(part 4 of 6)

Preface:
At the three previous parts, we talked about how investment faces risk beside return, structured investment as another way instead of portfolio in investment, and islamic structured investment.

4. DISCUSSING SOME ISLAMIC SIPS

4.1. TAKAFUL AL-WAQI INVESTMENT LINKED PLAN

The Product. Takaful Al-Waqi Investment Linked Plan is an Islamic SIP launched by Maybank on July 2008. It is the shortest term single premium investment-linked islamic commodities funds of RM 200 million. Takaful Al-Waqi combines Shari’ah compliant fixed income and investment instrument structured to generate better returns, higher than that of a 12-months General Investment Account (GIA) or other Fixed Deposit Account rates. Takaful Al-Waqi as a closed-end investment-linked Takaful plan is managed by Etiqa Takaful Berhad (formerly known as Takaful Nasional Berhad).

Figure-4. Takaful Al-Waqi Investment Structure.

The Structure. Over a 2-years investment tenure, Takaful Al-Waqi innovative investment strategy places untill 90% of investor single contribution into Shari’ah compliant fixed income investment to safeguard the investor investment upon maturity. And the remainder of investor investment will then be invested into Shari’ah compliant investment instrument that are referenced to the performance of an Optimized Commodity Index for potential upside returns. The maximum potential gain is about 8.81% per annum after management fee (wakalah fee) and investment tax. The scheme of investment strategy is as above illustrated and its asset allocation strategy for capital protection is described as below.

Figure-5. Takaful Al-Waqi Asset Allocation Strategy¹⁸.

The capital of participants will be allocated to:

• Shariah-compliant Bonds or Money Market Instruments – Negotiable Islamic Deposits (NID) for fixed income; at least 70%. It is for 100% capital protection at maturity.
• Islamic Commodity Index for commodities up to 30% for potential upside.

The Features. Takaful Al-Waqi features are as below:

Takaful Al-Waqi gives benefits to the investors / participants such as:

• Potential returns are based upon diversification of investments in Shari’ah compliant fixed income and investment instruments upon maturity.
• Death benefit for participant before the end of the contract: the fund value or single contribution whichever is higher, plus the sum covered of 25% of the single contribution or up to RM 10,000 whichever is lower (double indemnity upon accidental death).
• Investment profit from the investment fund belongs to the participant. Upon maturity, the value of unit based on Bid Price will be payable. Any surplus arising from the Tabarru’ fund will be shared between participant and Etiqa Takaful Berhad based on 80:20.
• Assist in the participant estate planning through the naming of beneficiries.
• No medical examination required, but death caused by pre-existing medical and health impairment (12 months prior to the plan app date) does not cover.
• Hassle-free application and automatic acceptance.
• Investment Return of the fund is calculated as formula given where potential returns at maturity in best case will be 8.81% pa, in likely case is about 4.93% pa and in the worst case might not be fully refunded, only at the event one of the AA rated bonds defaults.

Notes. Takaful Al-Waqi is a pure shari’ah compliant investment fund. The product structure is quite simple, and there is no party that related to the conventional finance institution with interest based (riba), either Etiqa or securities that manage the fixed income and commodities. Usage of tabarru’ concept to cover the death claim payment from participant who died before end of contract is surely suitable with takaful as an islamic financial scheme. It seems that Takaful Al-Waqi uses Takaful with Wakala Model, where Etiqa as General Risk Investment Account (GRIA) or known as General Funds and tabarru’ as the Ta’awuni Account Pool (TAP)¹⁹ that has front-and-back-end charges as allocations for benefits / reserves, claims, servicing, management expenses and commission.

The only thing that should be noted of Takaful Al-Waqi is the investment commodities in Islamic Commodity Index that is using foreign exchange. There are some critical shari’ah norms to fulfill in the foreign exchange transaction in order to keep the investment inline with islamic laws.

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¹⁷Maybank. 2008. Safeguard Your Investment While It Grows. Takaful Al-Waqi brochure published by Maybank.
¹⁸Mohd. Tarmidzi Ahmad Nordin. Case Study: Investment-Linked Takaful; Islamic Structured Products and Current Issues in Islamic Finance. Etiqa Takaful Berhad presentation: Securities Commission Malaysia, July 2009. Page 17.
¹⁹Alhabshi, Syed Othman, Shaikh Hamzah Abdul Razak. TAKAFUL: Concept, History, Development, and Future Challenges of its Industry. Paper for Melbourne from INCEIF: Malaysia, November 2008. Page 28.

[to be continued...]

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