The ABCs of Shariah-compliant Securities (Part 2)

The ABCs of Shariah-compliant Securities (Part 2)

Who is eligible to trade in Shariah–compliant securities?
Investing in Shariah-compliant securities is open to all and not limited to Muslims only.

How does the Shariah classification affect my investments?
On the whole, it may or may not affect your investments because the Shariah classification is basically used to differentiate the securities of companies which are Shariah-compliant or non-compliant. However, there are certain instances which you might face that will indirectly affect your investments. Here are some questions that may arise regarding investing in Shariah-compliant securities:

• Can my Shariah-compliant securities turn “non-compliant”?

It is important to review your investment holdings from time to time to ensure that the companies you invested in are still in accordance to the Shariah classification. This is because the status of your Shariah-compliant securities may change due to certain reasons such as changes in the companies’ operations. For example, securities of a construction company that has taken over a gaming outfit as a subsidiary and derives significant profit from the gaming business can turn Shariah non-compliant.

• Will I be informed of the status change?

The SAC reviews the securities twice a year and releases an updated list of Shariah-compliant securities on the last Friday of May and November. As an informed investor, you should constantly keep abreast on the classification status of your securities by referring to the updated list. The list can be obtained from the Securities Commission, Malaysia website at www.sc.com.my.

• What should I do if I invest in non-compliant securities?

The SAC advises Muslim investors to dispose of any non-compliant securities within a month of knowing the status of the securities. Any profit made in the form of capital gains or dividends received during or after the disposal of the securities are to be channeled to charities. The investor should only receive the original investment cost.
• What should I do if my investment turns Shariah non-compliant?
If your investment turns Shariah non-compliant, you have to compare the current price of your securities and the original price at which the securities were purchased. This is important as it would influence the actions that you would have to take following the announcement of your securities’ Shariah-compliant status.

There are two possible situations that you may find yourself in:

1. You find out the status of your securities on the announcement date itself, or
2. You find out the status of your securities after the announcement date.

Below are some actions that you can take should you find yourself in these situations.

Below is an example to illustrate the situation further:

Conclusion

In conclusion, investors are advised to make investment decisions based on research and analysis. This is because Shariah-compliant securities is generally a classification of securities and the performance of the securities still depends on other factors. The Shariah classification does not hold major affect on the securities’ performance in the market.

For more information, visit the Securities Commission, Malaysia website at www.sc.com.my or the Malaysian Investor website at www.min.com.my