Islamic Unit Trust

Islamic Unit Trusts
• Presented by:
• Hussain Ahmad Khan
• School of Islamic Economics Banking & Finance- 7th
• 2019s-mulbsibf-004
What we will discuss…
1. Introduction / Definition of Islamic Unit Trust
2. Investment of IUT
3. Manager of a Unit Trust
4. Islamic Unit Trust Funds
5. Islamic Unit Trusts / Ethical Unit Trusts
6. Unit Trust Fund Selection Process
7. Risks To Keep in Mind
8. Why invest in Islamic Unit Trust

Introduction / Definition of Islamic Unit Trust
A Unit Trust is an investment vehicle that allows investors to take
advantage of investing in a diversified group of stocks which manages
risk and exposure to one or a few stocks. It also offers the opportunity to
participate in the long-term performance of the stock market. Islamic
Unit Trusts add other aspects that are a screening process to remove
stocks of companies deemed to be inappropriate for Muslim investors
and cleansing or purification of a company’s profits by removing any
income derived from non-Shariah complaint sources, such as interest a
company would earn on its bank accounts and donating them to
charities. Therefore, Islamic unit trust schemes are required to
additionally appoint a Shari’ah committee or to ensure that their
operations are in accordance with Shari’ah.
Definition
An Islamic unit trust comprises of a joint pool where investors contribute

capital for investment purposes to earn profits in adherence to the principles,
rules and regulation of Shariah law.
It will exclude investments in companies involved in non-Shariah compliant

activities such as products or services related to alcohol, gambling, tobacco, non-
halal food product, interest-based lending, conventional insurance, military arms and
ammunition and other activities deemed non-permissible according to Shariah law.
Investment of IUT
Islamic Unit Trusts can invest in many financial products in
conventional financial markets which are not interest-based, or where
the element of interest could be eliminated, such as property funds,
commodities, financial options and futures and forward transactions in
foreign currencies (Treasury and Capital Market Operations by IIBI;
2009). They can take advantage of international markets growth by
giving priority to equity investments in Islamic banks and financial
institutions, stock markets of Muslim countries; and companies
managed under the Islamic system.
Manager of a Unit Trust
The manager of a Unit Trust mutual fund would typically invest the
pooled money in a portfolio which may include the asset classes such as
cash, bonds and deposits, shares, property and commodities; tangible
assets represent more than 51% of the portfolio. Islamic Unit Trusts
have also a wide range of investment options based on growth and
income, open-ended, redeemable, etc. Their investments can cover
international equity markets, currencies and properties.
Islamic Unit Trust Funds
• A Mudarabah fund can invest in a specific business activity on the basis of profit
and loss sharing; Murabahah fund invest in companies whose transactions are
undertaken on a cost-plus basis;
• Through Musharakah the Unit Trust and the third party contribute funds in a joint
venture, producing equity participation;
• And in Ijarah fund, the Islamic Trust finances equipment, building or entire project
for a third party against an agreed rental. Besides, there will be no restriction to
stop non-Muslims investing in an Islamic Unit Trust.
Islamic Unit Trusts / Ethical Unit Trusts
• A good analogy with Islamic Unit Trusts is one of ethical and green Unit Trusts.
Here the universe of investable securities is limited by certain criteria based on
moral and ethical considerations. An ethical investment is the principle of
investing in companies which make a positive contribution to the world and
avoiding those which harm the world, its people or its wildlife. Society's
increasing awareness of its environmental and social responsibilities is impacting
on financial services, more and more investments based on ethical principles are
now available. Some may think that the restrictions imposed by ethical investment
with strict criteria may result in weaker performance; however ethical funds have
often matched or beaten their non-ethical counterparts.
Cont…
Ethical investments are generally made through managed funds such as unit trusts
which specialty is to seek profits for investors while conforming to certain ethical
criteria such as that the company is not involved in activities like illegal armaments,
gambling or pornography, or that it doesn’t produce or distribute alcohol, tobacco or
drugs. Before buying shares of companies in a chosen sector, an ethical fund
manager will run checks on that company to find out if it has interests in a number
of areas according to pre-determined criteria. Accordingly, clients who invest in
ethical funds can be sure that their money will be invested in companies that engage
in legal and ethical activities.
Unit Trust Fund Selection Process
Our Islamic Unit Trusts must follow a variety of rules. These rules include investing
only in Shariah-compliant companies, appoint a Shariah Advisory Body, carrying
out periodic Shariah audit and purifying certain prohibited types of income, such as
interest, by donating them to charity. Once a unit trust meets our fund selection
process, our Shariah Advisory Body also reviews the decisions of the fund
manager’s Shariah advisers and endorse the unit trust as part of the approval
process.
Risks To Keep in Mind
As unit trusts are still investments, they carry with them an inherent level of risk.
Some of these risks are outlined below. It is important for you to review each
prospectus in detail so that you are aware of the risks involved for any particular
unit trust.
• Non-principal protected and investment risk: Unit trusts are not principal protected and
their performance are subject to market movements. It should be bear in mind that past
historical performance is not an indication of future performance. The value of any
investments and generated income is not guaranteed and may punctuate over time.
Cont…
• Sales charges and annual management fees: There will be sales charges which will be
taken from the purchase amount. In addition, an annual recurring fee which includes fund
management and administrative fees will be charged by the fund manager. The fund’s Net
Asset Value (NAV) declared by the fund manager is net of all such fees. You may refer to the
respective fund prospectuses and factsheets for the exact prescribed charges.
• Shariah compliant investing specific risks: Since companies purchased by funds must first
pass stringent Shariah compliance criteria to be considered Shariah compliant, the
constructed halal portfolio may not be as well diversified as traditional portfolios, which may
increase the risk of loss.
Why invest in Islamic Unit Trust
• Any investors, whether they are Muslims or non-Muslims, can invest in Islamic unit trusts. Some investors
may invest in Islamic unit trusts for religious reasons, and some may regard them as socially responsible
products. Other investors may invest in Islamic unit trusts in order to seek diversification in their portfolio.
• We ensure that the funds invested in Islamic Unit Trusts are separated and treated differently from funds
investing in Conventional Unit Trusts. The differences between Islamic Unit Trusts and Conventional Unit
Trusts include:
ISLAMIC UNIT TRUST CONVENTIONAL UNIT TRUST
Using Shariah Principle No Shariah Principle applied
Invest only in Shariah compliant financial instrument Can be invested in any financial instrument
Income Purification mechanism No Income Purification mechanism
Supervised by Shariah Advisory Body No Shariah Advisory Body Required

Thank You

Islamic Unit Trust

Uploaded by

Copyright:

Available Formats

Islamic Unit Trust

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Islamic Unit Trust

Uploaded by

Copyright:

Available Formats

Islamic Unit Trusts

3. Manager of a Unit Trust

4. Islamic Unit Trust Funds

5. Islamic Unit Trusts / Ethical Unit Trusts

6. Unit Trust Fund Selection Process

7. Risks To Keep in Mind

8. Why invest in Islamic Unit Trust

An Islamic unit trust comprises of a joint pool where investors contribute

It will exclude investments in companies involved in non-Shariah compliant

ISLAMIC UNIT TRUST CONVENTIONAL UNIT TRUST

Using Shariah Principle No Shariah Principle applied

Income Purification mechanism No Income Purification mechanism

Supervised by Shariah Advisory Body No Shariah Advisory Body Required

You might also like