Sukuk Simpanan Rakyat appeals to conservative investors

The public will be able to subscribe to the first Sukuk Simpanan Rakyat when application opens next week, said Bank Negara Malaysia in a statement today. To be launched on May 14, the first of two series RM2.5 billion sukuk has a 3-year maturity period and offers an annual profit return of 5%, which is exempted from tax and paid on a quarterly basis. Subscibers of the shariah-compliant papers are also allowed to make early redemption before the tenure ends in 2012.

According to the statement, citizens over 21 years of age can apply to subscribe to the papers at all commercial banks including Islamic banks, Bank Kerjasama Rakyat Malaysia Bhd, Bank Simpanan Nasional and Bank Pertanian Malaysia Bhd. An applicant can subscribe from a minimum of RM1,000 up to RM50,000. Allocation of the paper is on a first-come first-served basis.

The sukuk appears attractive considering returns from savings in a 12 month fixed deposit are currently at 2.5% per annum, while uncertainty still reigns in the stock markets. Chua Tia Guan, executive director of Great Vision Wealth Management Sdn Bhd says that the bond issuance is part of the government's pump priming package and may appeal more to people in the lower income group and retirees who are living on interest income. "With a quarterly distribution of profit and tax exemption on the profit, it will give investors advantage in terms of net earnings from the sukuk," Chua says. The government guarantee is also attractive he says, especially to investors with low risk tolerance. "Many investors are now more worried about the safety of their investments rather than the returns that they get."

Robert Foo, managing director and principal consultant at MyFP Services Sdn Bhd, says that while the 5% return rate is considered attractive now, investors should first look at their overall investment considerations and objectives before deciding on adding a new product to their portfolio. "One of the things to consider is opportunity risk, because by the time the paper matures, the market may have improved by more than 5%," Foo says.

Since the start of the year, Bursa Malaysia's benchmark Kuala Lumpur Composite Index has gained 4.69% amidst bearish sentiments. Chua also says there are many opportunities in the stock market for the more savvy investors who are likely to take more risk in their investments.

theedgedaily