For investors who invest based on Shariah principles, the Shariah Advisory Council (SAC) of the Securities Commission Malaysia (SC) advise to dispose of any Shariah non-compliant securities which they presently hold, within a month of knowing the status of the securities.
Any return, either in the form of capital gain or dividend, received during or after the disposal of the securities has to be donated to charity. The investors nonetheless have a right to retain the original investment costs.
Securities can indeed lost their Shariah compliant status due to reasons such as changes in business operation. Takeover and merger and acquisition (M&A) can also cause securities to become Shariah non-compliant.
For securities that have lost their Shariah compliant status, investors must liquidate them promptly. Any capital gain arising from the disposal of these Shariah non-compliant securities made at the time of the change-in-Shariah-status announcement can be kept by the investors.
For disposal after the announcement day, any excess capital gain derived from market price higher than the closing price on the announcement day should be donated to charitable bodies.
Nonetheless, investors are allowed to hold their investment in the Shariah non-compliant securities if the market price of the said securities is below the original investment costs. It is also permissible to keep the dividends received during the holding period. Once the total amount of dividends received and the market value of the Shariah non-compliant securities is equal to the original investment costs, investors are advised to dispose of their holdings.
|Disposal Price||Disposal Date||Capital Gain|
|Higher than original investment costs||On announcement day||Permissible|
|Higher than announcement day's closing price||After announcement day||Impermissible|
Original investment costs may include brokerage cost or other related transaction costs.
Guidance on treatment of Shariah non-compliant securities is included in the list of Shariah compliant securities issued every May and November by the SAC of SC.