How to Invest in Bonds and Sukuk in Malaysia: A Beginner’s Guide

Malaysia’s bond market, worth RM2.11 trillion as of January 2025,  is one of the most developed fixed-income markets in Southeast Asia. Backed by strong regulations and supported by a wide range of instruments—from conventional government bonds to Sustainability-Linked Sukuk—the market plays a vital role in the country’s economic stability and capital development.

Yet, despite its scale and maturity, bonds and sukuk remain largely underutilised by retail investors in Malaysia. Often overshadowed by higher-risk assets like stocks or perceived as too complex compared to fixed deposits, they’re frequently overlooked.

In times of market uncertainty or economic slowdown, investors tend to shift from volatile instruments like equities to more stable, income-generating options. Bonds and sukuk fall into this category—both offering predictable returns, lower volatility, and a practical way to diversify portfolios.

What is a bond?

A bond is essentially a formal agreement where an investor lends money to a borrower—typically a government, corporation, or statutory body—for a fixed period of time. 

In return, the issuer promises to pay regular interest (also known as a “coupon”) and repay the principal amount (called the “face value” or “par value”) at the end of the bond’s maturity.

Bonds come with defined terms, including interest rate, payment schedule, and maturity date. The most common payment frequency is semi-annually, but some bonds pay interest annually or quarterly. At maturity, the investor gets back the original amount they invested.

Bonds are issued for various reasons: 

• governments use them to fund infrastructure projects or cover budget deficits
• corporations may issue bonds to finance expansion, acquisitions, or working capital needs. 

Because of their predictable income and relatively low risk compared to equities, bonds are often used in conservative or income-generating portfolios.

What is sukuk?

Sukuk are Islamic fixed-income instruments that function similarly to bonds but are structured to comply with Shariah (Islamic) law. 

Unlike conventional bonds, sukuk do not involve interest payments (riba), which are prohibited in Islam. Instead, investors receive profits generated from the underlying asset linked to the sukuk.

When you invest in sukuk, you’re not lending money to the issuer. Rather, you’re purchasing a portion of an asset or a venture, such as a building, lease agreement, or infrastructure project. The returns come in the form of profit-sharing, rental income, or service fees, depending on the structure.

Sukuk structures often include principles such as ijarah (leasing), murabahah (cost-plus financing), wakalah (agency), or mudarabah (profit-sharing). 

Despite being designed for Islamic investors, sukuk are widely accepted by non-Muslims and global investors due to their transparency, asset-backed nature, and consistent returns.

Malaysia launched the first-ever sukuk

Malaysia made history in 1990 by launching the world’s first-ever sukuk, issued by Shell MDS Sdn Bhd. This RM525 million issuance laid the groundwork for what would later become a robust and innovative Islamic capital market.

Over the past three decades, Malaysia has emerged as the global leader in sukuk issuance, accounting for a large share of total global sukuk outstanding. 

The market has since expanded from basic structures to more complex instruments like Green Sukuk, Sustainability Sukuk, and Sukuk Wakalah, financing everything from infrastructure and corporate needs to ESG-related initiatives.

Today, sukuk plays a vital role in both Malaysia’s public and private sector financing while continuing to evolve as a global benchmark for Islamic finance.

So how does a bond or sukuk work

Both bonds and sukuk operate on the principle of fixed-income returns, but the mechanisms differ slightly based on the instrument’s structure.

In a conventional bond, the issuer pays a fixed interest rate to the investor at set intervals (e.g. twice a year) and returns the original capital upon maturity. Investors benefit from predictable cash flows regardless of market conditions.

In a sukuk, investors are entitled to receive profits generated from the performance of underlying Shariah-compliant assets or ventures. These payments mimic the function of interest but are derived from rental income, business profits, or lease payments. At maturity, the sukuk issuer either buys back the investor's share or completes the profit-sharing arrangement.

In Malaysia, both bonds and sukuk are regulated by the Securities Commission (SC) and Bank Negara Malaysia (BNM). While most corporate bonds are issued to sophisticated investors, there are frameworks in place that allow retail investors to participate through selected issuers and approved platforms.

Since 2012, retail investors can access these instruments directly via the retail bonds and sukuk framework, which enables eligible issuers to offer their bonds on Bursa Malaysia or over-the-counter (OTC) through appointed banks.

Minimum investment typically starts from RM1,000 per board lot, depending on the bond or sukuk product, making it accessible to most investors.

Why do people invest in bonds?

Bonds—and sukuk—are often misunderstood as financial products reserved only for the wealthy or the elderly. 

But in reality, these instruments are suitable for anyone seeking balance, security, and income in their portfolio.

Here are several reasons why people invest in bonds:

• Predictable income stream: Bonds offer regular, fixed returns over a set period, making them ideal for income planning or supplementing retirement needs.
• Capital preservation: Since bonds repay the principal at maturity, they help protect your initial investment—an essential trait during volatile markets.
• Diversification: Adding bonds to your portfolio reduces overall risk, especially when equities become volatile. They often perform well when stocks underperform.
• Lower volatility: Bond prices tend to fluctuate less than stocks, offering peace of mind and financial stability during economic downturns.

While bonds typically offer lower returns than stocks, they provide a cushion against market swings. This makes them especially valuable during periods of economic uncertainty or rising interest rates.

Types of bond and sukuk in Malaysia

1. Government bonds

Government bonds in Malaysia are issued by the federal government to raise funds for national development, infrastructure projects, and fiscal needs. They are considered low-risk because they are backed by the sovereign credit of the Malaysian government. 

These instruments are commonly traded in the wholesale market, but selected tranches are made available to retail investors.

2. Bank Negara Malaysia (BNM) instruments

These are short-term money market instruments issued by the central bank to regulate liquidity in the banking system. 

Although essential to monetary policy operations, they are generally accessible only to licensed financial institutions and not the public.

3. Quasi-government bonds

Quasi-government bonds are issued by government-linked companies (GLCs) or statutory bodies. 

While not directly backed by the federal government, they often carry implicit guarantees, making them relatively low-risk and attractive to institutional investors.

4. Corporate bonds

These bonds are issued by public or private companies to raise capital for expansion, acquisitions, or refinancing. 

While they offer higher returns than government bonds, they also carry higher credit risk. Only selected issuers can offer bonds directly to retail investors.

5. Types of sukuk

Sukuk are Islamic investment certificates that represent partial ownership in an asset or project. Instead of paying interest, sukuk offer profit-sharing, rental income, or service fees depending on the contract structure. 

Exchange traded bonds and sukuk (ETBS) 

Traditionally, bonds and sukuk were reserved for institutional investors or high-net-worth individuals. But with ETBS, the landscape has changed—now, any investor in Malaysia can access fixed-income instruments easily through the stock market.

Bursa Malaysia introduced ETBS to democratize access to bonds and sukuk, enabling retail investors to invest and trade them just like shares. These instruments offer regular income, diversification, and relatively lower volatility—ideal for conservative or income-focused portfolios.

What are ETBS?

Exchange Traded Bonds and Sukuk (ETBS) are fixed-income securities—such as bonds or sukuk—that are listed and traded on Bursa Malaysia. These instruments can be issued by both corporate entities and the government. ETBS may be structured with fixed or floating rates, or even hybrid payment terms.

Why invest in ETBS?

What affects ETBS prices?

Risks to consider

Minimum investment

ETBS trades in lots of 10 units. With a face value of RM100 per unit, the minimum investment is RM1,000 (excluding transaction fees).

Key differences between ETBS vs stocks

How to start investing in ETBS?

To start, you’ll need:

• A trading account with a Participating Organisation (any licensed stockbroker under Bursa Malaysia)
• A Central Depository System (CDS) account

Once both accounts are set up, you can buy and sell ETBS just like regular stocks. Trades follow the same settlement rules (T+3), meaning funds and securities are settled within three business days.

Behind the scenes: how bonds and sukuk are issued and traded in Malaysia

Source: Bix

Malaysia's bond and sukuk market operates within a structured and regulated ecosystem. Before a bond reaches your portfolio, it passes through several key stages—each involving different players. Let’s walk through what happens from start to finish:

1. Pre-issue: Setting the foundation

This stage takes place before the bond or sukuk is made available to investors. It includes planning, structuring, and compliance checks.

2. Primary market: The first sale

This is where bonds and sukuk are first issued and sold to investors.

3. Secondary market: After issuance

Once the bonds are issued, they can be bought and sold in the secondary market—similar to how stocks are traded.

4. Market governance and tools

To ensure the market runs efficiently, these institutions provide oversight, information, and valuation:

Understanding the mechanics of bonds and sukuk

When evaluating bonds or sukuk as an investment, it’s important to understand how they work under the hood. These features determine the risk, return, and legal framework surrounding each instrument—and will ultimately help investors make better decisions.

Bond issuer

A bond issuer is the entity that borrows money from investors by issuing bonds. There are typically three main types of issuers:

• Government: Governments issue bonds (e.g., MGS and GII) to finance national budgets and infrastructure. These are considered the safest type of bonds, especially when issued by developed countries.
• Corporates: Private companies issue bonds to raise capital for operations or expansion. These bonds come with higher risk and are rated by agencies like RAM or MARC.
• Special Projects: Bonds may be issued for specific projects (e.g., KLIA2, MRT), often backed by the government or related entities. Maturity is tied to project completion.

Bond maturity and payment schedules

Bond maturity refers to the length of time before the issuer must repay the principal to investors. Maturities typically fall into these categories:

• Short-term: 1–5 years
• Intermediate-term: 5–12 years
• Long-term: 12–30 years
• Perpetual: No fixed maturity; pays interest indefinitely

During this period, bondholders receive regular interest payments (coupon), and at maturity, the principal is repaid. Longer-term bonds usually offer higher yields to compensate for time-related risks.

Bond covenant

A bond covenant is a legally binding clause between the issuer and bondholders that outlines the rights, obligations, and restrictions during the bond’s tenure.

It’s documented in the Principal Term & Condition (PTC) and ensures investors are protected. Covenants typically include:

• Positive covenants – things the issuer must do (e.g., maintain asset levels)
• Negative covenants – things the issuer must not do (e.g., take on new debt)
• Financial covenants – specific financial metrics the issuer must maintain

Bond coupon and yield

The coupon is the interest rate a bond pays, typically semi-annually or annually. It’s calculated as a percentage of the bond’s face value. For example, a RM1,000 bond with a 4% coupon pays RM40 annually.

The yield, particularly the current yield, reflects the bond’s return based on its market price:

• Example: A bond with a 6% coupon (RM60/year) trading at RM1,100 = 5.45% yield
• If it trades at RM800, the same RM60 coupon = 7.5% yield

Thus, market price affects the effective return. Lower bond prices in the secondary market result in higher yields.

Bond ratings

Credit rating agencies like RAM and MARC assess the issuer’s creditworthiness—their ability to pay back the principal and coupon. Bonds are rated based on their risk:

Generally, bonds rated A and above are considered safe, while lower ratings indicate higher risk but potentially higher returns.

Checklist for your next bond buying

Before investing in a bond or sukuk, use this checklist to ensure you’ve done your due diligence:

📝 General Information

• Identify the issuer (e.g., government, corporate, GLC)
• Know the type of bond or sukuk (e.g., government bond, sukuk ijarah, ETBS)
• Confirm Shariah compliance (if applicable)

📅 Tenure & Payment

• Check the maturity date
• Understand the coupon frequency (e.g., semi-annual, annual)
• Confirm how principal and interest / profit are paid

📈 Returns & Risks

• Review the coupon rate / expected yield
• Understand the bond rating (AAA, AA, etc.)
• Consider the credit risk of the issuer
• Assess interest rate risk and market risk

📄 Legal Terms

• Read the bond covenants or sukuk contract terms
• Check for any callable or redeemable features
• Understand any guarantees or collaterals

📊 Trading & Liquidity

• Confirm if it’s tradable on Bursa Malaysia (ETBS) or over-the-counter (OTC)
• Verify minimum investment amount (e.g., RM1,000 for ETBS)
• Know the settlement period (e.g., T+3)

📚 Documentation

• Read the product disclosure sheet
• Go through the prospectus or offering memorandum
• Ensure the bond/sukuk is approved by the SC or BNM

💰 Tax & Fees

• Check if returns are tax-exempt or taxable
• Consider any management, trustee, or platform fees

Prefer something simpler? StashAway Simple could be your answer

If you’re looking for a low-risk, flexible alternative to bonds and sukuk without the complexity of picking individual securities, StashAway Simple is worth considering.

Unlike traditional fixed-income investments that may require a minimum holding period, credit risk assessment, or complex pricing structures, StashAway Simple offers a straightforward way to earn attractive yields on your cash—without lock-ins or high fees.

How does it work?

StashAway Simple invests your money in money market and short-duration bond funds, aiming to preserve capital while delivering stable returns. 

It’s designed to be a better alternative to savings accounts and traditional fixed deposits, with projected returns that typically outperform bank rates.

*Returns are not guaranteed and depend on market conditions.

Determining if bond or sukuk is the right investment for you

Malaysia’s bond and sukuk market has come a long way—growing into one of the most sophisticated fixed-income ecosystems in Southeast Asia. 

If you’re wondering whether bonds or sukuk are the right addition to your portfolio, consider the following:

• Are you looking for predictable income?
  Bonds and sukuk pay regular interest or profit, making them ideal for retirement planning or supplementing monthly cash flow.
• Do you value capital preservation?
  Government bonds, sukuk ijarah, and other high-grade instruments tend to offer principal protection at maturity—perfect for conservative investors.
• Are you building a diversified portfolio?
  Bonds and sukuk help balance out equity risk, especially in volatile markets. They typically perform well when equities decline.
• Do you want to align your investment with Shariah principles?
  Sukuk provide halal investment opportunities backed by real assets, without exposure to riba or unethical activities.
• Is liquidity important to you?
  Products like ETBS can be traded on Bursa Malaysia just like stocks, offering a mix of steady income and flexibility.

Ultimately, bonds and sukuk are not just for institutions or retirees—they’re for anyone who wants a stable foundation in their investment portfolio. Whether you're saving for a long-term goal, preparing for retirement, or simply want peace of mind, fixed-income products could be the missing piece in your financial puzzle.

Before you invest, be sure to review the bond or sukuk’s structure, credit rating, maturity, payment terms, and tradability. Use the bond buying checklist to assess suitability, and don’t hesitate to seek professional advice if you’re unsure.