ISLAMIC UNIT TRUST

Mohd Syazwan Iqbal bin Anuar Shadzat (2017935773)

Mohd Fikrieddin bin Baharom (2017990185)
Ismail bin Rustam (2017747733)
Eirfan Syamil bin Ahmad Norisham (2017175365)
Introduction
• The first unit trust was established by British investors who started up the
Malayan Unit Trust Ltd in 1959, In the SEA countries, the earliest funds
were established in the Philippines in 1957. Singapore has the same
origin as Malaysia. The unit trust industry in Malaysia has a history of over
fifty years. The first twenty years from 1959 to 1979, which is known as the
formative years, marked a slow growth period with low public interest in
this new investment vehicle. By the end of 1977, there were only eighteen
funds set up by five management companies.

• (1980 to 1990) involved government participation in the industry. In 1981, the

Amanah Saham Nasional (ASN), which is a National Unit Trust scheme
was launched by Permodalan Nasional Berhad (PNB) under the nation’s New
Economic Policy (1971-1990 - brought popularity of UT to the Malaysian and
many private management companies were attracted into this.
Introduction
• New unit trust management companies, which were
related companies of financial institutions, emerged in
this period. Then, the unit trust industry grew
tremendously from 1991 to 1999.
• The enactment of the Security Commission Act 1993
1,the introduction of Islamic funds in 1994, the
amended rules on the Employees Provident Fund (EPF)
in 1995, allowing contributors to invest some of the
balance in the retirement account into approved unit
trusts, facilitated the growth in this industry.
Growth of UT in Malaysia
What is Unit Trust

• A pooled investment where the capital

contributions of inventors are combined into a
legally formed trust fund then invested by
professional fund managers, acting on behalf of the
investors in a portfolio of marketable
Collects money from investors who have the same investment objectives and the
money pooled together to buy large amount of securities & diversified portfolio of
securities inclusive of stocks, bonds, short-term money market instruments and
other assets in accordance with investment objectives of unit trust fund permitted
under SC

eg: ASB, Public Mutual

 How Unit Trust Works?

Unit holders do not own UT investors typically UT investors prefer to invest in a

the scurities directly as the
ownership of the fund is
divided into units of
entitlement.
those with savings to
invest who have no time
nor inclination to hold
direct investment /shares
secure, reputable & wide
investment vehicle which suits
their purposes & give easy access
which is not normally available to
them

Cost of high return is

Medium to long term (5-
accompny with the risks.
20 years), UT provides
In short term, most UT is
better returns at
less than those offered by
acceptable levels of risk
fixed deposits.
How Unit trust works?
The Structure of Unit Trust?

Unitholder

Management
Trustee
Company
-Custody and UT
-Administer the
safeguard the interest STRUCTURE
operationof the unit
of unitholders
trust scheme

Regulator

-Supervises and
enforce the securities
regulation (Securities
Commision)
SHARIAH COMPLIANCE IN UNIT TRUST
Consist shariah committee in the unit trust companies.
 Ensuring that the fund is managed and administered in
accordance with shariah principles.

 Providing expertise and guidance on all matters relating to

shariah principles, including the Master Deed and Master
Disclosure Document, the funds structure and investment process
and other operational and administrative matters.

 Consulting with the regulator when there is any ambiguity or

uncertainty regarding an investment instrument, system,
procedure and/or process.
 Acting with due care, skill and diligence is carrying out its
duties and responsibilities.
 Being responsible for scrutinizing the compliance reports of
the fund as provided by the compliance officer and the
investment transaction reports provided by, or duty
approved by, the Trustee to ensure that the fund’s
investment are in line with shariah principles.
 Preparing a report to the included in the fund’s interim and
annual reports certifying whether the fund has been
managed and administered in accordance with shariah
principles for the period concerned.
Comply with the benchmark
Benchmark Activity
5% Conventional banking; Conventional insurance;
Gambling; Liquor and liquor-related activities;
Pork and pork-related activities; Non-halal food
and beverages; Shariah non-compliant
entertainment; and other activities deemed non-
compliant according to Shariah
10% Interest income from conventional accounts and
instruments; Tobacco and tobacco-related
activities; and other activities deemed non-
compliant according to Shariah
20% Rental received from Shariah non-compliant
activities; and other activities deemed non-
compliant according to Shariah
25% Hotel and resort operations; Share trading;
Stockbroking business; and other activities
deemed non-compliant according to Shariah
REGULATORY APPROACH FOR UNIT
TRUST IN MALAYSIA

Securities Commission (SC) adopts 2 tier

regulation for Islamic unit trusts

1st tier – Regulation 2nd tier – Additional

that applies to all unit regulation required for
trusts Islamic unit trusts
Additional Requirement For Islamic Unit
Trust
• The guidelines on Unit Trust Funds require that any fund,
expressed to be managed in accordance with the Shariah
principles, to appoint a Sahriah committee
• Consisting of not less than three members who are
individuals
• The appointment of a member of the Shariah committee
must be approved by the SC
• Subject to the SC’s approval, the fund may alternatively
appoint a Shariah consultant
 The Securities Commission regulates the establishment and operations of unit trusts in Malaysia under:

SC Guidelines and other relevant

Capital Markets And Services Act 2007 Securities Commission Act 1993
securities law

Requires

Unit trust fund manager and the trustee create a deed and A copy of the deed may be inspected at the unit trust fund
register it with the Securities Commission. manager's office.

Securities Commission has placed several requirements in

The appointment of the unit trust manager, the trustee, the unit
The appointment of all these parties must be approved by the
trust manager's directors, chief executive officer, investment
Securities Commission.
committee and Committee Members/ Shariah Advisers.
SHARIAH CONTRACTS IN UNIT TRUST
• Musharakah
• Exist between the unit holders to deal with specified investment with
the view that the profit derived would be shared among them
according to capital contribution or any other agreed profit sharing
ratio.

• The contract of sale and purchase

• Executed between the unit holders and the manager, which is usually
on cash payment basis.
• The price of the unit in a unit trust fund business is normally the
manager’s forward selling or buying price on the next valuation point
upon receipt of the request of purchase or redemption.
• The valuation point is at the close of business for the day.
• Wakalah
• Takes place when unit holders appoint the manager to excuse the
purchase or redemption on their behalf.
• Under the wakalah contract, the principal is the unit holder, the agent is
the manager and the objective of appointing an agent could be the
purchase or redemption of units.
• A wakalah contract also takes place when unit holders appoint the
trustee to act as custodian to the fund and hold in trust all assets of the
fund on their behalf.

• Wadiah yad amanah

• prior to the creation of units
• The owners of the units are the unit holders, the custodian is the
manager.
• The contract takes place when the manager receives payment for the
investment.
• Wadiah yad damanah
• after the units are created
• The owners of the units are the unit holders, the custodian is the
trustee and the property is all the assets of the fund in the form of
moneys and other investments.
• The contracts take place with the depositing of investment by the
manager with the trustee.
ISSUE BETWEEN CONVENTIONAL VS
ISLAMIC UNIT TRUST (ASB)
‘Jawatan Kuasa Fatwa Majlis Kebangsaan’
 ‘Hifz al-mal’ is one of the necessity that need to be taken seriously
by the government.
 Every decision made was to prevent the larger harm instead of
the smaller harm.
 Fulfilling the demands of ‘maqasid shariah’ that was obligate by
the religious.
 Clearly, only 30% of the investment is not comply with the
shariah, and ASB totally not involved in the ill manner activity.
 PNB is still in process to change their financial status into the full
pledge shariah compliance.
‘Jawatankuasa Fatwa Negeri Selangor’
 ASN and ASB clearly involved in the non-shariah compliance
institution.
 ASN and ASB was classified as non-shariah compliance by the
Security Commission of Bank Negara Malaysia.
 Variable rate of the dividen make it difficult for the unit holders
to make the purification.
 There is uncertainty in the contract.
 Capital guarantee cause the investment contract problematic.
 The pool of funds was invested mixed up between permissible and
prohibited industries.
RISK & RETURN IN
UNIT TRUST
• Risk is basically the probability that an investment’s realized return will
be lower than the expected return
• This includes the possibility of losing some or all of an investor’s original
investment.
• The higher the risk (possibility of loss) the higher the expected income.
• Unit trusts with higher risk ratings of 7 and
above consist of equity funds and are
generally more suitable for more
aggressive investors.

• For conservative investors, they can

consider investing into bond funds or
money market funds as the major
proportion of their portfolios, seek for
better returns relative to the interest rate
earned from the savings accounts.
RISK IN UNIT TRUST
• Market Risk - Fluctuation in the market caused by uncertainties in the
economy, political and social environment will affect the NAV of the
unit trust.
• Equity Investment Risk – The value of equity investment is mainly
determined by its potential growth in earnings, amongst other factors.
Failing to achieve the expected earnings would result in declining
investment value, hence affecting the performance of the unit trust.
• Fund Management Risk – The performance of any unit trust depends
on the experience and expertise of the fund managers. Poor
management of the unit trust may jeopardies its performance.
Continue…
• Credit / default risk – Credit risk refers to the possibility that the
issuer of an underlying asset will not be able to make timely payments
of interest on the coupon payment date or principal repayment on the
maturity date. This may lead to a default in the payment of principal
and interest and ultimately a fall in the value of the unit trust.
• Currency risk / foreign exchange risk - Unit trusts that invest in
foreign currency.
• Capital risk – Refers to the possibility of losing the amount of principal
or capital invested. In certain situations, investors can lose a
substantial amount or all of the principal or capital invested.
 PERFORMANCE OF UNIT TRUST

1. HISTORICAL PERFORMANCE
• Can be predicted based on previous performance data
• How much the income raised in past 3/5/10 years.
• Past performance not indicates future performances
• Help to determine which fund can give high return
• As a prove that the was invest wisely by fund manager
Continue…
2. COMPARE WITH BENCHMARK INDEX
• Unit trust funds investing in Malaysian equities typically evaluate their
progress by benchmarking it against the FBM KLCI Index.
• A fund is considered to have outperformed its benchmark index if the
fund’s returns are higher than its benchmark.
• Although your funds may perform well against the corresponding
benchmarks, they also tend to outperform other related funds.
Continue…
For example:
In 2017, the FBM KLCI index stated the profit of 3.5%, thus if
your fund selection is returning more than 3.5% in year 2017,
then the fund performed better than the benchmark.
 Advantage of Islamic Unit Trust
1. Diversification

Many investors lack sufficient resources to establish an adequate diversification on their own funds with variety of objectives

2. Funds with variety of objectives

Different types of funds are created for different investment objectives. So investors should have no problem finding funds that meet their
objectives in term of return and risk

3. Record Keeping services

The management company maintains and administers the records of shareholders activity for a given year. This is a great convenience for
the investors

4. Professional Management

Professional Management fund managers are knowledgeable about investment and they have good track records of performance, high
integrity

5. High Liquidity

Unit trust can be bought and sold easily, Thus they do not suffer from liquidty risk

6. Affordability

Only a small amount of money is needed to participate in a portfolio of investment which enjoys the same benefits as in direct investment
which requires large amount capital.
Disadvantage of Islamic Unit Trust
• Only one way to purchase securities
All investments in unit trust can only be purchased directly
from your trust issuer
• High annual expense
The operating expenses like accounting, legal, postage,
management fees have to be borne by investors
• Transaction costs
Management companies must also pay transaction costs to buy
and sell securities even though thay trade in large blocks
Conclusion
Islamic unit trust is as comprehensive and as viable as the
conventional unit trust and has potential to become a main
product in the industry. The Islamic unit trust particularly has
yet to an efficient vehicle in channeling capital from households
into the financial market. Thus, various parties must cooperate
closely in developing the Islamic unit trust as a part of the
industry as a whole.