Of Shariah-compliant investments

[This post was originally shared on my FB profile on 27 December 2019.]

When asked about shariah-compliant investments, I personally would steer towards realm of permissibility as it would widen a client’s option.

I personally do not view investments for Muslims to be too rigid as how some would portray it under the claim of “shariah-compliant”.

Based on the fiqh maxim of “origin of a matter is permissible”, mu’amalat or transactions are originally meant to be feasible and practical.

Hence, I’m pragmatic when it comes to investment planning, as well as financial planning & management as a whole, even for Muslims.

Sure, it leads me to “controversies” such as permissibility of investing in bonds, in which I have to disagree with Islamic Finance proponents and enthusiasts.

Being a Shariah student myself, I’ve verified my stance with my lecturers.

Fiqh is dynamic and pragmatic, and provides ease in any situation.

[To end with a note: I do advise on investment planning, on what’s practical for Muslims in Singapore. Feel free to get in touch with me for a consultation.]

What are the best ways to give money to your heirs while you are alive?

The following is my answer to a Quora question: “What are the best ways to give money to your heirs while you are alive?”

A tree continues to benefit those around it, even when its original planter has long gone. An inspirational concept in estate planning and leaving a legacy.

You have many options, and many forms of transferring wealth. One of the best ways is to set up a revocable or irrevocable trust, with yourself as settlor, and trustee. You can even make yourself a beneficiary while you still live, and revert the trust to a testamentary trust upon your passing.

Firstly, a trust is a distinct legal entity, which protects your wealth in the event of a bankruptcy petition, or a law suit. It is also useful in the case of an acrimonious divorce.

Secondly, a trust mitigates your tax exposure, and your beneficiaries get their stipend tax free since it is the duty of the trust to pay the tax before disbursement of funds in every case. Since trusts account for holdings after expenses, unlike personal assets, this is a huge advantage.

Finally, as a trustee yourself, you have full control of which beneficiaries benefit, according to how much, and the discretion to add or remove beneficiaries. As a trust, you also have the option of investing your funds, and stipulating disbursement conditions and periods that cover multiple generations.

Terence Kenneth John Nunis

[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/05/quora-answer-what-are-best-ways-to-give.html?m=1 ]


Perhaps, this shall kickstart my Estate Planning series, in which I’ll give more focus on Muslim perspective, its similarities and differences wth conventional estate planning.

What bank will pay me to open an account?

The following is my answer to a Quora question: “What bank will pay me to open an account?”

I would hardly consider this money free. Banks may give you incentives for opening accounts with them, but these extra monies come with some strings attached, such as keeping a certain minimum sum for a specific period of time, or keeping the account for a certain period. Compared to the amount required to open some of these accounts and the hold period relative to the interest offered, it may or may not be more than the opportunity cost elsewhere.

In any case, this should not be a primary consideration for opening such a bank account. Interest rate, bank liquidity, and compliance, and accessibility of the funds are what we should look at. Within a Singapore context, we also consider the fact that the Singapore Deposit Insurance covers the first $75,000 aggregated under that account name. In that light, having more than one account spread over several banks makes sense if you have much more than that.

Terence Kenneth John Nunis

[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/05/quora-answer-what-bank-will-pay-me-to.html?m=1 ]

Zakat on Savings: Multiple Accounts

[Zakat in Practice (part 11)]

[Introduction: This series is a sharing on zakat from the perspective of a financial planner. It is hoped to be educational, informative as well as practical to help readers better understand Zakat, especially Zakat on Wealth, as a Muslim in Singapore.

Topics to include: Zakat on Investment, Zakat on Savings, and Zakat on Estate.]

[Previously: Zakat on Savings: Savings in the bank ]


First and foremost, we need to understand why one would have more than one savings account.

Creator: mage 19M
Source: Google

More often than not, it is meant to cater to different purposes, such as:

  • Transactional/Expenses
  • Emergency fund
  • Savings/Accumulation

Transactional accounts and Emergency fund are necessities. Whereas zakat is only applicable on excess or surplus of wealth.

Hence, it is in my personal understanding as a financial planner, as well as a Shariah student, that zakat is not applicable on transactional accounts and emergency funds, even though they are “savings accounts” in name.

Zakat is only applicable on the third type of account which one uses to grow or accumulate one’s savings, in general.

It is possible for one not to pay zakat on savings (accumulation/growth account) under certain conditions and circumstances, which I will elaborate in a subsequent post.

(To be continued)

Dollar-cost Averaging or Periodic Investing?

So you probably read DCA is not what you think it is and wonder, was my agent/broker wrong? Did he confuse two different investing strategies?

Picture for illustrative purpose only.

Wide variety of readings in this instance would help you better understand, and not rely on one source of reference.

The author at The Simple Sum argues that people use dollar-cost averaging and periodic investing interchangeably while they are actually different.

..as both DCA and periodic investing involves investing at intervals. But the difference is that with DCA, you have a lump-sum of money (think inheritance or a super nice year-end bonus) that you decide to average it into investments over a set period of time. For example, when you have a $12,000 bonus and decide to invest it over the next 6 months on a monthly interval.

With periodic investing you invest the money as soon as you have it – much like when you invest a portion of your salary every month.

DCA is not what you think it is

She does have a point in differentiating.

However, looking at Investopedia:

Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset’s price and at regular intervals; in effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices. Dollar-cost averaging is also known as the constant dollar plan.

https://www.investopedia.com/terms/d/dollarcostaveraging.asp

The author, James Chen, further elaborates:

Dollar-cost averaging is a tool an investor can use to build savings and wealth over a long period. It is also a way for an investor to neutralize short-term volatility in the broader equity market. A perfect example of dollar cost averaging is its use in 401(k) plans, in which regular purchases are made regardless of the price of any given equity within the account.

https://www.investopedia.com/terms/d/dollarcostaveraging.asp
Picture for illustrative purpose only.

While Andrew Beattie describes:

DCA is a practice wherein an investor allocates a set amount of money at regular intervals, usually shorter than a year (monthly or quarterly). DCA is generally used for more volatile investments such as stocks or mutual funds, rather than for bonds or CDs, for example. In a broader sense, DCA can include automatic deductions from your paycheck that go into a retirement plan. For the purposes of this article, however, we will focus on the first type of DCA.

DCA is a good strategy for investors with a lower risk tolerance. If you have a lump sum of money to invest and you put it into the market all at once, then you run the risk of buying at a peak, which can be unsettling if prices fall. The potential for this price drop is called a timing risk. That lump sum can be tossed into the market in a smaller amount with DCA, lowering the risk and effects of any single market move by spreading the investment out over time.

https://www.investopedia.com/articles/stocks/07/dcavsva.asp

Hence, it can be said that periodic investing is essentially DCA.

While Sophia of The Simple Sum isn’t wrong, I’m more inclined to the authors at Investopedia in the broader sense of DCA.

To end with a note: I do advise on investment planning and using DCA (or periodic investing, if you prefer). Feel free to get in touch with me for a consultation.

(Related post: Is it time to buy or sell your investment? )

“My mortgage is late. Should I call my bank and explain why?”

The following is my answer to a Quora question: “My mortgage is late. Should I call my bank and explain why?”

Yes. When it comes to taking loans from any financial institution, it is always important to be in constant communication and update them. A bank can tolerate late payment if they understand the reason why payment is late, and there is a date of payment. Even if there is a contention, this communication ensures that you have an avenue to negotiate, and even get a waiver on late fees.

Going silent on the bank sends them the signal that you are a likely recalcitrant defaulter, and they will treat you accordingly, including levying punitive fees. If you have failed to respond to their correspondence, they move your loan to the bad debt ledger, and that is a precursor to further legal action, including application for bankruptcy.

Terence Kenneth John Nunis

[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/05/quora-answer-should-i-call-my-bank-to.html?m=1 ]

Why do I feel like I am gambling with my life when I buy insurance?

The following is my answer to a Quora question: “Why do I feel like I am gambling with my life when I buy insurance?”

On the contrary, I contend that you are gambling if you do not buy life insurance. Without liability protection, do you have sufficient funds set aside in the event of disability or terminal illness? Having a stroke, and being incapacitated means someone else must take care of you. That is the loss of two incomes in the household. Getting a nurse is not cheap. Neither is the cost of hiring a maid. There is also the cost of renovating your house to make it wheelchair accessible, for example. What about evacuation if you fall ill overseas? What about loss of home and means of living in the event of a disaster? It is illogical not to get life insurance.

Terence Kenneth John Nunis

[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/05/quora-answer-why-do-i-feel-like-i-am.html?m=1 ]


I agree. You are gambling with your life if you do not take the necessary precautions, liability protection and risk mitigation measures.

As for the Muslim misperception that insurance is itself gambling, I will address them in Dispelling Myths of Riba series.

Zakat on Savings: Savings in the bank

[Zakat in Practice (part 10)]

[Introduction: This series is a sharing on zakat from the perspective of a financial planner. It is hoped to be educational, informative as well as practical to help readers better understand Zakat, especially Zakat on Wealth, as a Muslim in Singapore.

Topics to include: Zakat on Investment, Zakat on Savings, and Zakat on Estate.]

[Previously: Zakat on Savings]


As mentioned in the previous post, Savings in the bank can be categorised into:

  1. Accessible
  2. Non-accessible

For savings accounts that are accessible (ease of withdrawal), such as the common savings accounts and current accounts, Zakat is due when you have fulfilled:

  • Nisab (“minimum sum”)
  • Haul (holding period of 1 Hijri year)

As mentioned in part 5, one’s Nisab may not fall on Ramadan. However, there is no harm to defer one’s zakat payment to Ramadan, so long as it does not reach another Haul.

However, this leads to confusion for some: having to backtrack 12 months to the previous Ramadan. And it does not help that your bank statement does not follow the Hijri calendar.

My proposed solution:

Adopt a financial year. Generally, one’s financial year would be January to December.

If the amount at the end of December is above Nisab, you pay zakat on it (2.5% of amount).

This is in accordance to the Hanafi madhhab, which I find to be more practical. At the same time, it is also the manner in which one would calculate zakat on investment.

Hence, it would facilitate one to coordinate paying zakat for both his savings and investments.

(Financially speaking, savings is a form of investment, albeit the worst, as it brings minimal or no returns. But assurance of safekeeping.)

(To be continued)

Zakat on Savings

[Zakat in Practice (part 9) ]

[Introduction: This series is a sharing on zakat from the perspective of a financial planner. It is hoped to be educational, informative as well as practical to help readers better understand Zakat, especially Zakat on Wealth, as a Muslim in Singapore.

Topics to include: Zakat on Investment, Zakat on Savings, and Zakat on Estate.]

[Previously: Zakat on Gold]


Zakat on Savings comes in 2 forms:

  1. Savings in the bank
  2. Savings plan with insurance companies

Savings in the bank can be further categorised as:

  1. Accessible
  2. Non-accessible

By accessible, they are accounts that one can easily withdraw his money from, such as:

  • Savings account
  • Current account

By non-accessible, they are accounts that are usually “locked in” for a certain period or tenure, such as:

  • Fixed deposit

Each of these accounts require a different approach in gauging when zakat is due/liable.

It is a common mistake and misunderstanding to regard them as the same, or to combine the amounts in all those accounts together and paying zakat on the total amount.

(To be continued)

Zakat on Gold

[Zakat in Practice (part 8) ]

[Introduction: This series is a sharing on zakat from the perspective of a financial planner. It is hoped to be educational, informative as well as practical to help readers better understand Zakat, especially Zakat on Wealth, as a Muslim in Singapore.

Topics to include: Zakat on Investment, Zakat on Savings, and Zakat on Estate.]

[Previously: Conditions of Zakat]


Zakat on Gold comes in 2 forms:

  1. Gold in the form of bars, bullions, nuggets & coins.
  2. Gold in the form of jewelry.

Gold in the form of bars and its like are usually kept as a form of savings/investments. As long as they weigh more than 86 grams (nisab value), one needs to pay zakat on it.

Whereas for gold in the form of jewelry, its nisab is 860 grams, as it is customarily excessive to have that amount of jewelry. Generally, people would not have that amount of jewelry except for the wealthy.

[To be continued]

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