| If you are investing in accordance with the Syariah principles and have invested in Syariah-approved securities, you may want to review your investment holdings from time to time. Because, the status of your Syariah-approved securities may change.
Syariah-approved securities
Generally, Syariah-approved securities are the securities of companies whose activities conform with the Syariah principles. These approved securities include ordinary shares, warrants and transferable subscription rights (TSRs). For warrants and TSRs, its underlying shares must be Syariah approved. On the other hand, loan stocks and bonds are non-approved securities unless they are issued based on Syariah principles. What happens when approved securities become “non-approved”?
Due to certain reasons such as changes in the companies’ operations, Syariah-approved securities may become “non-approved”. For example, shares of a construction company that has taken over a gaming outfit as a subsidiary and derives significant profit from the gaming business will become Syariah non-approved. As an investor investing based on Syariah principles, what should you do if your status of securities changes? Sell the securities immediately and incur losses if the market condition is unfavourable? Or keep the securities until you recover your investment costs? The SC Syariah Advisory Council offers some guidance. Syariah Advisory Council (SAC)’s guide for investors Scenario 1 You hold Syariah-approved securities and constantly follow the latest updated list:
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On the date the updated list takes effect (usually on the announcement date) review your securities holding and check whether all your Syariah-approved securities are still on the updated list. If they are, then continue holding them. |
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But if any of your securities become non-approved, you can do the following: |
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If the price of the securities on the announcement date is more than the original investment cost:
- Liquidate or sell off the securities immediately
- Any capital gain from the disposal can be kept by investors
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If the price of the securities is less than the original investment cost:
- You can hold the securities until its price is the same as your original investment costs
- However, investors may use the dividends received from holding the non-approved securities to recover their original investment costs in order to expedite the disposal of the non-approved securities
E.g.:
The original investment cost of your non-approved securities is RM4.50 per share. On the announcement day, the share price is RM4.40 per share. Subsequently, you received RM0.10 dividend per share but the share price remains at RM4.40. But due to the dividends you can now dispose your shares without incurring capital loss. RM4.40 (current share price) + RM0.10 (dividends) = RM4.50 |
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