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Wednesday, November 4, 2015

Shariah-based Unit Trusts

A Shariah-based unit trust fund is a collective investment fund that offers investors the opportunity to invest in a diversified portfolio of Shariah-compliant shares and fixed-income securities as well as other Shariah-compliant money market instruments.

A typical structure of a Shariah-based unit trust fund consists of:

·       A manager - who handles the investment and operations of the fund
·       A trustee - who protects the rights and interests of the unit holders
·       The unit holders - who are investors entitled to a proportionate interest in the fund’s assets

The Shariah-compliant instruments, particularly the Shariah-compliant securities (shares), are the main source of investment for the Shariah-based unit trust fund.

The investment objectives of Shariah-based unit trust funds vary according to the type of fund. It determines the riskiness of a fund and the kind of investor the fund is targeting.

The types of funds are as follows (not limited to this type only):

Income funds
·       Invests in Islamic fixed income securities and huge dividend-yielding Shariah-compliant shares, with a view to pay out most of the returns
·       Suitable for investors with low-risk appetite, seeking income with some level of growth

Capital growth funds
·       Invests in Shariah-compliant shares, with a view to maximise capital growth over the long-term (i.e. through a higher unit price)
·       Suitable for investors with high-risk appetite and are keen on capital accumulation

Aggressive growth funds
·       Similar to capital growth funds but with investments in aggressive, fast track Shariah-compliant shares that promise high returns, but with higher risk
·       Suitable for investors with high-risk appetite

Balanced funds
·       Three main objectives: income; moderate capital appreciation; and capital preservation
·       Invests across a broad range of asset categories including Shariah-compliant shares, Islamic fixed income securities and cash
·       Well-diversified and suitable for investors seeking reasonably safe investments where the risks are lower and which produce average returns

Index funds
·       Invests in a basket of Shariah-compliant shares to track the performance of a selected stock market index
·       Suitable for investors seeking medium to long-term capital appreciation

Bond funds
·       Invests in Islamic fixed-income securities such as Islamic bonds and short-term money-market instruments
·       Suitable for investors seeking greater security in the form of capital preservation and income with minimal risk

Source: MIFC

Islamic unit trust consultant/Islamic financial planner
Ahmad Sanusi Husain - WA/SMS: 6019 234 8786
CIMB Wealth Advisors (CWA), Kuala Lumpur

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