So, let’s begin. Here are the three most common (and safest) form of investments that every investment-newbie can find in Malaysia:
- Unit trust
- Fixed Deposit (FD)
- Investment-linked Insurance Plan (ILP)
1. Unit TrustHollywood wants you to think that unit trusts are only for rich kids (think Elle Woods in Legally Blonde), but really, anyone can have a unit trust account. A unit trust is a portfolio that is made up of different assets including shares, bonds, real estate, and more. The portfolio is then broken down into “units”, which are then sold to investors (you).
However, your money will be put together with other investors’. The money that is earned will be given back to everyone based on each person’s contribution.
This is known as income distribution, which includes capital gains, dividends or shares and this depends on the type of unit trust you invest in. Unit trusts are professionally managed by fund managers, which is a great advantage especially for beginners in investments.
There are four main types of unit trusts, which are:
|Equity Funds||These portfolios are made of stocks that are listed on the Bursa Malaysia. The performance depends on the stock market movements.|
|Balanced Fund||This is a mix of low and high-risk funds including equity, fixed income and money market funds.|
|Fixed Income||This is made up of securities including government and corporate bonds, which is when an investor loans money to a company or the government.|
|Money Market Fund||These consist of funds that are cash equivalent securities, which are short-term and highly liquid. These funds can be converted to cash.|
In Malaysia, there are various unit trusts you can invest in. One of the more popular ones is Amanah Saham Bumiputera (ASB), which we have explained in our previous article. As ASB is strictly Malaysian Bumiputeras-only, there are others you can invest in through major banks including RHB, CIMB and more.
Signing up for a unit trust is relatively easy as can apply for a unit trust through any bank (some even offer the service online) or purchase directly from the unit trust offices. Nevertheless, the cost of entry depends on the unit trust you invest in. The minimum investment amount will vary from RM100 to RM1,000, depending on the unit trust you choose.
However, how much you need to fork out depends on the Net Asset Value (NAV), which is basically the price of one unit.
The return rate is calculated as a percentage per annum (year). One effective way to determine the rate of returns is to refer to the fund’s performance history, which is usually posted up on their website. If the fund has a history of yielding good returns, then you can gauge your return rates according to this. Additionally, you can refer to online websites such as Fundsupermart.com to check their monthly return rates.
2. Fixed Deposit (FD)Think of a a fixed deposit as a time capsule for your money. Once you put your money in a fixed deposit account, you can’t take it out until your agreed-upon tenure is ended. It sounds a little annoying that you can’t take your own money out, but the reason why we recommend it is because fixed deposits offer a much higher interest rate than your average savings account - after your tenure ends (yay free money!).
The tenure can be anywhere between one month (short-term fixed deposit) up to five years (long-term fixed deposit). However, your returns will be affected by how long you’re willing to ‘marinate’ your money in the fixed deposit account - the longer your tenure, the higher the interest rate (and your returns) will be.
There are two main types of fixed deposit - a Conventional Fixed Deposit and an Islamic Fixed Deposit.
A Conventional Fixed Deposit is obligated to pay you a predetermined interest rate, regardless of any factors that could affect the bank’s performance, while returns for an Islamic Fixed Deposit depends on the bank’s performance.
Generally, interest rates of fixed deposits in Malaysia range between 3% to 4%. Here are some current interest rates (as of 27 November 2018) over a 12-month period:
|AFFINBANK Fixed Deposit||4.05% p.a|
|RHB Ordinary Fixed Deposit||3.35% p.a|
|Alliance Bank Fixed Deposit||3.35% p.a|
|Maybank Fixed Deposit Account||3.35% p.a|
|CIMB Unfixed Deposit||3.35% p.a|
To start investing, all you need to do is sign up with the respective bank. Just remember that you’ll need to make a minimum deposit - which can be from RM1,000 up to RM5,000 - depending on which bank you opt for.
3. Investment-linked Insurance Plan (ILP)An ILP is exactly as it sounds - it’s an insurance protection plan with the added benefit of also being an investment.
However, the coverage you receive depends on your policy and the insurance riders of your choice - this could range from critical illnesses to death. The policy also allows you to withdraw a certain amount should you experience a financial pitfall during the coverage period.
But, how exactly does the insurance double as an investment? Basically, a portion of the premiums will be invested, while the rest remains as your usual coverage premium.
ILPs usually invest into unit trust funds, which means your cash will be managed by a fund manager. Your returns, just like any other unit trust, is reliant on the fund’s performance – there will be several fund options to choose from.
There are two types of plans when investing in an ILP - a single-premium and a regular-premium plan.
Choosing which one you’d rather put your money is dependent on your affordability as a single-premium is a one-off payment that covers the entire coverage period, while a regular-premium allows you to pay in intervals throughout the year.
Picking an investment-linked plan also depends on your priorities as there are policies that are skewed towards specific goals such as an education fund.
Here are some you can look into:
|Prudential PRUlink million||A regular premium plan that provides coverage of RM350,000 and above.|
|Maybank Premier Education Savers||A whole life investment-linked plan to build your child's education fund through strategic allocation of your investments.|
|Great Easter SmartInvest Growth||A plan that starts with a one-time premium of RM5,000 where you can choose to top-up your policy to boost investment.|
One great advantage with ILPs is flexibility, as most policies will allow you to customise your portfolio according to how much you can afford. Should there be a reason you’d like to switch to a lower risk fund, you can, but there may be a limit to switching funds and you might incur a processing fee.
Additionally, a portion of your fund may be sold off to pay insurance charges, should you choose to increase your coverage.
But, are you sure these are risk-free?
To put it bluntly, NO. You can’t escape risk when it comes to investments as the company you invest in could potentially experience instability in the market, or it may go bankrupt for whatever reason.
Hence, your risk appetite will be among the fundamentals of your investment decision-making when it comes to your money. Generally, higher risk investments equal to higher returns - but, can you afford to put your money at risk?
A risk appetite refers to the level of risk you can tolerate.
The oldest trick in the book to minimise risk is portfolio diversification. Simply put, don’t put all your eggs (money) in one basket (investment plan) so that, if one fails, you still have others to fall back on.
So, before you consider making any sort of investment, make sure you outline, understand and find ways to circumvent the potential risks and of course if you can withstand the loss should it go the wrong direction.
Here are some questions you should take into consideration to understand your risk appetite:
- When do you need the returns?
- What are your financial goals?
- How long can you wait for a return?
- How much can you afford to lose?
However, investments are not something you should jump at without consulting a professional or at least, someone who has been investing for a while because it is tricky.
Nevertheless, we do hope you’d consider investing a portion of your savings in trusted investment platforms as this could fulfil all your future financial goals if you do it right.
So, good luck!