Islamic Unit Trust Funds

Islamic Unit Trust Funds (i.e. Shariah Funds)

What is an Islamic Unit Trust Fund?
What is the difference between an Islamic and non-Islamic unit trust fund?
What kinds of companies are Shariah Funds allowed to invest in?
Can Non-Muslims Invest in Shariah Based Unit Trust Funds?

Islamic Unit Trust Funds, more commonly referred to as Shariah funds are a group of specialized collective investment funds which offer investors the opportunity to invest in a diversified portfolio of securities that are managed and selected by professional portfolio managers in accordance to Shariah principles.

A Shariah Fund offers similar benefits to any other fund with the same investment objective; the only difference is that it only invests in companies that are in compliance with the Shariah principles as outlined by the Shariah Advisory Council (SAC) of the Malaysian Securities Commission. Like all the other non-Islamic Funds in Malaysia, Shariah Funds are regulated by the Securities Commission and placed under the same stringent regulatory criteria.

In classifying these securities as approved securities, the SAC has applied a standard criterion in focusing on the core activities of the companies listed on the Bursa Malaysia.

Companies whose core activities are not contrary to the Shariah principles are classified as approved securities. The securities that are excluded from the list of approved securities are based on the following criteria:

  • 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 Shariah;
  • Manufacture or sale of tobacco-based products or related to Shariah;
  • Strockbroking or share trading in Shariah non-approved securities; and
  • Other activities deemed non-permissible according to Shariah.

In addition, companies with activities involving both permissible and non-permissible elements must have good public perception or image and that the core activities of the company are important and considered maslahah (‘benefit’ in general) to the Muslim ummah (nation) and the country, and the non-permissible element is very small and involves matters such as ‘umumbalwa (common plight and difficult to avoid) ‘uruf (custom) and the rights of the non-Muslim community which are accepted by Islam.

Yes, Shariah based funds are opened to all investors.