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Islamic mutual funds: Option for sharia-compliant investment
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Bank Indonesia Governor Agus Martowardojo (left) signs a memorandum of understanding with the National Alms Agency (BAZNAS) and the Indonesian Waqf Agency (BWI) on the improvement of the management of the social Islamic funds and assets collected by the two agencies in Jakarta on Jan. 24 witnessed by Indonesian Ulema Council (MUI) Ma'ruf Amin (third right), BWI head Muhammad Nur and Baznas chairman Bambang Sudibyo (right). (Antara/ Dhemas Reviyanto)
T
he fund management industry has rapidly grown in the financial market. In terms of investment targets, most are equity funds, which highlights the higher risk appetite and longer time horizon of investors in mutual funds globally.
Islamic funds are generally concentrated in Muslim-majority countries. According to the Global Islamic Finance Report, assets under management (AUM) of Islamic funds based in the Middle East and North African region amounted to US$21.45 billion at the end of 2016, and AUM of Islamic funds based in the East and Pacific region, including Indonesia, totaled about $18.44 billion.
About 91 percent of the funds are structured as unit trusts and/ or mutual funds, while the remainder is in the form of either private equity or alternative and/ or structured products.
In 2018, Indonesia’s capital market faced hurdles and challenges. These hindrances led to a weak stock market performance, as indicated by the 2.45 percent
decline in the Jakarta Composite Index (JCI) during the year. That is in stark contrast to the stock price performance in 2017, when the index rose 19.99 percent.
Moreover, this trend also reflected in the Indonesian Sharia Stock Index (ISSI), which dropped by 4.60 percent throughout 2018, according to Bloomberg. Notwithstanding the Indonesian stock market’s pullback in the previous year, other capital market products, such as mutual funds, showed a promising future. Among these funds, Islamic mutual funds are among the better performing investment instruments in Indonesia’s capital market.
Akin to conventional mutual funds, Islamic mutual funds are an investment product that collects investors’ funds through the issuance of a mutual fund. However, it must adhere to sharia tenets. Hence, the underlying assets of Islamic mutual funds are derived from sharia-compliant assets or securities.
