2. Mutual fund is a collective investment scheme
formed for the purpose of pooling funds from
investors who share similar financial objectives
with the intention that the funds be managed
and invested by professional fund managers for
their mutual benefit.
maisyarah
3. MALAYSIA HISTORY
In Malaysia, the introduction of a structured
Islamic funds management can be traced way
back in early 1993 when a private unit trust
fund was launched.
The development of the Islamic unit trust in
Malaysia will stimulate the breadth and depth
of the Malaysian Islamic capital market.
4. RECENT TRENDS
Investors of conventional unit trusts shifting their
investments into Islamic unit trusts (including non-
Muslim investors). Subscription for new Islamic unit
trusts are very encouraging.
• Malaysian unit trust operators offering a wider range of
Islamic unit trust products including those with foreign
investments.
• Malaysian unit trust operators looking to offer unit
trust products to investors outside Malaysia i.e in
South East Asian region and Middle-East.
5. ISLAMIC UNIT TRUST FUNDS GAINING
GROUND AMONG INVESTORS
Islamic unit trust funds have become increasingly
prominent of late as they are being sought by all
investors, not only Muslims. The main objective of such
funds is to invest in a portfolio of halal stocks that
comply with the principles of the Shariah.
The returns of the Islamic unit trust will also avoid the
incidence of riba or usury interest through the process
of cleansing or purification by removing such amounts
representing the interest element. The proceeds are
normally donated to charities.
6. WHAT ARE SHARIAH-BASED UNIT TRUST
FUNDS, AND WHAT IS THEIR OBJECTIVE?
Shariah-based unit trust funds give investors the
opportunity to invest in a diversified portfolio of
Islamic securities that are managed by professional
managers in accordance with the Shariah.
The main objective of these collective investment funds
is to provide an alternative avenue for investors
sensitive to Shariah requirements. This means the
exclusion of companies involved in activities, products
or services related to conventional banking, insurance
and financial services, gambling, alcoholic beverages
and non-halal food products.
7. PARTICIPANTS
Relationship between 3 parties, namely,
the unit holders, the management
companies and the trustee.
Investors (unit holders): participate in
the Islamic unit trust scheme by buying
units from the fund management
company with the hope of generating
returns in the form of dividends and
capital gains.
8. Fund Management Company Role:
- Makes recommendation concerning the purchase, sale and
portfolio administration of the assets of the unit trust scheme
- promotes the sale of units, service the unit holders and provide
repurchase facilities to buy back units from unit holders who
want to liquidate their investment
- trustee of the fund will be holding title documents of all assets,
approving and monitoring all financial transactions, and
collecting all income on behalf of the fund in order to safeguard
those funds and ensure that they are correctly invested
according to the Trust Deed
- supervises the operations of the trust to ensure that the
objectives of the unit trust scheme are followed
9. WHAT ARE THE TYPES OF SHARIAH-
BASED UNIT TRUST FUNDS?
The funds are available in many forms such as Shariah-
based equity funds, balanced funds, Sukuk funds, money
market funds, feeder funds and index funds
MODEL IMPLEMENTED
- wakalah (agency)
- al-Mudharabah
10. REGULATORY APPROACH
Securities Commission adopts 2 tier regulation for Islamic unit
trusts
=1st tier – regulation that applies to all unit trusts
= 2nd tier – additional regulation required for Islamic unit trusts
i. Appointment of Shariah Committee / Advisory Board / Adviser
ii. Appointment of 2 Muslim Investment Committee Member
iii. Appointment of a designated compliance officer for Islamic
unit trusts
iv. Enhanced disclosures in offering documents
v. Reports by Shariah Committee / Advisory Board / Adviser in
annual and interim reports to unitholders.
farhana
11. WHO REGULATES UNIT TRUST
FUNDS IN MALAYSIA?
The Securities Commission regulates the establishment and
operations of unit trusts in Malaysia under the Capital Markets
And Services Act 2007, Securities Commission Act 1993, the SC
Guidelines and other relevant securities law. This requires,
among other things, that the unit trust fund manager and the
trustee create a deed and register it with the Securities
Commission. A copy of the deed may be inspected at the unit
trust fund manager's office.
In addition, the Securities Commission has placed severe
requirements in the appointment of the unit trust manager, the
trustee, the unit trust manager's directors, chief executive officer,
investment committee and Committee Members/Shariah
Advisers. The appointment of all these parties must be approved
by the Securities Commission.
12. WHAT ARE THE CRITERIA USED IN
EVALUATING THE COMPANIES?
The involvement of companies in the following elements is the
criteria used in evaluating the status of Shariah compliant
securities:
Financial services based on riba (interest);
Gambling;
Manufacture or sale of non-halal products or related products;
Conventional insurance;
Entertainment activities that are non-permissible according to
the Shariah;
Manufacture or sale of tobacco-based products or related
products;
13. Stockbroking or share trading in non-Shariah compliant
securities; and
Other activities deemed non-permissible according to the Shariah.
There are two additional criteria:
Public perception or the image of the company must be good; and
The core activities of the company are important and considered
maslahah (public interest) to the Muslim Ummah (community)
and the country, and the non-permissible element is very small
and involves matters such as umum balwa (common plight and
difficult to avoid), uruf (custom) and the rights of the non-Muslim
community which are accepted by Islam.
14. WHY INVEST IN SHARIAH-BASED UNIT
TRUST FUNDS?
The market is in a good position to benefit from a more rapid global
expansion of Islamic finance, which has become more established in the last
two years. Islamic products and services are gaining widespread acceptance.
On the supply side, there are now larger global offerings of Islamic securities
by a wider selection of issuers.
Islamic financial innovation has also grown rapidly. At the same time, the
investor base for Islamic products is beginning to widen; around half of the
subscriptions for Sukuk are said to come from non-Muslims, reflecting the
competitive pricing of Islamic products.
Over the years, Shariah-based unit trust funds have proven to be a viable
investment option. As at the 31st December 2007, the total net asset value
(NAV) of unit trust funds in Malaysia stood at RM169.41 billion (US$50.2
billion), an increase of 39.13% from RM121.77 billion (US$36 billion) at end-
2006.
This represents 15.32% of the total market capitalization of Bursa Malaysia,
of which conventional unit trust funds stood at RM152.5 billion (US$45.2
billion) while RM16.9 billion (US$5.03 billion) were Shariah-based unit trust
funds.
15. COMPARISON BETWEEN CONVENTIONAL
AND ISLAMIC UNIT TRUST FUNDS
Shariah-based unit trust funds are restricted to
investment in Shariah compliant securities approved
by the Securities Commission Malaysia while
conventional fund investments are not restricted.
16. BENEFITS OF INVESTING IN SHARIAH-
BASED UNIT TRUST FUNDS
Investing in unit trusts transfers most of the necessary
―know-how‖ of investing to those best equipped to
handle it — professional fund managers. There are
several other substantial benefits of investing in unit
trusts. They include:
(1) Affordability
Unit trusts are affordable as investors can start with
an investment amount as low as RM100 (US$30).
17. (2) Diversification
Rather than concentrating on an investment portfolio of one
or two investments or shares, a portfolio of market securities
can be held. The wider the spread of investments, the less
volatile (i.e. variable) the investment returns will be. In simple
terms, investment in unit trusts means diversification of risk
— ―not putting all your eggs in one basket‖.
(3) Liquidity
Most investors prefer their investment to be liquid. That is,
they can easily buy and sell without difficulty. Unit trusts
provide this benefit, easily bought and sold. An excellent
return that cannot be ―cashed in‖ (i.e. sold) does not
necessarily mean a good investment as poor liquidity
constitutes an additional risk factor for the investor.
18. (4) Professional fund management
The people managing unit trusts are approved professionals. Their
training and background ensure that decision making is structured
and in accordance with sound investment principles. In the process,
unit trust funds enjoy the depth of knowledge and experience that
fund managers bring. In the long term, it is this expertise that should
generate above-average investment returns for unit trust investors.
(5) Investment exposure
For the individual investor, it is sometimes difficult to gain exposure
to a particular asset class. For instance, if an investor with RM5,000
(US$1,480) wants to gain exposure to the Malaysian property market,
global equity markets and the Malaysian bond market, it would be
impossible to simultaneously hold a direct investment portfolio in all
of these markets. With unit trust investments, it is possible for the
investor to spread his money around to all of these asset classes at
the same time, so that he can gain the investment exposure he
requires.
azmidah
19. (6) Wholesale investment costs and access to other asset
classes
When making direct investments in Bursa Malaysia, the investor
faces costs and charges that are much higher. With unit trusts,
the economics of the transaction are more favorable, i.e. the fees
and charges/brokerage and so on per investment ringgit are
likely to be lower.
As fund managers invest in larger amounts, they are able to
secure access to wholesale yields and products that are
impossible for the individual investor to obtain. For instance,
unlike unit trust funds, most individual investors cannot have
direct access to the Malaysian government securities market
because, among other reasons, the amount of each transaction
could run into millions of ringgit.
(7) Comfort of regulation
The entire range of variables relating to the unit trust industry is
governed by various legislations. The sole purpose of such
regulations is to protect the interests of the investing public.
Regulations provide investors with a level of comfort that they are
investing in a safe investment mechanism.
20. TOP 5 UNIT TRUST AS AT JUNE
2007
NO UNIT TRUST MANAGEMENT FUND SIZE MARKET
COMPANY RM MILLION SHARE (%)
1 PUBLIC MUTUAL 22,064 36.7%
2 AM INVESTMENT SERVICES 8,736 14.5%
3 HWANG-DBS INVESTMENT 4,987 8.29%
4 PRUDENTIAL FUND 3,989 6.63%
MANAGEMENT
5 CIMB WEALTH ADVISOR 3,421 5.69%
23. ISSUES
Global Investments
• Ability to gather information to analyse global companies or
issues to determine whether it is Shariah-compliant.
Selling Unit Trust Products Outside Malaysia
• Legal and regulatory issues.
• Acceptance by Middle-East investors of Malaysian unit
trust products.
- Differing Shariah opinions and rulings
- Differing accounting standards
24. Purification of earning
- Shariah scholars have different views about
whether the "purification" is necessary where the
profits are made through capital gains
Liquidity
- large majority of Islamic funds is not
listed in any Stock Exchange.
27. The demand for Islamic investment products is increasing.
As at the 30th June 2008, the number of Shariah-based
unit trust funds stood at 140, or 25% of the total of 557
approved funds.
The NAV (NET ASSETS VALUE) of Shariah-based unit trust
funds accounts for RM17.98 billion (US$5.33 billion), or
17.74% of total net value to the Bursa Malaysia market
capitalization compared to RM9.17 billion (US$2.73 billion)
at end-2006.
The NAV of Shariah-based unit trust funds for the last
decade grew at a compounded annual growth rate of 39.6%
while the total industry recorded a growth rate of 17.8% in
the same period.
