The Sukuk is an Islamic term which is equivalent of the bond. A bond, mainly issued by any corporations or governments, is a loan. These bonds are low-risk investments that can deliver a more consistent income through the interest payments. But as bonds involve interest payments and are not Shariah-compliant, it is completely prohibited by the Islamic laws. Sukuk is a great Islamic alternative for the bonds. It is a financial certificate which denotes complete ownership of particular assets.
When is this Sukuk issued?
The Sukuk is issued by some companies and governments for raising money that is required for some of the projects. These are used for investment proceedings in order to buy some assets. Investors, in return, will get payments (periodic) as well as the principal investment amount when this Sukuk will mature. As the Sukuk is totally Shariah-compliant, it doesn’t involve any interest payments like any other conventional bonds. Instead of the interests, the payments for Sukuk come from asset rentals and profit sharing.
Should you invest in Sukuk?
If you are wondering whether or not you should invest in Sukuk in Malaysia, then here are some of the reasons why you must:
- Consistent income: The Sukuk provides much regular payments, be it is yearly, quarterly or half-yearly. The payments are fixed and hence it is a good way to earn some consistent income. Thus, investing in this can help your get a predictable outcome regularly.
- Low-risk: Another reason why you must invest in Sukuk is because it is a low-risk proposal. Everyone wants to keep their money in a safe place with lower risk. Investing in this field can help you to have a lower risk on your investment.
- Preserve capital: It is always a good idea to invest in Sukuk as it is a good way of preserving the capital. If you want to cash out the investment, you can do it anytime. Unlike investing in equities, the price or value of Sukuk remains same and doesn’t go up and down.
How much return to expect from Sukuk?
The return that you will get from investing in Sukuk will depend a lot on your credit rating. When the Sukuk’s credit rating is low, it is much riskier but it can offer a good payout. On the other hand, when the credit rating of a Sukuk is high, it comes with much less risk. But in that case, it will offer a much lower payout. The Principal Islamic Lifetime Sukuk Fund will offer you an average interest of 5.9% every year on the main amount. So, if you have invested about RM1000, then you will receive RM59 as return every year.
Investing in Sukuk in Malaysia is quite a good idea and it is suitable under any market conditions. It can help you in managing the portfolio risk as well as it will provide diversification. As the market is quite uncertain, these days, investing in a low-risk plan like Sukuk is the best idea. You can gain a particular fixed income quarterly or annually by investing in a Sukuk.