY PLANNING RISK MANAGEMENT

RISK RETURN TRADEOFF

RISK AND RETURN OF INVESTMENT

MODERN PORTFOLIO THEORY

COLLECTIVE INVESTMENT SCHEME

INVESTMENT DIVERSIFICATION

SHARIAH CONCEPTS RELEVANT TO INVESTMENT

• Is the application of interest system. Once money deposited into the bank then the interest will be earn.

• Charging interest on loan is condemned in Islam because its injustice to the borrower .While in saving deposit, there will be injustice to both parties which is bank and borrower.

• Islam taught money does not own by time but the Muslim must appreciate time and optimize the use of time by invest them in productive business.

• To make money from money is strictly forbidden by Islam. Wealth can only be generated through legitimate trade and investment in assets.

• The principal of Islamic finance is based on the concept sharing of profit and loss (risk) between the capital provider and entrepreneur.

• In islamic economic, the economic and financial activities is linked to real economic sector activities and there is encouragement to equity based structured backed by tangible assets instead of debt

LIQUIDITY PLANNING

Those of you who died and leave widows should bequeath

for their widows a year’s maintenance and residence:

but if they leave (The residence) there is no blame on you for what they do with

themselves, provided it is reasonable. And Allah is exalted in Power, Wise.

Muslims must have a saving of at least one year income for liquidity and emergency

purposes. It must be invested in a highly liquid and low risk product to ensure in case of emergency the money could

be retrieved.

RISK MANAGEMENT

• Risk Management practice have been practice at time Prophet Muhammad S.A.W.

• For example in the migrate by Muhajirin and Ansar from Mecca to Madinah. Prophet Muhammad ask the Muslims to moved in the small groups and move to the opposite direction before moving towards Madinah to avoid being detected by enemies.

• This shows that risk management tehcnique is permissble in Islam.

• Islam ask to put any effort to avoid misfortune.

• Indeed, risk management is highly encouraged as it is line with Maqasid Shariah

RISK RETURN TRADEOFF

In Islam, to get the higher return, the requirement of counter value or comensation (iwad), is critical as it is one of the cornerstones in Islamic principles of profit in the muamalah cntract. Which is revealed by the legal maxim:

“NO REWARD WITHOUT RISK”

“IN ANY BENEFIT LIES A LIABILITY”

RISK AND RETURN OF INVESTMENT

Investing need good knowledge

about the investment

product and its risk return profile

Two sources: Income and capital gains.Return is the motivation factor to invest. Its allow people to choose

the best investmentAllow owner to focus on his main career from which he

derives his main income and enjoying extra income from the return of his investment

Investment enable money to work for the owner

Not a “get rich quick” scheme

Level of profit derived from an investment

INVESTMENT DIVERSIFICATION

Is a technique that reduces risk by

allocating investments among

various financial instruments,

industries and other categories.

Is the most important component of reaching long term financial goals while minimizing risk. Which is, spreading risk which is accomplished with the act of spreading the money into various types of investments

Systematic Risks

Unsystematic Risks

Factors that affect all types of Investments

Relate to a specific class of

securities.

• The reduction of the portfolio risk is achieved by cancelling the unsystematic risk, while the systemetic risks of the portfolio remains

Investment risk are caused by factors categorized into:

MODERN PORTFOLIO THEORY

No. of securities in portfolio

COLLECTIVE INVESTMENT SCHEME

• Is a way of investing money with other people, by participating in a wider range of investments than may be faesible for an individual investor and to share the costs of doing so.

• Often referred to as managed funds, mutual funds, unit trust funds or simply funds.

• Depending on country, there is normally a bias towards the domestic market to reflect national self-interest, familiarity and the lack of currency risk

SHARIAH SCREENING ON SHARIAH COMPLIANT SECURITIES

• Function of SAC :1. To ensure that the running of the Islamic capital

complies with Shariah principles.2. Advise the Commission on all matters related to the

comprehensive development of the Islamic capital3. Reference centre for issues related to the Islamic

capital market• In classifying Shariah approved shares:

1. SC gathered information on the companies from various sources : annual financial reports, company responses to survey forms and through inquiries made to the respective company’s management

2. Through the SAC, continues to monitor the activities of all companies listed in Bursa Malaysia to determine their status from the Shariah’s perspective

SHARIAH SCREENING ON SHARIAH COMPLIANT SECURITIES

3. Companies whose activities are not contrary to the Shariah principles will be classified as Shariah-compliant securities.4. For companies with activities coprising both permissible elements, the SAC considers two additional criteria: i. The public perception or image of the company must be good ii. The core activities of the company are important and considered maslahah “benefit in general” to the ummah and the country and the non-permissible element is very small nd involves matters such as “umum al-balwa (common plight and difficult to avoid), “urf” (custom) and the right of non muslim community whch are accepted by Islam

BENCHMARKS BASED ON IJTIHADTHE FIVE-PER CENT BENCHMARK

-Used to assess the level of mixed contributions from the activities tht are clearly prohibited such as riba, gambling, liquor and pork THE TEN-PER CENT BENCHMARK-To assess Level of mixed contributions rom activities that involve elements of “umum al balwa” which is prohibited element affecting most people and is difficult to avoid. Example, interest come from fixed deposits. Also used for tobacco related activities

THE TWENTY-PER CENT BENCHMARKTo assess contribution of mixed rental payment from Shariah non-compliant activities, such as rental payments from premises used in gambling, sale of liquor

THE TWENTY-FIVE PER CENT BENCHMARK- generally permissible accoring to Shariah and have an element of maslahah to the public but there are some elements that may effect the status of the activties. Example,hotel and resorts operations, share trading, stockbroking and others as these activities may also involve that are deemed non-permissible accoding to Shariah