Saudi Sukuk: Why It's Becoming the Preferred Choice for Individual Investors

In recent years, sukuk has gained significant popularity in the Saudi market, particularly among individuals looking for a secure and consistent investment. What was once a financial tool reserved for large institutions or professional investors is now accessible and easy for everyone. This raises the question: Why has Saudi sukuk attracted so much interest? And why has it become a preferred choice for the individual investor?

What is Sukuk?

Sukuk are investment instruments similar to bonds but are compliant with Islamic Sharia law. They represent ownership in a tangible asset or an investment project. When you buy a sukuk, you are essentially participating in the financing of a project, such as building a road, a power plant, or any other productive asset, and in return, you are entitled to regular, fixed returns.

Unlike stocks, whose values fluctuate daily, sukuk are generally more stable and provide a consistent income stream throughout the investment period. This is why many individual investors find them to be a suitable option that combines security with reasonable returns.

Why Is Saudi Sukuk an Ideal Choice Right Now?

1.More Attractive Returns: Sukuk returns have become more appealing, especially with the recent rise in interest rates. Government-issued sukuk now offer a higher return than bank deposits, while remaining safer than high-risk investments.

2.Backed by a Sovereign Entity: Sukuk issued by the Saudi government are backed by a sovereign body, which gives investors a sense of confidence. When you invest in sukuk issued by the Ministry of Finance, you can be assured of the issuing body's strength and a very high probability of repayment.

3.Easier Accessibility: Access to sukuk is now easier than ever. Digital platforms allow for the simple electronic purchase of both government and private sukuk, with minimum investment amounts starting from just 1,000 Saudi riyals.

4.Portfolio Diversification: Sukuk offer an opportunity to diversify your investment portfolio. Instead of relying solely on stocks or real estate, investors can distribute their funds across different tools, which reduces risk and increases stability.

The Difference Between Sukuk, Stocks, and Deposits

Sukuk can be classified as a middle-ground investment tool between stocks and deposits. They don't carry the high risk of stocks, nor do they offer the low returns of deposits. To understand the difference more clearly, let's look at each tool separately:

Bank Deposits: These are the safest option among the three. They guarantee your principal and offer a fixed return at specific intervals. However, this return is relatively low. Deposits are suitable for those who want to protect their capital without a strong focus on generating higher profits. In times of inflation or high interest rates, the real return often decreases over time.
Stocks: Stocks represent ownership in a company, so your profit depends on the company's performance, market fluctuations, and economic news. You can make significant profits in a short period, but they also carry a high degree of risk. Stock prices can rise or fall sharply, making them unsuitable for all types of investors, especially those seeking stable income or financial security.
Sukuk: Sukuk combine the features of security and stable returns. When you buy a sukuk, you're not buying ownership in a company like with stocks, nor are you placing your money in a stagnant deposit. Instead, you're participating in the financing of a productive project or asset and receiving a pre-determined return throughout the sukuk's term. This return is usually higher than a deposit's return and lower than the average stock profit, but it is much more stable and less risky. This makes sukuk very suitable for investors who want to generate regular income without significant exposure to market volatility.
An illustrative example: If you invest 100,000 riyals in a government sukuk with a 5% annual return for 5 years, you will receive 5,000 riyals annually, for a total of 25,000 riyals over the investment period. This amount is known and fixed from the beginning, regardless of what happens in the financial market or the economy during those years. This gives investors a sense of financial stability and confidence in their returns.

In simple terms:

Deposits = high security + low return
Stocks = high risk + potential for high returns
Sukuk = a balance between security and return + fixed income + moderate risk

This is why sukuk are an ideal choice for anyone looking for a stable, Sharia-compliant investment that provides a consistent income without complexity or sharp fluctuations.

Who Are Sukuk Suitable For?

Sukuk are suitable for anyone seeking a safe and consistent investment. Whether you're an employee looking for additional income, a retiree wanting to preserve your savings, or just starting your investment journey, sukuk offer a balanced solution that combines stability and returns.

They are also a preferred option for those who want their investments to comply with Islamic Sharia law, as they are based on financing tangible assets and not on interest-based transactions.

How to Start Investing in Sukuk

The first step is to choose a reliable platform that allows you to easily buy and monitor sukuk. For example, the "Dinar" platform allows you to buy both government and private sukuk and track returns and distribution dates through a simple and straightforward user interface. All you need to do is open an account, specify the amount, choose the appropriate sukuk, and the process is completed smoothly and electronically.

Conclusion

Saudi sukuk are no longer just an investment tool for institutions or high-net-worth individuals. They have become a suitable and secure solution for individuals seeking regular income and steady returns without sharp fluctuations or high risks. In short, they are a balanced option that combines stability and a good return, and that is why they have become the preferred choice for many individual investors in Saudi Arabia today.

Frequently Asked Questions

Are sukuk suitable for beginner investors?

Yes, because they offer a fixed return and lower risk. They are easy to understand and don't require daily monitoring like stocks.

What is the minimum investment for sukuk?

Some sukuk start from as little as 1,000 riyals and can be purchased through licensed electronic platforms.

Can sukuk be sold before their maturity date?

Yes, some sukuk are tradable on the financial market and can be sold if you need liquidity. However, the selling price may vary depending on the market at the time.

Are there taxes on sukuk returns?

In Saudi Arabia, there are currently no taxes on sukuk returns for individual investors.

Are sukuk returns guaranteed?

The return is pre-determined for many sukuk, especially government-issued ones. However, you should always read the details of the issuance and understand its terms