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CEILLI (Investment-linked Examination). 1. INTRODUCTION TO INVESTMENT-LINKED LIFE INSURANCE. 1. Chapter 1: Introduction to Investment-Linked Life Insurance. Policyholder. pay premium. Fund Managed By Insurer. Protection. Capital Gain. Protection. Investment.

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CEILLI (Investment-linked Examination)

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    1. CEILLI(Investment-linked Examination)


    3. Chapter 1: Introduction to Investment-Linked Life Insurance Policyholder pay premium Fund Managed By Insurer Protection Capital Gain Protection Investment

    4. Chapter 1: Introduction to Investment-Linked Life Insurance Value of policy Special unitised fund Linked UNITS Value fluctuates Directly linked Investment Performance

    5. Refers to the same thing Chapter 1: Introduction to Investment-Linked Life Insurance Malaysia United Kingdom U.S.A. Unit-Linked Variable Life Investment-Linked


    7. Chapter 2 Key Considerations in Investment 2.1 Investment Objectives 2.2 Funds Available 2.3 Risk or Security 2.4 Investment Horizon 2.5 Accessibility of Funds 2.6 Taxation Treatment 2.7 Performance of the Investment 2.8 Diversification

    8. Funds for dependents Comfortable standard of living Education & up-bringing Improve financial position Pay expenses & taxes upon death Retirement income 2.1 Investment Objectives Why do people invest?

    9. 2.1 Investment Objectives What should I invest in? Depends on what you want! Capital Gains Regular Income Flow or

    10. 2.2 Funds Available Level or Amount of Funds Available Source of Available Funds More free funds Wider choice of investment Fixed surplus current income set aside Certain types of investment e.g. insurance policies or unit trusts

    11. 2.3 Risk or Security 3 Considerations in Investment 1.Individual’s Need for Security Investment Risk Rate of Return is Not Up to Expectation Loss of Initial Investment

    12. 2.3 Risk or Security 3 Considerations in Investment 2. Attitude Towards Risk Risk Tolerance Low Risk, Low Potential Return High Risk, High Potential Return Risk Adverse Risk Neutral Risk Taker

    13. Capital and income growth potential Risk 2.3 Risk or Security 3 Considerations in Investment Investments 3. Type of Investment with Certain Inherent Risk Higher risk & uncertainty Higher potential for capital & income growth

    14. How long are you willing to lock into an investment? 2.4 Investment Horizon InvestmentObjectives Investor’s Age Current Financial Condition Important Match your investment horizon with the maturity of the investment asset

    15. 2.5 Accessibility of Funds Liquidity : short term vs. long term investment ? Early withdrawal cost or penalty ? Initial cost in setting or buying the investment ?

    16. 2.6 Taxation Treatment Different types of investment The tax status of investment linked life insurance is the same as traditional with profit life insurance Different tax treatment To be discussed in Chapter 10

    17. 2.7 Performance of the Investment Competencies & capabilities of management team Country’s economic factors Performance depends on Life cycle of investment Invested company’s level of costs Invested company’s past experience & history

    18. 2.8 Diversification • Spreading of risks • Effective in reducing risk without sacrificing returns • Invest in different assets classes and across different market environments

    19. 2.8 Diversification Spreading of risks by : 1. Categories of investment e.g. shares, bonds, money market instruments 3.Shares at different countries 2.Different type of shares


    21. Chapter 3: Types of Investment Assets 3.1 Cash and Deposit 3.6 Properties 3.2 Fixed Income Securities 3.7 Derivatives 3.8 Exchange Trade Funds 3.3 Shares 3.4 Unit Trusts 3.9 Sukuk Bonds 3.10 Capital Guaranteed Fund 3.5 Investment Trusts

    22. 3.1 Cash and Deposits • Refers to all liquid instruments • Carry little or no risk of losing principal amount • Cash • - Not an investment Capital value won’t increase • No additional income • generated • - Only a medium of exchange

    23. 3.1 Cash and Deposits (continue) The definition of cash covers:- Treasury Bills Bank Accounts

    24. Treasury Bills issued at discount rate Central Bank Government Institution discharged at face value No risk : guaranteed by Government (unless politically unstable) Short term : < 1 year

    25. Bank Accounts • Place fixed/time deposits • Bank • Pay fixed interests • Public • Bad inflation hedge • Penalties on early withdrawal • Low in yield

    26. Bank Accounts available (continue) Savings Accounts Offshore Accounts Current Accounts Types of Account Time Deposits Fixed Deposits Investment Accounts

    27. funds available for investment how long fund can remain in the account emergency withdrawal prevailing market condition Bank Accounts (continue) Factors influencing ‘Choice of Deposits’: choices of deposits

    28. 3.2 Fixed Income Securities Invest principal by buying securities Public lends money to company or government Companies or government Public Pays fixed periodic interest income At maturity, repayment of principal Can be bought and sold anytime before maturity in secondary market

    29. 3.2 Fixed Income Securities (continue) Corporate Bonds Government Bonds Types of Fixed Income Securities Money Market Instruments Preference Shares

    30. Government Bonds • Advantages • Easily marketable • Income for future years guaranteed • Safest – little or no default or credit risk • Government guarantees to pay interest and repay principal • Fixed interest rate • Issued when government needs money to finance projects • Disadvantage • In times of high inflation, capital can be eroded

    31. Government Bonds (continue) Maturity Period Long Term Short Term Medium Term Below 5 years Above 15 years 5 to 10 years

    32. Bonds issued by companies Debenture stocks Loan stocks Convertible Stocks Corporate Bonds • Advantages • Higher return than govt. bonds • More marketable • Potential for capital gains • Disadvantage • More risky

    33. Corporate Bonds (continue) Debenture Stocks • Secured loans • [Fixed charge on company’s property or assets (stocks)] • Fixed rate and term • Trustee appoint Supervise interest & capital • payment • If default, act for investors

    34. Corporate Bonds (continue) How it differs from Government Bonds • Company can repay earlier if wishes • No government guarantee (riskier) • Interest rate higher

    35. Corporate Bonds (continue) Loan Stocks • Unsecured loans • Fixed interest rate and term • Risk losing capital • Less secure than debenture stocks. Therefore, higher interest rate Risk-Return Risk Debenture Stocks Loan Stocks Government Bonds Return

    36. Corporate Bonds (continue) Convertible Stocks Can be converted to ordinary shares of a company on a fixed date Become part owner and entitled to profits through dividends declared

    37. Corporate Bonds (continue) • Factors affecting decision to convert: • (i) Dividend income • (ii) Capital appreciation in • share price Whether are better than fixed interest given

    38. Risk-Return Risk Loan Stocks Debenture Stocks Government Bonds Return Corporate Bonds (continue)

    39. 3.3 Shares • Shareholder = part owner of a company • Share certificate = evidence of title • Not liable for company’s debt • Can attend Annual General Meeting • (AGM) vote for major issues and appointment of directors

    40. Public Company Private company 3.3 Shares (continue) Company • Shares quoted • on KLSE • Available to • ordinary investors • Not listed on • stock exchange • Not available to • ordinary investors

    41. 3.3 Shares (continue) Market’s view on company Currency performance Company’s earning Share price influenced by: Country’s economy Inflation rate Interest rate levels

    42. 3.3 Shares (continue) Ordinary Share Preference Share • Right to a fixed dividend provided that enough profit has been made • May or may not receive dividends • Dividend rates fluctuates according to company’s profits • Dividend is fixed • Ranks ahead of ordinary shareholders when company winds up

    43. 3.4 Unit Trusts • Purchase in units • Buy at Offer Price (selling price) • Sell back at Bid Price (buying price)

    44. 3.4 Unit Trusts (continue) • Value of units based on performance of investment • Funds managed by professional fund managers in well diversified range • Unit trust are authorized & supervised by the Securities Commission

    45. 3.4 Unit Trusts (continue) • Open-ended fund • No fixed redemption date • Fund manager can create units if required, and cancel units if encashment exceeds new purchases

    46. 3.4 Unit Trusts (continue) • If too many investors cash-in, may have to sell fund’s assets • All unit trusts are required to state investment objectives in prospectus • Medium to long term investment (> 3 years)

    47. 3.4 Unit Trusts (continue) Advantages • Spread of investments • Lower risk compared to shares • Professional service from fund managers • Minimises paperwork of investors • Income from dividend can be reinvested Disadvantages • Bewildering array of funds • Extra costs for switching

    48. 3.4 Unit Trusts (continue) Investors Invest capital “Three Way Arrangement” Hold pool of money in trust on behalf investors Trust Deed Select & Manage fund Fund Manager Trustee

    49. 3.4 Unit Trusts (continue) • Trust deed sets out: • Fund manager’s investment powers • Price structure • Registration of unit-holders • Remuneration of fund managers • Accounting and auditing rules

    50. 3.5 Investment Trusts shares Investment Trust company Investor managed by specialist fund manager Investment fund Shares value fluctuate according to whetherloss or profit made from the investment fund