Islamic Unit Trust in Malaysia - An Introduction
By published 5 years ago
Within Malaysia, unit trust started with the formation of Malayan Unit Trust Ltd. in 1959. Government agencies started formulating regulations during the early years but it was in the 80s that the industry started to bloom.
The setting up of Amanah Saham Nasional (ASN) by Permodalan Nasional Berhad (PNB) in 1981 drew overwhelming response. With an ingenious distribution channel, unit trusts nowadays are reaching the investing public even more.
Post 1997-Asian financial crisis saw the emergence of Islamic funds as the popular type of unit trust issued by providers. Securities Commission regulates the Malaysian unit trust industry and it defines the Islamic capital market as “the market where the activities are carried out in ways that do not conflict with the conscience of Muslims and the religion of Islam.”
In other words, the ICM represents an assertion of religious law in the capital market transactions where the market should be free from the involvement of prohibited activities by Islam as well as free from the elements such as usury (riba), gambling (maisir) and ambiguity (gharar), added the SC website.
To better strengthen this new banking reality, the Securities Commission established a Syariah Advisory Council (SAC) in 1996, to advice on all matters pertaining to Islamic Capital Market, including that of unit trust. The eight members of the Syariah Council would naturally be best there is in Syariah – both knowledgeable and experienced as well as having a sound Islamic economics and finance background.
The Chairman, Syariah Chief Justice Datuk Sheikh Ghazali Hj Abdul Rahman resides over seven other representatives from UIA, UKM, a Mufti, an Islamic bank’s securities director, a Human Rights Commissioner, and one each from Angkasa and a private company.
To advise on all matters within the Islamic Unit Trust industry, SC has appointed a total 26 syariah individual advisers and 4 syariah corporate advisers, all distinguished scholars related to the industry. Broken into four main categories to reflect its investment emphasis, Islamic Unit Trust in Malaysia is made up of Equity Funds (40 funds), Balanced Funds (17), Bond Funds (15) and Other Funds (5).
An equity unit trust is the most common type of unit trust where a major portion of its assets are held in equities or securities of listed companies in the Malaysian stock market, which is the largest equity market in South East Asia. The performance of the units is therefore linked to the performance of the market. A rising market will normally give rise to an increase in the value of the unit and vice-versa.
In Islamic unit trusts, funds can only be invested in “halal” stocks that are not only involved in the Haram business like gambling, alcoholic beverages and the production of non-Halal products, but also exclude shares of companies that are involved in conventional banking, insurance or financial services.
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 the removal of such amounts representing the interest element. Such proceeds are normally donated to charities.
As of September 2005, there are 36 unit trust management companies managing 331 approved funds in the overall unit trust industry that circulates some 99.6 billion units in the hands of 10.7 million unitholders.
With the active role played by governing body the Securities Commission and the commitment showed by Malaysia’s Central Bank, the Islamic Unit Trust market has indeed played a complementary role to the Islamic banking system in broadening and deepening the Islamic financial markets in Malaysia.
What Are Unit Trusts?
Sourced from The Federation of Malaysian Unit Trust Managers (www.fmutm.com.my)
Unit Trusts are a form of collective investment that allows investors with similar investment objectives to pool their funds to be invested in a portfolio of securities or other assets.
A professional fund manager then invests the pooled funds in a portfolio which may include the asset classes such as cash, bonds & deposits, shares, property and commodities.
Unit holders do not purchase the securities in the portfolio directly. Ownership of the fund is divided into units of entitlement. As the fund increases or decreases in value, the value of each unit increases or decreases accordingly.
Each investor of the fund receives a certificate of entitlement, known as a unit trust certificate. The number of units held depends on the unit purchase price at the time of investment and the amount of money invested. Today, most companies have gone scriptless. Investors, however, can request a certificate for a fee.
The return on investment of unit holders is usually in the form of income distribution and capital appreciation, derived from the pool of assets supporting the unit trust fund. Each unit earns an equal return, determined by the level of distribution and/or capital appreciation in any one period.
Unit trust investors are typically those with small amounts to invest, who neither have the time nor the inclination to hold portfolios of direct investments or shares. Rather, they prefer to invest in a secure, reputable investment vehicle which suits their purposes. Unit trusts allow investors to have easy access to a wide range of investment exposures not normally available to them.
As investors seek to maximise returns on their financial resources, unit trusts provide an ideal way for them to gain exposure to investments that, in the long run, should produce returns superior to cash savings and fixed deposit investments.
The cost of these potentially higher returns is of course the risk that accompanies the investment. In the short run, the certainty of investment returns of most unit trust products is less than those offered by fixed deposits. However, in the medium to long term (i.e. 3-20 years), unit trust investments generally provide superior returns at acceptable levels of risk.
Top 3 Biggest Approved Islamic Unit Trust Funds Based on Type and Size
Equity Funds
Fund Name
Management Company
Launch Date
Approved Fund Size (RM million)
Manager’s Price for Dec 3
Buy (RM)
Manager’s Price for Dec 3
Sell (RM)
1
Public Islamic Funds
Public Mutual Berhad
28.5.2003
6,000
0.2874
0.3060
2
Public Ittikal Funds
Public Mutual Berhad
10.4.1997
2,000
0.7970
0.8488
3
Mayban Dana Yakin
Maybank Unit Trust Berhad
24.11.2000
1,200
0.4035
0.425
2. Balanced Funds
Fund Name
Management Company
Launch Date
Approved Fund Size (RM million)
Manager’s Price for Dec 3
Buy (RM)
Manager’s Price for Dec 3
Sell (RM)
1
AMIslamic Balanced
AMInvest Services Berhad
10.9.2004
1,000
0.1870
0.1983
2
SBB Mutual Dana Al-Mizan
SBB Mutual Berhad
8.3.2001
1,000
0.3884
0.4136
3
Pacific Dana Aman
Pacific Mutual Fund Berhad
16.4.1998
1,000
0.4195
0.4484
3. Bond Fund
Fund Name
Management Company
Launch Date
Approved Fund Size (RM million)
Manager’s Price for Dec 3
Buy (RM)
Manager’s Price for Dec 3
Sell (RM)
1
Mayban Dana Arif
Mayban Unit Trust Berhad
27.4.2004
600
0.5220
0.5272
2
RHB Islamic Bond Fund
RHB Unit Trust Mgmt. Berhad
25.8.2000
500
0.0705
0.0705
3
AMBon Islam
AMInvest Services Berhad
26.11.2001
500
1.0619
1.0725
4. Other Funds
Fund Name
Management Company
Launch Date
Approved Fund Size (RM million)
Manager’s Price for Dec 3
Buy (RM)
Manager’s Price for Dec 3
Sell (RM)
1
TA Dana OptiMix
TA Unit Trust Management Berhad
17.1.2005
800
0.4727
0.5022
2
TA Islamic CashPlus Fund
TA Unit Trust Management Berhad
N/A
600
0.5054
0.5054
3
Mayban Dana Fitrah 1 Capital Protected
Mayban Unit Trust Berhad
27.7.2004
300
0.5225
N/A