Shariah-compliant unit trusts are investment funds that are managed according to Islamic principles. They allow investors to participate in the market while avoiding investments that are not permissible under Shariah. In Malaysia, this is an important part of the investment landscape, with FIMM statistics showing a large number of Shariah-compliant funds among authorised unit trust funds.1
At a simple level, a Shariah-compliant fund must invest in assets that are aligned with Islamic principles.. This may include Shariah-compliant equities, sukuk, Islamic money market instruments and other approved investments. It avoids businesses or activities commonly associated with non-permissible sectors, such as conventional interest-based financial services, gambling, alcohol and other activities that do not meet Shariah requirements.2
The process is not based on branding alone. Shariah-compliant funds are usually guided by a Shariah adviser or Shariah committee, which helps review whether the fund's investments and operations comply with the relevant requirements. For Islamic fund management, the Securities Commission Malaysia's guidelines require investment activities to be limited to Shariah-compliant investments. 3
Another concept investors may come across is purification. In certain cases, a company may be generally Shariah-compliant but still receive a small portion of income from non-permissible sources. A purification process may then be applied according to Shariah rules. This helps maintain the integrity of the fund from an Islamic investment perspective.
Shariah-compliant investing is not only for Muslim investors. Some non-Muslim investors may also consider these funds because they prefer a rules-based investment approach, exposure to sukuk or avoidance of certain business sectors. The key is still suitability: the fund must match the investor's goal, risk tolerance and investment horizon.
As with any investment, Shariah-compliant does not mean risk-free. Shariah-Compliant Equity funds can still be affected by market movements. Sukuk funds can still be affected by credit risk, interest rate movements and liquidity conditions. Investors should read the product highlights sheet, prospectus and fund factsheet before investing.
Key takeaway: A Shariah-compliant unit trust is designed to follow Islamic investment principles, but investors should still assess its objective, risk level, asset allocation and fees before making a decision.
What’s your next step?
- If you are looking to invest in Shariah-compliant solutions, speak to your Financial Consultant, who can guide you based on your financial goals and risk profile.
- You can also explore and invest in our Islamic funds via HL iSmart Invest, our online investment platform.
- Alternatively, leave your details here, and our team will get in touch with you.
References
1. FIMM Quick Statistics: https://www.fimm.com.my/industry/statistics/quick-statistic/
2. SC Islamic Capital Market Products and Services Guidelines: https://www.sc.com.my/api/documentms/download.ashx?id=cc244b91-2a88-4ddf-aae0-0355bed6e491
3. SC Islamic Fund Management Guidelines: https://www.sc.com.my/api/documentms/download.ashx?id=936014e3-a92f-4fa8-a7f0-c7133d918d88
Please read our disclaimer before investing: www.hlam.com.my/disclaimer. This content was not reviewed by the Securities Commission Malaysia (SC).