Islamic unit trust in Malaysia : an evaluation from the shari`ah perspective

Abstract

This research studies the Islamic unit trust funds, as one of the important components in the Islamic Capital Market in Malaysia, from the Shari'ah perspective. It examines three major aspects that differentiate the Islamic unit trust funds from the conventional funds. These aspects are the applicable contracts to the Islamic unit trust funds, the stocks screening process in Islamic unit trust funds and the purification of Islamic unit trust funds. This research employs the analytical method to analyze the data and information obtained from various sources. Samples of Islamic unit trust funds investment's contract, trust deeds and prospectuses are scrutinized in order to identify the applied Islamic principle in the Islamic unit trust funds' contract. Various contracts in Islamic law are then measured to the principles applied. As to the stocks screening process in the Islamic unit trust funds investment in Malaysia, data and information obtained are examined and compared to similar processes in other financial market practices across the globe such as the FTSE and Dow Jones Islamic Market. The principle of purification as applied in the Islamic unit trust funds investment in the Malaysian industry is studied and compared to the practices of the purification process in other jurisdictions. The finding of this research shows that in terms of the contract applied to the Islamic unit trust funds, no specific Islamic contracts are mentioned in the offering of the Islamic unit trust funds. However, the wakalah principle is the most suitable contract which can be associated with the offering of the funds. The screening process in the Malaysian practice, on the other hand, is more lenient compared to the FTSE and Dow Jones Islamic Market. As to the purification of the Islamic unit trust funds' income, the applied principle is that the investors have to carry out the purification process by means of zakat or charitable funds.