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Whatever your investing goals are, we are here to help you. Go through the sections given below to get basic, easy-to-understand information about various investment related topics.
Learn about investing and how it can help your money grow
The world of finance can be complicated and quite intimidating at times. We believe investments, as a practice is inherently simple once you understand the basics of investments and the terms associated with them. While you contemplate or plan your investments, please understand that investing is not about making quick money. Achieving your long-term financial goals requires sound planning. Every investment you make will have risks and rewards. These two factors will always go hand in hand. To learn more, read through the sections that interest you.
Basics of Investing
What is investing? Why bother investing? Understanding your needs
Financial Concepts
The Risk/Return Tradeoff Diversification Rupee Cost Averaging Asset Allocation
Shariah-compliant Investments
What is a Shariah-compliant investment? What is an Islamic Investment Fund? What is a Shariah Advisory Board?
Basics of Investing
We believe that investing can be fairly simple, once you understand some of the most important concepts. In this section we endeavor to educate current and potential investors on the practice of investing from the ground up.
What is investing? What investing is not Why bother investing? Understanding your needs Types of investments
What is investing?
Its actually pretty simple: investing means putting your money to work for youactually, its a different way to think about how to make money. Growing up, most of us were taught that you can earn an income only by getting a job and working. And so thats what most of us do. But theres a limit to how much we can work and how much money we make out of it not to mention the fact that having a bunch of money is no fun if we dont have the leisure time to enjoy it. So, since you cannot create a duplicate of yourself to increase your working time, you need to send an extension of yourselfyour moneyto work. That way, while you are putting in hours for your employer, sleeping, reading the paper, or socializing with friends, you can also be earning money elsewhere. Quite simply, making your money work for you maximizes your earning potential whether or not you receive a raise, decide to work overtime, or look for a higher paying job. There are many different ways you can go about making an investment. This includes putting money into stocks, bonds, mutual funds, real estate, gold etc. The point is that no matter the method you choose to invest, the goal is always to put your money to work so it earns you an additional profit. Even though this is a simple idea, its the most important concept for you to understand.
Based on your objectives, their investment horizon and your risk profile, we will help you identify an ideal asset allocation strategy for each of your goals. This means, for each of your goal to be achieved in what types of asset classes you should invest in. Generally, the longer the time you have to achieve a certain objective, you can invest a larger portion of your money in considerably riskier investments. Similarly, the less time you have to achieve your objectives, the less proportion of your money shall be invested in risky assets.
On the other hand, if you are about to retire, then the opportunity to recover losses on your investments is limited and therefore it is critical to invest your assets conservatively. Your personality When investing, you need to know how much volatility you can stand to see in your investments. Figuring this out is difficult; but there is some truth to an old investing maxim: youve taken on too much risk when you cant sleep at night because you are worrying about your investments. This is an indicator of your investment personality. Putting it all together: your risk tolerance By now it is probably clear to you that the main thing determining what works best for an investor is his or her capacity to take on risk. The core factors that define your risk tolerance are: > Investment Objectives > Timeframe > Your personality
Types of investments
Bonds Grouped under the general category called fixed-income securities, the term bond is commonly used to refer to any form of investment founded on debt. When you purchase a bond, you are lending out your money to a company or government. In return, they agree to give you interest on your money and eventually pay you back the amount you lent out. The main attraction of bonds is their relative safety. If you are buying bonds from a stable government, your investment is virtually guaranteed (or risk-free in investing terminology). The safety and stability, however, come at a cost. Because there is little risk, there is little potential return. As a result, the rate of return on bonds is generally lower than other securities. Stocks When you purchase stocks (or equities), you become a part owner of the business. This entitles you to vote at the shareholders meeting and allows you to receive any profits that the company allocates to its ownersthese profits are referred to as dividends. While bonds provide a steady stream of income, stocks are volatile. That is, they fluctuate in value on a daily basis. When you buy a stock, you are not guaranteed anything. Many stocks dont even pay dividends, making you any money only by increasing in value and going up in prices which might not happen. Compared to bonds, stocks provide relatively high potential returns. Of course, there is a price for this potential: you must assume the risk of losing some or all of your investment.
Mutual Funds A mutual fund is a collection of stocks and bonds. When you buy a mutual fund, you are pooling your money with a number of other investors, which in turn enables you (as part of a group) to pay a professional manager to select specific securities for you. Mutual funds are all set up with a specific strategy in mind, and their distinct focus can be nearly anything: stocks, bonds, debt, stocks and bonds, gold, and the list goes on. The primary advantage of a mutual fund is that you can invest your money without needing the time or the experience in choosing investments.
Financial Concepts
In this section we will go through some of the key financial concepts that you must be aware of before investing. We will discuss concepts, like risk return tradeoff, rupee cost averaging and diversification, that are especially useful for individual investors.
The Risk Return Tradeoff Diversification Rupee Cost Averaging Asset Allocation
Diversification
Diversification is a risk-management technique that mixes a wide variety of investments within a portfolio in order to minimize the impact that any one security will have on the overall performance of the portfolio. Diversification essentially lowers the risk of your portfolio. There are three main practices that can help you ensure the best diversification: Spread your portfolio among multiple investment vehicles such as cash, stocks, bonds, mutual funds, and perhaps even some real estate. Alternately you could invest only in mutual funds but of varied types. For example you could invest 30 per cent in equity schemes, 40 per cent in debt/income schemes and 30 per cent in money market schemes. Vary the risk in your securities. If you are investing in equity funds, then consider different types of equity funds. And if you are investing in income funds, you could consider both long-term and short-term funds. It would be wise to pick investments with varied risk levels; this will ensure that large losses are offset by other areas. Vary your securities by industry. This will minimize the impact of specific risks of certain industries. Diversification is the most important component in helping you reach your long-range financial goals while minimizing your risk. At the same time, diversification is not a foolproof guarantee against loss. No matter how much diversification you employ, investing involves taking on some sort of risk.
Asset Allocation
Asset allocation is an investment portfolio technique that aims to balance risk and create diversification by dividing assets among major categories such as money market, income, stocks and cash. Each asset
class has different levels of return and risk, so each will behave differently over time. At the same time that one asset is increasing in value, another may be decreasing or not increasing as much.
and bonds, buyers are not necessarily available and therefore these investment avenues are less liquid compared to open-ended schemes of Mutual Funds Tax efficiency Mutual Fund offers a variety of tax benefits. Low transaction costs Since Mutual Funds are a pool of money of many investors, the amount of investment made in securities is large. This therefore results in paying lower brokerage due to economies of scale Transparency Prices of open ended Mutual Funds are declared daily. Regular updates on the value of your investment are available. The portfolio is also disclosed regularly with the fund managers investment strategy and outlook Well-regulated industry All the Mutual Funds are registered with the Securities & Exchange Commission of Pakistan (SECP) and they function under strict regulations designed to protect the interests of investors Convenience of small investments Under normal circumstances, an individual investor would not be able to diversify his investments (and thus minimize risk) across a wide array of securities due to the small size of his investments and inherently higher transaction costs. A Mutual Fund on the other hand allows even individual investors to hold a diversified array of securities due to the fact that it invests in a portfolio of stocks. A Mutual Fund therefore permits risk diversification without an investor having to invest large amounts of money
schemes are ideal for investors who have a long-term outlook and are seeking growth over a period of time. Income Funds The aim of Income Funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, term finance certificates and Government securities. Income Funds are ideal for capital stability and regular income. Capital appreciation in such funds may be limited, though risks are typically lower than that in a growth fund. Balanced Funds The aim of Balanced Funds is to provide both growth and regular income. Such schemes invest both in equities and fixed income securities in the proportion indicated in their offering documents. This proportion affects the risks and the returns associated with the balanced fund in case equities are allocated a higher proportion, investors would be exposed to risks similar to that of the equity market. Balanced funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth. Money market Funds The aim of Money Market Funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as Treasury Bills, bank deposits and cash. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for investors as a means to park their surplus funds for short periods.
Investment risks - In the sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities.
Liquidity risk - Thinly traded securities carry the danger of not being easily saleable at or near their real values. The fund manager may therefore be unable to quickly sell an illiquid bond and this might affect the price of the fund unfavorably. Liquidity risk is characteristic of the fixed income market.
Shariah-compliant Investments
According to Abdullah ibn Masud, Radi-Allahu unhu, The Prophet Muhammad (P.B.U.H.) said: Seeking halal earning is a duty after the duty. In other words working to earn a halal living is itself a religious obligation second in importance after the primary religious obligations like prayers, fasting and hajj.
What is a Shariah-compliant investment? What is an Islamic Investment Fund? What does the portfolio of a Shariah-compliant Income Fund consist of? What are the portfolio constituents of a Shariah Compliant Equity Fund? What is UBL Funds SIRAJ? Who are the members on the Shariah Advisory Board of UBL Funds Siraj and what is their role? Watch our Shariah Board Members answer your most common questions related to Islamic Investments
Alcohol Brewers or distillers of alcohol or any firm exclusively involved in the production or sale of alcohol. Banks and other banking Institutions involved in interest. (Insurance companies are usually included in the this section too) Gambling Casino and gambling outlets Pornography Manufacturers, retailers and distributors of pornographic material as well as firms involved in pornographic activity. Tobacco Manufacturers of tobacco and tobacco related products. Ancillary Activity Any business though not directly engaged in the above, derives greater than 5% of its income from the above. Or any other forms whose activities the Shariah Board feels are prejudicial to the interests of Islam or Muslims. The final area relates to the nature of the contract between the parties involved. Islamic finance also places great emphasis on the validity and transparency of contracts. In addition to insisting on investment contracts being put in writing, there are clear guidelines on ensuring that all terms and conditions of the investment contract are detailed in a manner in which no disputes can arise in the future. Any contract failing to pin down its key components (e.g. price, subject matter, delivery date etc) in a manner in which the uncertainty may cause a dispute between the contracting parties is guilty of containing gharar (Unacceptable Uncertainty) and is null and void in the eyes of Shariah.
As opposed to conventional funds, Islamic Funds are in total compliance with the Shariah rules and regulations to earn halal profits in strict conformity with the precepts of Islamic Shariah. The instruments selected for investment by the Fund Manager are approved and monitored by the Shariah Advisory Board of the Fund as Shariah-compliant. Keeping these basic requisites in view, the Islamic Investment Funds may accommodate a variety of modes of investments, such as equities, income, or balanced.
The shares of a company are negotiable only if the company owns some non-liquid assets. If all the assets of a company are in liquid form, i.e. in the form of money that cannot be purchased or sold, except on par value, because in this case the share represents money only and the money cannot be traded in except at par.
Who are the members on the Shariah Advisory Board of UBL Funds Siraj and what is their role?
All investments made in our Islamic Funds are approved and monitored by the Shariah Advisory Board (SAB) that comprises of renowned Islamic Scholars.
Watch our Shariah Board Members answer your most common questions related to Islamic Investments
Watch the exclusive series of videos featuring our esteemed Shariab Advisory Board Members answering to some of the most common questions related to Islamic Finance & Islamic Investments. Click Here to view the videos.