Finance

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BWFF1013 FOUNDATION OF FINANCE (SEMESTER A211) GROUP PROJECT

[PART I] A unit trust fund is a common pool of money that are professionally managed, into which investors with common investment objectives place their contributions that are to be invested, in accordance with the stated objective of the scheme. In other words, unit trust funds are a form of collective investment that allows investors with similar investment objectives to pool their funds in a portfolio of securities or other assets. It is simply a financial intermediary or financial vehicle. Such a scheme usually aims to provide above- average returns, in the form of income distribution and capital growth with reasonable risks, to medium-to-long term investors through investing in a broadly diversified portfolio of stocks and bonds.

You are required to provide in-depth explanations on the following: a) What is a Unit Trust Fund?

b) How does a unit trust fund operate? Explain and draw the structure

c) What are the differences between Unit Trust Funds and Mutual Funds?

d) What are typical charges and fees imposed by unit trust funds? e) How is unit trust fund priced? Provide an example of the Net Asset Value (NAV)

calculation. f) What are 2 types of returns can you expect from investing in unit trust funds? g) What is Dollar Cost Averaging (DCA)? Provide an example of the DCA. h) What are the advantages and disadvantages of investing in unit trust funds? i) What are types of Conventional unit trust funds commonly available in Malaysia?

j) Based on Question (i), provide 3 best performing unit trust funds for each type of

Conventional unit trust funds in Malaysia. You must provide details as follows:  Name of the unit trust fund  Name of the Unit Trust Management Company  5-year average returns  10-year average returns  10-year or 5-year price chart for each unit trust fund

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k) What are types of Shariah-compliant unit trust funds commonly available in Malaysia?

l) Based on Question (k), provide 3 best performing unit trust funds for each type of Shariah-compliant unit trust funds in Malaysia. You must provide details as follows:  Name of the unit trust fund  Name of the Unit Trust Management Company  5-year average returns  10-year average returns  10-year or 5-year price chart for each unit trust fund

m) Explain the following terms: ASSET ALLOCATION, SECURITY SELECTION &

MARKET TIMING.

n) What are Real Estate Investment Trust Funds (REITs)? What are the advantages and disadvantages of investing in REITs. Provide 2 examples of Shariah-compliant REITs in Malaysia.

o) What are the advantages and disadvantages of investing in gold? Provide 2 types of gold for investment in Malaysia (other than jewelry).

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BWFF1013 FOUNDATION OF FINANCE (SEMESTER A211) GROUP PROJECT

[PART II]

Suppose that Mr. Rashid Khan, a 25-year old investor from California would like to make

a long-term investment in Malaysia. He has approached you, a licensed investment

consultant, to advise him on a Shariah-compliant portfolio of RM20 million. Mr. Rashid

is married and he has a 3-year old daughter and a 1-year old son. He is willing to take high

risk in anticipation of high return. His investment horizon is 15 years.

You are required to propose ASSET ALLOCATION and SECURITY SELECTION for his portfolio as follows:

1. Determine the investor’s RISK PROFILE. Is he a young, mid-life or retiring investor? What is his risk profile, e.g. low or high risk?

2. Find the historical 10-year or 5-year AVERAGE RATE OF ROI (the longer the

better) in Malaysia for each investment. You are required to provide the

evidence or reference for each ROI.

ASSET ALLOCATION

AVERAGE ROI REFERENCE

 CASH

 EQUITY

 BOND (SUKUK)

 REITs

 GOLD

3. Prudently set up an ASSET ALLOCATION for an investment portfolio to maximize return on investment (ROI) in the next 15 years. You are required to prepare an asset allocation (% of each asset) and show it in a PIE CHART. The assets should be as follows:

1. CASH 2. STOCKS 3. BONDS 4. REITs 5. GOLD

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For example, if the investor is a retiring investor with a low risk profile, the asset allocation should be as follows (you must draw the pie chart).

4. For SECURITY SELECTION,

 provide the EXAMPLES OF REAL ASSETS OR SECURITIES for each

type of investments

 provide JUSTIFICATION why you choose each asset or instrument.

ASSET ALLOCATION

TYPES OF ASSETS REAL EXAMPLES

CASH  Mudharabah or any Islamic Fixed-Deposit offered by Islamic banks in Malaysia

1 (ONE)

EQUITY  Shariah-compliant stocks in Bursa Malaysia *Stocks must be negatively correlated

 Unit Trust Funds (Islamic Equity funds)

5 (FIVE) 3 (THREE)

BOND  Corporate Sukuks *Maturity of 10 years or more *Minimum investment in Sukuk is RM250,000

 Unit Trust Funds (Sukuk or Islamic Bond funds)

1 (ONE) 2 (TWO)

REITs  Shariah-compliant REITs

1 (ONE)

GOLD  Any form of gold (other than jewelry)

1 (ONE)

Asset Allocation

Stocks 25%

Bonds 40%

Cash 35%

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5. You are required to propose an INVESTMENT PORTFOLIO with the ASSET

ALLOCATION (as in Question #3) and the SECURITY SELECTION (as in Question #4).

 Except for CASH, you are required to provide the CURRENT PRICES for

ALL ASSETS OR SECURITIES in year 2021 (e.g. as of 31 December 2021).

 Compute the WEIGHTED AVERAGE ROI on your proposed asset allocation. The newly proposed asset allocation must be shown in a TABLE FORMAT (see Example I below as a guideline & show your calculation).

6. What is your expectation on the VALUE OF THIS INVESTMENT PORTFOLIO? (see Example II on the value of investment portfolio below as a guideline & show your calculation).

7. What are RISKS AND CHALLENGES for your proposed investment portfolio in short-term (1- 2 years), medium term (3-5) years and long-term (6-15 years).

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EXAMPLE I: SAMPLE OF PROPOSED INVESTMENT PORTFOLIO (Price per share/unit is as of 31 December 2021)

ASSETS

ALLOCATION

(RM) (Amount/

Total Assets)

AMOUNT OF SHARES/ UNITS

(Allocation Amount/price per share or NAV unit)

ROI (% p.a.)

WEIGHTAGE OF ROI

[Allocation(%)] x [ROI (%)]

CASH (10%): Bank A Al-Wadiah Savings Account Bank B Mudharabah Fixed-Deposit EQUITY (60%): AAA Berhad Price: RM10/share BBB Berhad Price: RM5/share CCC Berhad Price: RM2/share DDD Islamic Equity Fund NAV: RM1.10/unit EEE Islamic Growth Fund NAV: RM1.05/unit BONDS (10%): FFF Islamic Fixed Income Fund NAV: RM1.15/unit GGG Sukuk Fund NAV: RM1.20/unit REITS (10%): ZZZ Real Estate Investment Trust Funds Price: RM2.50/share GOLD (10%): A 999-grade gold bullion sold by XXX Berhad Price: RM200/gram

10,000 3,000 = 3% 7,000 = 7%

60,000 15,000 = 15% 15,000 = 15% 15,000 = 15% 7,500 = 7.5% 7,500 = 7.5%

10,000 5,000 = 5% 5,000 = 5%

10,000 10,000 = 10%

10,000 10,000 = 10%

15,000/10=1,500 15,000/5=3,000 15,000/2=7,500 7,500/1.10=6,818 7,500/1.05=7,143 5,000/1.15=4,348 5,000/1.20=4,167 10,000/2.50=4,000 10,000/200 =50

1% 3% 8% 8% 8% 7% 7% 5% 5% 6% 10%

0.03% 0.21% 1.20% 1.20% 1.20% 0.53% 0.53% 0.25% 0.25% 0.60% 1.00%

TOTAL ASSETS

100,000

6.99%

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EXAMPLE II: VALUE OF THE INVESTMENT PORTFOLIO IN THE NEXT 15

YEARS

PV of Total Assets Total Weightage of

ROI** Time period FV in next 15

years

RM100,000

7%

15 years

RM275,900

Notes: **Round up your total weightage of ROI to the closest decimal.