FIN 4806

WEALTH PLANNING AND

MANAGEMENT
GROUP 5
NAME MATRIC NO.
WAN NOOR AINI BTE WAN ZAHIDI UK 25640
AINAL MARDHIYAH BINTI MD. HASSAN UK 26015
NOOR ARTIKAH BINTI ARIFF UK 26319
NOR FARA SHAHIRAH BINTI KAMAL UK 26479
NUR FARAHIN BINTI MOHD YUSOFF UK 28012
AIDAH SHAKIRAH BINTI RAZALI UK 28030
INVESTMENT IN
SECURITIES
Introduction
Types of Securities (include Investment
in Unit Trusts)
Price Determination
Risk Elements
Related Theories
Laws Relating to Securities
Investment in securities are not really popular
especially among Malaysian investors. People
seems neglected the pivotal role of securities in
the economy. Kindly give your opinion on
below statement and discuss the issues related
to this. Please also identify risk elements
inherent in the investment in securities.


INTRODUCTION


Types of Securities (include
Investment in Unit Trusts)


Risk Elements

Risk is simply the measurable possibility of
either losing value or not gaining value.
In investment terms, risk is the uncertainty that
an investment will deliver its expected return.
You must first understand that no investment is
without risk and that there is a trade-off
between returns and the amount of risk an
investor is willing to assume in order to reach his
or her financial goals.
Type of risk
There are several type of risk of investment
in securities:
Interest Risk Rate (IRR)
Market risk
Default risk
Inflation risk
Mortality risk

Interest Risk Rate (IRR)

Whenever investors buy securities that offer a fixed rate of
return, they are exposing themselves to interest rate risk. This is
true for bonds and also for preferred stocks.
The risk of loss due to a change in interest rates. Interest rate risk
is important to transaction like interest rate swaps.
In such a transaction, the party receiving the floating rate will
receive a smaller amount should the floating rate decrease.
Interest rate risk is also important to bond; if interest rates rise,
the prices of bond fall. if interest rates rise, the prices of bonds
fall.
This affects the secondary market for bonds; for example, if one
purchases a bond with a 3% interest rate and the prevailing rate ri
ses to 5%, it becomes difficult or impossible to resell the bond at
a profit.
Market Interest Rates and Prices of Fixed-
Rate Bonds Move in Opposite Directions
Higher market interest rates lower fixed-rate bond prices
Lower market interest rates higher fixed-rate bond prices
Market Risk
The risk that the bond market as a whole would decline,
bringing the value of individual securities down with it
regardless of their fundamental characteristics.
Market risk considers a broader picture. If you are
invested in stocks, particularly if you choose the less
expensive (but not necessarily safer) route of investing in
a broad stock-based index fund, you have to accept that
the overall economic condition of the country or even
the world will cause your investments value to
fluctuate.
Market risk is relevant also for investments in single
companies, bonds, or other products.
A market crash or decline could crush this investments
performance, even if the quality of your investment
remains the same.
Default risk
Default risk is related to the quality of the underlying
investment, and it is more apparent when investing in
a single company, through stocks or bonds.
If you invest in a companys bond or a municipalitys,
you generally expect a guaranteed return.
The promised return is usually higher than what a
savings account would provide, but you face the risk
of default.
If the company files for bankruptcy of if the
municipality is mismanaged, its possible you wont
receive the return you were promised.

Inflation risk

Inflation causes tomorrows dollar to be worth less than
todays; in other words, it reduces the purchasing power
of a bond investors future interest payments and
principal, collectively known as cash flows.
Financial planners like to assume that inflation runs about
3 or 4 percent a year over long periods of time.
This allows planners and investors to calculate expected
real returns for an investment.
If you assume inflation is 3 percent and your savings
account earns 1 percent APY(Annual Percentage Yield),
your real return is a loss of 2 percent a year. This real
return takes the effect of inflation into account.
Inflation risk
There is a chance, however, that during any particular time,
the measure of inflation or for a more accurate
description in this case, the increase of the cost of goods
is significantly more than 3 percent.
If the country were to enter a period of hyperinflation,
investments in your savings account until banks offer more
appropriate interest rates would result in devastating losses
when compared to consumer prices.
Inflation also leads to higher interest rates, which in turn
leads to lower bond prices. Inflation-indexed securities such
as Treasury Inflation Protection Securities (TIPS) are
structured to remove inflation risk.

Related Theories



Overview of securities law

exists because of unique informational needs of investors. Securities
are not inherently valuable, their worth comes only from the claims
they entitle their owner to make upon the assets and earnings of
the issuer or the voting power that accompanies such claims.

The value of securities depends on the issuer's financial condition,
products and markets, management, and the competitive and
regulatory climate.

Securities laws and regulations aim at ensuring that investors
receive accurate and necessary information regarding the type and
value of the interest under consideration for purchase.

Securities regulations focus mainly on the market for common
stocks. Both federal and state laws regulate securities.
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Securities industry in Malaysia is
governed by the act of parliament :

Securities Industry Act (Securities Industry Act) 1983
Central Deposits Act (Securities Industry (Central
Depositories Act) 1991)
The Securities Commission (Securities Commission Act)
1993
Companies Act (Companies Act) 1965
Industry Act 'Futures' 1993 (Futures Industry Act 1993)
Coastal Industry Act 1995 Labuan (Labuan Offshore
Securities Industry Act 1995)
18

Securities Commission
(Securities Cimission / SC)

incorporated under the Securities
Commission Act 1993.
provide rules and advise the minister of
Finance on all matters relating to the
securities industry contracts and futures
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Function of Securities Commission
(Securities Cimission / SC)
Oversee the market,
clearing houses and
central deposit.
Registration of
companies
prospectus.
Approve the
issuance of
corporate bonds.
Manage all matters
relating to futures
contracts and
securities.
Manage the
acquisition and
consolidation of
companies.
To manage all
matters relating to
unit trust schemes.
Manage and
oversee the
licensing of a license
for those who have
a license.
Encouraging self-
regulation
To ensure correct
operation of market
institutions and the
people who have a
license.
20
SECURITIES COMMISSION
known as the SC, was set up in 1993 under the
Securities Commission Act 1993.
This statutory body is self-funded and it is
entrusted with investigative as well as
enforcement powers.
The objective of this commission is to regulate
and systematically develop the capital market in
Malaysia.
SC is also entrusted with the responsibility of
protection of investors. The Securities
Commission comes under the jurisdiction of the
Minister of Finance.
21
Functions of the Securities
Commission :
Registration of Prospectuses of firms in initial
public offerings Engaging or IPOs.
Supervision of the Following Institutions:
(a) Stock exchange
(b) Clearing houses
(c) Central depositories.
Approval of private debt securities (PDS)
issues.


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Regulation of all matters relating to:
(a) Securities and futures contracts and options
(b) Mergers and Acquisitions
(c) Units Trusts.

Licensing, Supervision and Ensuring the Proper
Conduct of all licensed persons relate to the
capital market such as brokers and remisiers.

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Compact the proper Conduct of Institutions in the securities
market
- Unit Trusts (ex : markets)
-Registrar of Companies (Registrar of Companies / ROC)
-Foreign Investment Committee (Foreign Investment
Committee / FIC)
-KLSE (Kuala Lumpur Stock Exchange / KLSE)(ex : Bursa Malaysia
Berhad)


24
AMENDMENTS TO THE
SECURITIES LAWS
25
Securities
Industry
(Amendment)
Act 2003 (SIA)
the Securities
Commission
(Amendment)
Act 2003
Futures
Industry
(Amendment)
Act 2003
Securities
Industry
(Central
Depositories)
(Amendment)
Act 2003
ADVANTAGES OF THE
AMENDMENT
Strengthening
clearing and
settlement
arrangements
Enhancing
client asset
protection
Introducing
whistle
blowing
provisions
Strengthening
framework on
investment
advice
Enhancing civil
and
administrative
action powers
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