Following are the different types of Shariah Investments (or Halal Investments) that Muslim Investors can invest in Singapore:
Stocks or Shares represent an ownership of a company or a Business in terms of units. A company offers its shares to raise capital for reasons such as to grow its business, acquire new assets or to remain solvent. When you buy a company’s shares, you become an owner (Shareholder) of the company.
A company that is doing well or profitable, will distribute its profits to the shareholders in a form of Dividends and high chance of Capital Gains too. But in a worst-case scenario, a shareholder may lose up to the amount invested in the company.
There are 2-Tier Screening approach to be carried out to ascertain which company stocks does not violate the shariah principles in terms of Business Activities and Financial Ratios. Such independent screening is carried out by Yasaar Ltd, an organisation with expert Shariah scholars.
A new Shariah-Compliant Index (a statistical measure for tracking economic data), the FTSE ST Singapore Shariah Index has been launched by FTSE Russell and will track Shariah-Compliant companies listed on Singapore Exchange (SGX). Stocks that are filtered out from the new index are companies that does not fulfil the 2-Tier Screening criteria.
2. UNIT TRUST
Unit Trust is a fund managed by a fund manager where multiple investors pool their money in and then channels it into different assets such as Equities, Bonds or a mix of both. The fund manager will actively buy and sell the assets to generates higher return, in return there will be fees charged for his or her service.
Unit Trust lowers the risk of investment by diversifying your money into different companies across different sectors, countries or regions. Similar to stocks, some funds give dividends and chances of capital gains.
Investment-Linked Policy (ILP) is another way to invest in funds while getting protected where premiums are used to pay for buying units in sub-funds of your choice, and some units are then sold to pay for insurance and other charges.
There are over 500 Unit Trust available in the market, but only a handful of them are Shariah-Compliant in Singapore. Majority of these Shariah investment funds below are Equity-based (Stocks), and very limited access to Sukuk fund (the Islamic equivalent of Bonds) and other Non-Equity based fund.
3. REAL ESTATE INVESTMENT TRUST (REITs)
Similar to Unit Trust, but the pool of investors’ money will be invested in a portfolio of Income Generating Real Estate Assets instead such as Shopping Malls, Offices, Hotels, etc. These assets are professionally managed and revenues generated; primarily rental income are normally distributed to REIT holders after deducting some fees.
I-REITS (ISLAMIC REITS)
There are 2 main categories for REITs which are :
(a) REITs that are deemed to be shariah-compliant at source ;
Such REIT has no risk of going in and out of compliance as they have their own shariah committee to ensure that they maintain the compliant status throughout.
(b) REITs that are not shariah-compliant at source but deemed to be so after fulfilling the 2-Tier screening filters – Business Activities and selected ratios.
With the 2-Tier Screenings, there is a possibility that some may become non-compliant in the future as business focus or selected ratios change. Likewise, REITs that may not be shariah-compliant previously, may be compliant in the future.
In this case, any REITs contained within a Shariah Index will be automatically considered as shariah-compliant.
Even though there are limited options for Shariah Investments in Singapore, but it is something that Muslim Investors can start off with.
Kenny Loh is a Senior Consultant is a Senior Consultant and Certified Islamic Wealth Advisor of a Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Sympsosium and Invest Fair. Kenny can be contacted through email firstname.lastname@example.org for any Shariah Investment Planning advice.