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  • Mr Money TV

Investing in Bonds vs Sukuk in Malaysia: A Comprehensive Guide (2024)

Updated: May 24

Investing in Malaysia presents a wealth of opportunities, with a notably mature market in both conventional bonds and sukuk, which are Islamic bonds. Understanding the difference between the two and how to invest in them can be an essential step in diversifying your investment portfolio. Let's delve deeper into these two prominent investment avenues.

Bonds and Sukuk Investment in Malaysia

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What’s the difference between sukuk and bonds?


Bonds are debt instruments issued by companies, governments, or other entities to raise capital. Investors who purchase bonds are essentially lending money to the issuer in return for regular interest payments and the return of the principal amount at maturity.


Sukuk, on the other hand, are Islamic financial certificates, similar to bonds, but comply with Islamic law, Shariah, which prohibits usury (interest). Sukuk represents an undivided share in the ownership of tangible assets relating to particular investment projects or special investment activity.

How do bonds and sukuk work?


Think of buying a bond like lending money to a friend. In this case, your friend is either the government or a company. When you lend them money (by buying a bond), they promise to pay you a bit extra (interest) as a thank-you gesture periodically. And just like a trusty friend, at the end of a set period, they give you back the original amount you lent them.

For example, imagine you buy a bond from a company for RM1,000 with a 5% interest rate per year for 3 years. Every year, you will receive RM50 as interest, and at the end of the 3rd year, you'll get your RM1,000 back. So, in total, you would’ve made an extra RM150 from your investment (excluding the amount you lent).


Now, sukuk is a little different and is more like a business partnership, following the principles of Islamic finance. When you invest in sukuk, you are essentially buying a share in a business project or asset. Instead of getting regular interest payments (like in bonds), you get a share of the profits made by that project or asset, which can come from the rental income or the profit generated by the asset or project.

For instance, imagine a group of people pool in money to buy a piece of land and develop a commercial building on it. As one of the investors, you will get a share of the rental income generated from the building, proportional to your investment. And if the building is sold, you get a portion of the proceeds as well.

What are the different types of bonds and sukuk available in Malaysia?

  1. Government Bonds: Bonds issued by the Malaysian government.

  2. Corporate Bonds: Bonds issued by corporations to raise capital.

  3. Municipal Bonds: Bonds issued by local government entities or municipalities.

  4. Quasi-Government Bonds: Bonds issued by government-linked companies (GLCs) or government agencies.

  1. Sovereign Sukuk: Sukuk issued by the Malaysian government and are Shariah-compliant equivalents of government bonds.

  2. Corporate Sukuk: Sukuk issued by corporate entities in accordance with Islamic principles. They might be linked to specific projects or assets.

  3. Asset-Backed Sukuk: Sukuk backed by tangible assets or projects, providing investors with a claim on the underlying assets.

  4. Project Sukuk: Sukuk specifically issued to fund a particular project, and the returns are often generated from the project’s revenues.

  5. Retail Sukuk: Sukuk specifically designed for retail investors

What are the benefits of sukuk and bond investing?

Benefits of Investing in Bonds
  • Predictable Income Stream: Bonds provide regular interest payments, offering a predictable income stream.

  • Capital Preservation: Being a debt instrument, bonds are generally seen as a safer investment, preserving the capital invested.

  • Diversification: Bonds can be an excellent tool for diversification, especially when included in a portfolio dominated by more volatile assets like equities.

  • Variety of Options: Investors have the option to choose from government bonds, municipal bonds, or corporate bonds, each carrying different risk profiles and interest rates.

Benefits of Investing in Sukuk
  • Ethical Investment: Since sukuk are compliant with Islamic Shariah principles, they represent an ethical investment avenue, avoiding sectors like alcohol, gambling, and usurious practices.

  • Asset-Backed Nature: Sukuk securities are generally asset-backed, offering a tangible security that can sometimes provide a safety net in case of defaults.

  • Diversification: Similar to bonds, sukuk can provide diversification in an investment portfolio, especially for investors looking for halal investment options.

  • Stable Returns: Sukuk can offer stable returns, derived from the profits of the underlying assets or rental agreements, providing a predictable income stream.

What should I consider before investing in bonds and sukuk?

Considerations When Investing in Bonds
  • Interest Rate Risk: Bonds are susceptible to interest rate fluctuations. When interest rates rise, bond prices tend to fall, and vice versa.

  • Lower Potential Returns: Compared to stocks, bonds generally offer lower potential returns, especially in low-interest-rate environments.

  • Credit Risk: Particularly in the case of corporate bonds, there is a risk that the issuer might default on their interest or principal payments.

  • Inflation Risk: The fixed interest payments from bonds can be eroded by inflation, particularly if the bonds have a low interest rate.

Considerations When Investing in Sukuk
  • Limited Liquidity: Compared to bonds, sukuk markets might be less liquid, sometimes making it challenging to sell them quickly at market prices.

  • Complex Structure: Sukuk often involves a more complex structure compared to bonds, incorporating various contracts and agreements to ensure Shariah compliance.

  • Potential Concentration Risk: Given the specific sectors and assets that sukuk invests in (to remain Shariah-compliant), there can be a concentration risk where investments are focused in particular sectors, making them more vulnerable to sector-specific downturns.

  • Limited Availability: Depending on the region, the availability of sukuk might be limited, potentially restricting investment opportunities compared to the more widespread bond markets.

How to buy sukuk and bonds in Malaysia?

  1. Choosing a Reliable Broker or Bank: Institutions like Maybank, CIMB, and Hong Leong Bank offer platforms to invest in bonds.

  2. Research: Consider researching various bond offerings in terms of their credit ratings, interest rates, and maturity periods.

  3. Investment: Invest through the chosen platform, maintaining a clear strategy regarding your investment horizon and risk tolerance.

  1. Selecting an Islamic Financial Institution: Choose a financial institution offering sukuk investments, like Ambank or Maybank Islamic.

  2. Consultation: Consult with financial advisors to understand the nuances of sukuk investments better.

  3. Investment: Like bonds, decide your investment strategy based on risk tolerance and investment horizon and proceed to invest.

Where to buy sukuk and bonds in Malaysia?

  1. Bursa Malaysia

  2. FSMOne

  3. Appointed banks and financial institutions

What bonds and sukuk should I invest in?

Well, we can’t recommend any bonds and sukuk for you to invest in (due to regulatory issues) but here’s a list of the more “famous” bonds and sukuk that investors generally go for based on their credit ratings, interest rates, maturity period and overall credibility.

Examples Bonds
  1. Malaysian Government Securities (MGS)

  2. Malaysian Savings Bonds (MSB)

  3. Malaysia Treasury Bills

  4. Bank Negara Monetary Notes

  5. Petronas Bonds

  6. YTL Corporation Bonds

  7. CIMB Group Bonds

Examples Sukuk
  1. Government Investment Issues (GII)

  2. Malaysia Islamic Treasury Bills

  3. Bank Negara Monetary Notes (Islamic)

  4. Khazanah Nasional Sukuk

  5. Alliance Islamic Bank

  6. Telekom Malaysia

  7. Malaysian Resources Corporation (MRCB)

To find more information on the yield and performance of bonds and sukuk (locally and internationally), check out FSMOne.

Frequently Asked Questions about Bonds and Sukuk

What are the returns on bonds and sukuk?

Returns vary depending on the economic conditions of the country and world but average returns for both are around 2%-6%.

Are bonds and sukuk safe investments?

Both are generally considered low-risk as returns/income are fixed. Additionally, they’re not as volatile as stock investing and if you’re still worried, you should know that most bonds and sukuk have a credit rating which can help you gauge the level of risk of those assets.

Will I get taxed on my bond and sukuk investment returns in Malaysia?

No, you will not get taxed on your investment returns for both bonds and sukuk.

Conclusion on Bonds vs Sukuk Investing in Malaysia

In the Malaysian investment landscape, both bonds and sukuk offer viable investment avenues. If we were to compare bonds vs sukuk in Malaysia, bonds, with their interest-based returns, cater to the general investment community, while sukuk, adhering to Shariah principles, cater to investors seeking ethical and Islamic investment options.

Of course, before investing - whether in bonds and sukuk or any other investment, it's essential to research thoroughly and possibly consult with a financial advisor to understand the nuances of each investment type better. Remember, both investment types come with their set of risks and potential rewards, and understanding them fully can help in making informed investment decisions.

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