ARTICLES & TUTORIALS

A bond covenant is a legally binding term of agreement between a bond issuer and a bondholder or investor. The covenant main function is to protect the interest of both the bond holder and issuer. The bond or sukuk Principal Term & Condition (“PTC”) document will have the detail on the covenant that the issuer will have to follow.

The Malaysian capital market offers various investment products in the form of shares, unit trusts, bonds, warrants and derivatives. However, as an investor the type of investment product you choose to invest in is usually determined by several common factors such as investment goals, risk appetite and risk tolerance, investment time frame, and available cash to name a few.

In the world of investing, there is a perception among the general public that bonds are not as appealing as stocks or unit trust funds. However, as any smart investor will tell you, bonds can be a crucial part of your investment portfolio. If you invest in a high quality bond, you will discover that potentially, they can provide a steady income stream and at a fixed coupon (interest) rate. By the end of this article, you will be able to identify the pros and cons of bond investing. In Malaysia, most investors seem to be more familiar with the term "bond fund" or "bond unit trust fund".

In times of heightened risk aversion, investors typically shift their investments from higher risk financial instruments like stocks, to safer fixed-income assets such as bonds.

A bond is basically a debt security, similar to an IOU. Borrowers issue bonds to raise money from investors willing to lend them money for a set period of time.

Malaysian retail investors have never actively participated in bond investing. Some of you may have bought bond funds offered by the unit trusts, however, most of you may not know what a bond investment is really about and the effect of it has on your investment portfolio.

Most corporations will need to raise financing for a variety of reasons such as operation, merger & acquisition or business expansion. Prior to the 1997 Asian financial crisis, a lack of a well balance capital market in Malaysia has allow a heavy reliance on the financing from banks which resulted in excessive losses by corporation during the crisis.

There has been a strong interest for Socially Responsible Investment (SRI) product but there are still lack of attention on the fixed income market. In the recent years, numbers of bond and sukuk have been issued focusing on SRI or green initiative. This green bond and sukuk are issued to finance environmental friendly project.