Towards Developing a Conceptual Framework for Islamic Unit Trust Funds

Ruqayyah Abdul Aziz,Rusni Hassan,Syed Ahmed Salman,Nor Razinah Mohd Zain

doi:10.18646/2056.64.19-031

Abstract

There is increasing interest among investors in one of the latest investment vehicles - unit trusts. Unit trusts have several advantages as investments in comparison to other investment vehicles, as they are managed by fund managers and tied down by a trust deed. These advantages can be traced back to the investment diversification, professional management of the unit trust and the liquidity flow that can be obtained through sale and purchase of the unit trust. This paper presents an argument towards the development of the conceptual framework for Islamic unit trust funds, explored using references to the regulations in Malaysia, reviewing the types of unit trust funds, their distinctive features, Shariah principles that operate in the management of unit trust industry in Malaysia and the contributions that can be generated from unit trust fund to society. Some of the essential features of Islamic unit trust funds depend on the prohibition of riba, gharar and maysir, strict stock screening processes and purification processes. The main challenges to the unit trust industry are also discussed.

Highlights

Islamic unit trusts are a growing sector in the Islamic capital market industry
This paper provided an argument, based on the nature of Shariah compliance, that the Islamic unit trust fund is uniquely different from its counterpart i.e. conventional unit trust funds
Islamic unit trust funds in the Malaysian capital market are less prevalent compared to the long standing and prevailing conventional unit trusts

Summary

Introduction

Islamic unit trusts are a growing sector in the Islamic capital market industry. Islamic fund management companies are allowed to be initiated with 100% foreign ownership which is an additional attraction to global investors (Jamaludin, et al, 2012). This can be seen as an effort by the Malaysian government in pushing Malaysia as the global Islamic Capital Market hub. The discussion examines the Islamic capital market and the distinctive features of Islamic unit trust funds, the relevant Shariah principles and traces the development of the growing unit trust industry in Malaysia

An Overview of the Islamic Capital Market in Malaysia

The Unit Trust Industry and Challenges for Islamic Unit Trusts

Findings

Conclusion