Closed End Fund

Close End fund is similar with mutual fund;

Closed End Fund is a stock invest into a Fixed Investment Fund.

For Example,

i Capital Biz (is the only Closed End Fund in Bursa Malaysia) is investing a fund of
RM 1,000,000 and they issue 1,000,000 shares
IPO for this fund is RM 1/share

Through out the years, the fund become bigger, let say it grow to RM 2,000,000
So, the NAV for this share is RM 2/share

Since this Fund is list in the stock market, the price may be different from the NAV. It can be higher or lower then the NAV.

Closed End Fund is a share that only based on investment. The NAV is calculate based on the investment portfolio devide by Total Shares.

Closed End Fund vs Mutual Fund
If we compare with Mutual Fund, Mutual Fund is consider as Open End Fund. The Fund portfolio is open (before reaching its high limit); where by this fund can be growing if more people put money into the fund; and it may become smaller when the people draw out money from this fund.

Mutual Fund only can trade between the unit holder and bank / fund manager.
Closed End Fund can trade in Bursa Malaysia to all traders.

Mutual Fund is trade in NAV;
Closed End Fund is trade based on buying and selling price in the Trade Market.

Real Estate Investment Trust

The diagram above shows an example and explain the concept of REIT. In this case, we use KLCC as an example, but in reality, KLCC is not under REIT.

When you buy REIT, you are consider as owner of the building. This fund, hire a management team to manage this building.

Duty of Building Management include:
1. Maintain the building
2. Rent out the space
3. Collect Rental from tenant

REIT is different from other stocks, they have a policy that; REIT MUST pay out 80-90% of the rental profit (rental – management fee) to all share holder in dividend through period of time (quarterly, half yearly, or yearly).

Owning a REIT is like owning a part of the building.

Benefit of REIT
1. Stable; having a property as the Main Asset Value
2. Still under value (most of the REIT in Malaysia still 30% under of its NAV)
3. High cash flow return (around 8% for commercial REIT, eg Amfirst, Axreit, Stareit)
4. Easy to quit compare to buying an Property
5. Low commission fee compare to Mutual Fund (just need to pay broker fee as normal share trading)

Types of Stocks in Bursa Malaysia

Do you think all stocks listed in Bursa Malaysia is the same? Then you are wrong.
There is kinds of Stocks in Bursa Malaysia that offer you different kinds of investment tools according to different kinds of investment strategy and target.

Here, we will brieftly tell you about Types of Stocks that you can trade in Bursa Malaysia. We will explain more in specific later.

A. General Shares / Company Stocks

Normal company that list in Bursa Malaysia. They have to full fill the public listing requirement. Once you own the stocks, you are one of the owner in the company.

These stocks devide into 11 industrial:

1. Consumer Products
2. Industrial Products
3. Construction
4. Trading / Service
5. Technology
6. Infrastructure
7. Finance
8. Hotel
9. Properties
10. Plantation
11. Mining

B. REIT (Real Estate Investment Trust)

This is a fund on Real Estate (Buildings). This fund hire a management team to manage on the buildings, rent out the building and collect rental. The earning of rental payment will convert to dividend and pay off to the fund owner (share holders).

C. Closed End Fund

This is exactly same as mutual fund. Normal mutual fund can only buy and sell to the Trustee (Bank). The buying and selling price is fixed; and is represent the NAV of the fund. And the dividend they pay will be deduct from the NAV.

For Closed End Fund, you can trade in Bursa Malaysia. The price is depends on the market (buyer and seller). It can be higher or lower then the real NAV. It will give dividend in term basis, but it won't deduct from your primary stock price. It depends on the market movement.

D. Warrants

This is a Fixed Condition Trade Agreement. The warrants must come with the mother share. Warrant give you an option to buy back the mother share by adding certain amount of value.

E. Bond and Loan

This is the loan from the company. The company will pay you interest as agreed in the bond. The agreement upon bond can be different. It can be a fixed price upon maturity, convert to mother share with a secondary condition, payment according to mother shares and many more.

You will need to read on the agreement on the Bond Loan when you purchase this shares.

F. Exchange Traded Fund

This is trade againts the index. This fund operate as the index value. The NAV will move according to the index value. When you buy this stocks, you cna imagine you are buying the whole industry; or all shares that include in the index.

Note: All kinds of stock is trade in Bursa Malaysia. Price will be depends on the market. But the nature of stocks will act differently. We will discuss all kinds of stocks in details.

Risk Profiler

Answer below questionnaire to find out risk profile of yours:

1. Do you believe luck is important in making your investment decision?
a. Yes
b. Sometimes
c. No

2. When you hear unexpected adverse or bad financial news, you
a. Stay calm
b. Rarely overreact
c. Panic

3. Would you invest in a stock based on a friend’s tip?
a. Yes
b. Maybe
c. No

4. Between a new position offering greater job security with lesser pay and another with a higher pay but less job security, which would you select?
a. Higher pay
b. Not sure
c. Greater job security

5. Would you borrow money to make an investment that might double your money?
a. Yes
b. Maybe
c. No

6. If you have invested in a stock that rose 30% within 6 months after you bought it you would
a. Do nothing or buy more shares
b. Sell some shares
c. Sell all your shares

7. If you could increase your chances of improving your returns by taking more risk, you would
a. Take more risk with 20% of your money
b. Take some risk with 10% of your money
c. Unwilling to take much more risk

8. What percentage of your household income (after tax) is spent each month paying off credit card bills, car payments and either on rent or mortgage payments?
a. More than 50%
b. Between 25% and 50%
c. Less than 25%


9. Which one of the following statements best describes your feelings about investment risk?
a. I prefer to take higher risk for better returns
b. I prefer to select a balanced mix of investments to lower my risk
c. I prefer to stay conservative with low returns

10. Do you expect your future earning over the next five years to
a. Increase
b. Stay the same
c. Decrease

11. Would you invest in individual stocks or equity (stock-base) unit trusts?
a. Yes
b. Maybe
c. No

12. If you know investing EPF fund could potentially gives you higher return, would you invest?
a. Yes
b. Maybe
c. No


SCORING
For all questions,
a = 3 points
b = 2 points
c = 1 point


Total score             Investor Profile
12-18 points               Conservative
19-29 points               Moderate
30-36 points               Aggressive

Note: By knowing your Risk Profile and Risk Capacity, you can decide your Strategy of Investment.
We will discuss about the risk capacity in next topic.