Version 1_5_Islamic unit trust 3.0s__1 in 1

ISLAMIC UNIT
TRUST INDUSTRY

ISLAMIC FUND MANAGEMENT
Dr. Hanudin Amin

ISLAMIC UNIT TRUST DEFINED

Unit trust in general Islamic unit trust

• Unit trust is an investment vehicle that pools the • Collective investment fund
financial resources of many individual investors who • Offer investors the opportunity to invest in a
aim to achieve similar investment objectives
diversified portfolio of Shariah-approved capital
• Test wits against stock market market instruments
• nvestors who have small amounts of money who • Managed by professional managers who comply
with Shariah
seek diversification • Appointed Shariah adviser who ensures that funds’
operations are in line with Shariah principles

The History of Unit Trust in Malaysia Objective – to ensure permissibility of investments in
• Began in 1959, Malaysian Unit Trust Ltd. the context of Shariah, such as the elimination of
• 1967, MARA Holdings Bhd established ASM Mara
interest, gambling and ambiguity or excessive
Unit Trust Management Bhd.
• Tremendous growth- when PNB introduced ASN uncertainty

(1981), ASB (1990). Fund managers will invest the funds received in the

The History of Islamic Unit Trust in Malaysia following, but not limited to:
• 1991, Arab-Malaysian Bank introduced Tabung Al- • Equity
• Sukuk
Ittikal • Money market instrument
• 1993, Tabung Amanah Bakti by Asia Unit Trust Bhd. • Collective investment scheme
• 1994, BIMB introduced its first unit trust. • Structured product

History Asset types

Dr. Hanudin Amin at Faculty of International Finance

LIST OF ISLAMIC UNIT TRUST FUNDS
As of 31st August 2015

Funds Trustee Management company
Aberdeen Islamic Asset
Aberdeen Islamic World Equity Deutsche Trustees Malaysia Bhd Management Sdn Bhd
Fund Deutsche Trustees Malaysia Bhd
Aberdeen Islamic Malaysia Equity AmanahRaya Investment
Fund CIMB Islamic Trustee Bhd Management Sdn Bhd
CIMB Islamic Trustee Bhd Amanah Saham Sarawak Bhd
AmanahRaya Unit Trust Fund PB Trustee Services Bhd BIMB Investment
AmanahRaya Shariah Trust Fund
AmanahRaya Islamic Equity Fund AmanahRaya Trustees Bhd Amanah Saham Nasional Bhd

Amanah Saham Sarawak MBB Trustees Bhd
ABB Trustee Bhd
BIMB I Growth ABB Trustee Bhd
BIMB Dana al-Fakhim ABB Trustee Bhd
BIMB Dana Al-Falah CIMB Islamic Trustee Bhd
BIMB I Dividend Fund AmanahRaya Trustees Bhd
BIMB Flexi Fund
AmanahRaya Trustees Bhd
Amanah Saham Wawasan 2020 AmanahRaya Trustees Bhd
Amanah Saham 1Malaysia AmanahRaya Trustees Bhd
Amanah Saham Bumiputera 2

Dr. Hanudin Amin at Faculty of International Finance

KEY FEATURES

1. Tripartite relationship exists
2. Invests in Shariah-compliant securities
3. Needing Shariah advisers as needed by SC
4. Single asset class versus multiple asset classes

Dr. Hanudin Amin at Faculty of International Finance

SINS SELL AND CONSUMERS BUY

Tobacco Alcohol

THE VICE FUND: USA BARRIER FIDELITY SELECT CONSUMER STAPLES
MUTUAL INVESTOR (VICEX) (FDFAX)
- Known as Vice investor - 20% of its portfolio in alcohol and
- Top holdings include tobacco
tobacco stocks
companies like Altria and the
casino gambling resort giant,
MGM Resorts International(
MGM)

Weapon 3 Best Mutual Funds for ‘Sin Stocks’ Gaming

RYDEX LEISURE INV (RYLIX)
somewhat sinful but find
themselves more aligned with
cyclical stocks, which gives
RYLIX a slightly different
composition than other sin stock
funds

Dr. Hanudin Amin at Faculty of International Finance

Shariah adviser Unit Holders Figure 1
Diagram of basic structure of a
Oversees the Shariah based unit trust fund
investment is
Shariah compliant in Malaysia

Investment Investment in 1 4 Distribution of
Committee units of the income
funds

Determining
investment policies &
strategies

Unit Trust Operates & ISLAMIC UNIT Custodian of Trustee (usually a
Management administers TRUST FUND assets company)

Company

Invest in Total returns
2 3 – dividends,
portfolio of
rental & profit
authorized sharing

investments Shariah-based
investments

Trust Deed Trust deed sets out the obligations of the
trustee, manager and the rights of the
unit holders

Dr. Hanudin Amin at Faculty of International Finance

INVESTORS EXPECT RETURN FROM
THE INVESTMENT MADE

üDividends – income paid to
investors out of profits earned by the
unit fund from the investments it has
made

• Islamic unit trust dividends represent
current income to the unitholders

üCapital gains distributions –
represent net gains that a fund
realizes when it sells securities held
in the fund’s portfolio

vRecommended strategy: reinvest
dividends and capital gains into
additional shares

Dr. Hanudin Amin at Faculty of International Finance

GROWING NUMBER OF ISLAMIC UNIT
TRUST FUNDS

• Malaysia has the largest number of Shariah-compliant funds
• 199 funds (out of 641) in Malaysia are classified as Shariah-compliant fund with

an asset size of RM47.877billion (August 2015)
• Various incentives are given to Islamic unit trust companies / fund managers like

100% foreign ownership, tax exemptions on income for company and foreign
professional employees

Dr. Hanudin Amin at Faculty of International Finance

SOME VIEWS ON UNIT TRUSTS FROM
THE ISLAMIC PERSPECTIVE

Protecting amanah Importance of justice Ownership of property is
a trust
• Trust in Arabic term is • Allah s.w.t says: “Allah
amanah. And being commands you to • Allah s.w.t says: “….give
trustee, mankind should render back your trusts them something
looked after and to those to whom they yourselves out of the
protected those are due, and when you means which Allah has
amanah (trusts), as judge between man and given to you…” (Surah
Allah s.w.t says: “Those man, that you judge al-Nur: 33). For that
who faithfully observed with justice; verily how reason ownership of
their trusts and their excellent is the teaching property by mankind is
covenants” (al- which He gives you! For an amanah (trust) which
Mu’minun: 8) Allah is He Who hears leads to the concept of
and sees all things.” accountability that has
(Surah al-Nisa’: 58) much wider concept
relates to the Hereafter

Dr. Hanudin Amin at Faculty of International Finance

LECTURETTE #1

TRUST/FALSE QUESTIONS:
1. Islamic unit trust is structured similar to conventional unit

trust. Both apply tripartite relationship and invest in bonds,
equities and cash equivalent, therefore both are the same
2. The objective of an Islamic unit trust fund is to ensure
permissibility of investments in the context of Shariah, such
as the elimination of riba, gambling and ambiguity or
excessive uncertainty

Dr. Hanudin Amin at Faculty of International Finance

BENEFITS OF INVESTING IN ISLAMIC
UNIT TRUST

•Islamic unit funds reduce risks •Well trained team, in-house •Only small amount needed to
by providing small savers with investment professionals who initiate an investment in
an opportunity to pool their have “time” to make Islamic unit trust funds
savings to invest in a diversified investment research and •Reap better returns from a
portfolio of stocks analysis in managing the assets portfolio of investment as
•The notion of “don’t put all of the fund – lead to sound opposed to the limited number
your eggs in one basket” investment decisions of securities which one can buy
individually
Diversification Professional
fund Affordability
management

•Easy of transaction and no •Redeem all or part of units on
arduous paperwork needed any business day and the
manager will purchase them

•Easy of withdrawal of unit

Hassle free Liquidity

Dr. Hanudin Amin at Faculty of International Finance

Islamic financial Increased
innovation – number of
rapid growth companies
offering IUT

Best investment
outlet by small

investors

Dr. Hanudin Amin at Faculty of International Finance

REGULATING ISLAMIC UNIT TRUST

Shariah adviser Section 18 of the Securities Commission Act 1993

• To advise on all aspects of Islamic fund management business • The Commission may establish such committee to assist it in the
in accordance with Shariah principles; performance of its functions under the securities

• To provide Shariah expertise and guidance on all matters, • The Commission may appoint any person to be a member of any
particularly in documentation, structuring and investment committee established, etcetera
instruments, and ensure compliance with relevant SC
regulations and/or standards, including resolutions issued by Shariah Advisory Council (SAC)
the SAC; •The SAC is given the mandate to ensure that the
running of the Islamic capital market complies with
• To review reports of compliance officers of the Islamic fund Shariah requirements
manager or an investment transaction report to ensure that •Advise the SC on all matters relating to the
investment activities are Shariah compliant; and comprehensive development of the ICM
•A reference centre for uses related to the ICM
• To provide a written opinion and/or periodic report to
confirm and certify whether the Islamic fund management
business has been managed and/or administered in
accordance with Shariah principles.

Guidelines On Islamic Fund Management
• Issued by the Securities Commission under section 377 of the Capital Market and Services Act 2007 (CMSA 2007)
• Purposes (1) set out requirements that must be followed by an Islamic fund manager that carries on Islamic fund management

(2) set out the requirements for carrying on an Islamic fund management business under an Islamic window
• Effective 3 December 2007
• Explains terms used in Islamic fund management
• Explains the Shariah adviser appointment
• Explains the employees competency
• Roles of Islamic fund manager in Islamic portfolio management

Dr. Hanudin Amin at Faculty of International Finance

MEMBERS OF THE SC’S SHARIAH
ADVISORY COUNCIL

. Name Designation
1. Y.A.Bhg. Tun Abdul Hamid bin Haji Mohamad Former Chief Justice Malaysia
2. Y.Bhg. Tan Sri Sheikh Ghazali bin Haji Abdul
Shariah Legal Advisor, Attorney General’s Chambers
Rahman
3. Y.Bhg. Datuk Dr Mohd Daud Bakar Group Chairman, Amanie Advisors
4. Y.Bhg. Dato’ Dr. Abdul Halim bin Ismail
Chairman, Shariah Committee of Shariah-Compliant Funds of Amanah
5. Sahibus Samahah Dr Haji Zulkifly bin Muda Mutual Bhd
6. Prof Dr Ashraf bin Md Hashim Terengganu Mufti
7. Prof Dr Engku Rabiah Adawiah Engku Ali
Chief Executive Officer, ISRA Consultancy Sdn Bhd
8. Prof Mohamed Ismail bin Mohamed Shariff
IIUM Institute of Islamic Banking and Finance (IIiBF), International
9. Prof Madya Dr. Aznan bin Hasan Islamic University Malaysia
Adjunct Professor, International Centre for Education in Islamic Finance
10. Prof Madya Dr Asmadi Mohamed Naim and Founder of Mohamed Ismail & Co.
Ahmad Ibrahim Kulliyyah of Laws, International Islamic University
Malaysia
Dean, Islamic Business School, Universiti Utara Malaysia

11. Dr Shamsiah Mohamad Senior Researcher, International Shari’ah Research Academy for Islamic
Finance (ISRA)

Dr. Hanudin Amin at Faculty of International Finance

Thank you! Islamic unit trust is similar to 1
Unlike IUT, investment conventional unit trust, BUT
activities for CUT are diverse,
without any restriction, where Riba is forbidden
IUT is confined to halal stocks,
profit matters
bonds etc
2 Any company that produce
harm product to human and

life is EXCLUDED

Such requirements In Malaysia, SC
are not really regulates IUT,
matter in CUT -Shariah approved

4 companies
~Shariah advisers

3

Dr. Hanudin Amin at Faculty of International Finance

STAKEHOLDERS IN ISLAMIC UNIT
TRUST

The management company

•Establish, operate and administers the funds
•Management fees are paid in return

Trustee

•Acts on behalf of unit trust holders
•e.g. ABB Trustee Berhad, AmanahRaya Trustees Berhad, MBB Trustees
Berhads

Unit holder

•Investors of funds

Shariah adviser

•Oversees the investment of the fund is Shariah compliant

Dr. Hanudin Amin at Faculty of International Finance

Investments activities of
Islamic unit trusts & roles of an

Islamic fund manager

An Islamic fund manager must ensure that:
1. all forms of investments are limited to Shariah-compliant

investments
2. its clients’ monies and properties are properly safe guarded

under the securities law in accordance with Shariah
requirements
3. appropriate risk management techniques and tools undertaken
comply with Shariah principles and are endorsed by its
appointed adviser

Dr. Hanudin Amin at Faculty of International Finance

LECTURETTE #2

Q1 Q2
CLICK YOUR
CHOICE

Q3 Q4

Dr. Hanudin Amin at Faculty of International Finance

8 PRINCIPLES OF SUCCESSFUL
ISLAMIC UNIT TRUST INVESTING

• Principle 1 – General knowledge of Islamic unit trust needed
• Principle 2 – Who am I? In Islamic unit trust investing
• Principle 3 – Investment strategy needed
• Principle 4 – Start early
• Principle 5 – Constantly invest
• Principle 6 – Investing for the long-term
• Principle 7 – Portfolio diversification
• Principle 8 – Adjustment on investment goals needed

Dr. Hanudin Amin at Faculty of International Finance

SALES CHARGES

• Amount invested RM10,000 / RM0.5000 = 20,000 Units
• Sales charge Up to 5% of NAV per Unit
• Offer price per unit RM0.5000

Sales charge = NAV per Unit x sales charge (%)
= RM0.5000 x 5%
= RM0.025

Total sales charge = 20,000 Units x RM0.025

= RM500.00

Total sales charges payable is rounded up to the nearest two (2) decimal points.

Total payable by investor = RM10,000.00 + RM500.00
= RM10,500.00

Dr. Hanudin Amin at Faculty of International Finance

GST & SALES CHARGES

• Amount invested RM10,000 / RM0.5000 = 20,000 Units

• Sales charge Up to 5% of NAV per Unit

• GST 6% (.06)

• Sales charge after GST 5.3%

• Offer price per unit RM0.5000

Sales charge = NAV per Unit x sales charge (%)
= RM0.5000 x 5.3%
= RM0.0265

Total sales charge = 20,000 Units x RM0.0265

= RM530.00

Total sales charges payable is rounded up to the nearest two (2) decimal points.

Total payable by investor = RM10,000.00 + RM530.00
= RM10,530.00

Dr. Hanudin Amin at Faculty of International Finance

KEY PROSPECTS OF ISLAMIC UNIT TRUST

q Increased performance in line Growing industry Large pool of Both individual and institutional
with the growth of conventional funds
funds investors
q Foreign Islamic banks
q NAV RM Billion as of August q Bank deposits
2015 is 47.877 (Islamic) and q Takaful companies
292.722 (Conventional) q Tabung Haji
q Baitulmal
q Units in circulation (billion), q EPF
Islamic 103.288 whilst q Petrodollar
Conventional 347.937 q Stategovernment

§Real ActivitiesPROSPECTS§Ethical

q The government provides Government Large market q The rate of birth is
“infrastructures”, “sound business support in§GcoluvderensanGceen-Y accelerated (i.e. Indonesia,
environment” and “enhanced India, Southern China)
regulatory framework”
q 1.5 billion, 24% of world
q 1994 – BIMB securities – the first population
Islamic Stock broking House
q More than 100 Islamic
q 1995 – Islamic Capital Market Unit equity funds worldwide,
established by the Securities managing more than USD $
Commission 4 billion

q 1996 – Shariah Advisory Council
established by the Securities
Commission

Dr. Hanudin Amin at Faculty of International Finance

Market share
~August 2015 14%

Investors’ mindset CHALLENGES Critical information
~Dividends vs Growth AHEAD ~Informed decision

Well-verse unit trust
consultants on Shariah

and competency

Dr. Hanudin Amin at Faculty of International Finance

WALLAHU A’LAMU BIS-SHOWAAB

Dr. Hanudin Amin at Faculty of International Finance