ARTICLES & TUTORIALS

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.

Like any investment, bond & sukuk also offer a balance of risk and return. A bond is a loan that the bond purchaser, or bondholder, makes to the bond issuer. If an investor buys a corporate bond, the investor is lending money to the corporation. Like a loan, a bond pays interest periodically and repays the principal at the stated maturity date.

Malaysia is at the forefront in the development of Islamic banking, an Islamic capital market, and takaful insurance. It has a strong and comprehensive Islamic financial system with a robust business-driven regulatory regime and legal framework. Malaysia has emerged as the largest sukuk market in the world. The sukuk market has become an integral part of the Malaysian capital market