FIN250 | MALAYSIAN GOVERNMENT SECURITIES (MGS)

By nurnabilahanaikmal28 | Updated: July 5, 2024, 4:44 a.m.

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MGS
MALAYSIAN GOVERNMENT SECURITIES
Have you ever heard of
MALAYSIAN GOVERNMENT SECURITIES (MGS)?
- Key financial tools that used to manage finances & regulate economy.

- Help fund government needs such as infrastructure & social services.

- Come in short-term & long-term forms.

Definition of MGS:
- Investors benefit from regular returns & liquidity in the secondary market.

- Play a vital role in Malaysia's financial stability & economic growth strategy.

HOW MONEY MARKET WORKS?
5 FUNCTIONS OF MONEY MARKET
1. Liquidity Provision 
- Provides liquidity to financial institutions, corporations and governments by offering short-term borrowing and lending opportunities.
2. Short-term Borrowing & Lending 
- The money market allows entities to borrow funds on a short-term basis to satisfy short-term liquidity that needs. 
3. Price Determination 
- Helps in determine the short-term interest rates through the forces of demand and supply.
4. Risk Management 
- Used by participants to control their short-term liquidity risks.
5. Facilities Monetary Policy 
- Central Bank use the money market to implement monetary
policy.
FEATURES OF THE MGS
1. Risk-Free Nature
 The government’s ability to tax and print currency to meet its debt obligations ensures minimal credit risk. Investors generally perceive MGS as safe investments, making them a preferred choice for risk-averse investors. 
2.Interest Rate and Yield
A fixed coupon rate, meaning the interest payment remains constant throughout the life of the security. The yield on MGS also giving influenced by various factors such as market interest rates, inflation expectations, and the overall economic environment. 
3.Liquidity
Highly liquid, meaning they can be easily bought and sold in the secondary market. The high liquidity is due to the active trading of these securities by financial institutions, investors, and the government.
 4. Tenure and Maturity 
This variety allows investors to choose securities that match their investment horizon and risk tolerance. The Malaysian government issues MGS regularly to meet its financing needs, providing a steady supply of securities across different maturities. 
5. Regulatory and Institutional Framework 
Ensure a transparent and orderly market for government securities. The market includes designated primary dealers who are responsible for underwriting new issues of MGS and ensuring market stability by providing liquidity.

Comparisons between MGS and GIL
BENEFITS OF ISSUING MALAYSIAN GOVERNMENT SECURITIES (MGS)
1. Fundraising for Government Expenditures.
   - Reduces fiscal deficits and manages public debt effectively.
2. Market Liquidity and Benchmark Yield Curve.
   - Used widely to price various debt products, enhancing market stability.
3. Risk-Free Investment Instrument.
   - Attracts both domestic and foreign investors seeking stable returns.
4. Implementation of Monetary Policy.
   - Helps Bank Negara Malaysia manage monetary policy effectively for price stability.
BENEFITS OF INVESTING MGS
1. Safety and Stability    
The government's capacity to pay its debt commitments is normally quite strong, due to its taxing authority and control over monetary policy.

2. Tax Benefits
Capital gains from trading MGS are not to subject tax, making them a better opinion for investors looking to maximize their returns.

3.Portfolio Diversification
A low correlation with other assets like equities, making them an excellent tool for diversifying an investment portfolio and reducing overall risk.

4. Liquidity
MGS hve a well-established and active secondary market, making it relatively easy to biuy and sell these securities without significant price impact.

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FIN250 | MALAYSIAN GOVERNMENT SECURITIES (MGS)

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