Hi there. This blog is here hopefully to serve the public (those who manage to find it :P) in order to hopefully provide some useful information about Unit Trusts, Islamic in particular. Many people out there are wondering what in Unit Trusts are? And Islamic investors are especially concerned, that if they put their money in Islamic Unit Trusts, would it be HALAAL?

WHAT IS A UNIT TRUST

This might be the main question. What is a Unit Trust?

In certain countries such as the USA, it is also referred to as Mutual Funds. In Malaysia however, the term Unit Trust is more preferred, even though many companies promoting them have the postfix 'MUTUAL'... for instance, "Public Mutual Sdn Bhd" and "SBB Mutual" (Now known as CIMB Wealth Advisors). Anyway, fundemantally both names mean the same thing.

A unit trust is an investment vehicle that collectively pools in money/financial resources from individual (or even corporate) investors in order to achieve a particular investment objective. All these monies will then be invested in a diversified manner, spanning numerous (potentially) profitable counters on the stock market, as well as other investments such as government bonds, government securities, as well as real-estate investment.

When we speak of investment, there's also the frequently asked question of RETURNS :) Well, in Unit Trusts, two main returns are sought after. This all depends on the investors objective. It can either be Regular income (in the form of dividends/distributions, or Capital Growth (where the unit price increased a significant amount from when the units were bought).

WHO ARE UNIT TRUSTS FOR

Among the best advantage of unit trusts is that it allows for people with less capital, to get exposure (also meaning to invest sometimes) to the stock market, with less risk involved. Let me try to elaborate in a clearer manner:

"Mr K is an executive at a multinational company, making Ringgit Malaysia 4K to 5K per month. Most people would say that he's doing ok :) This is true because with that kind of monthly income, he could provide a moderately comfortable life for himself and his family. However, lets say he has intention of investing in the stock market. As many know (but many still dont), you need a large sum of (disposable) capital, as well as a strong stomach to be DIRECTLY playing around in the stock market. Assuming Mr K wants to buy some shares, it would be worthwhile if he spent a lot in the markets... say 20-30K at least. But even for a guy earning 4-5K monthly, 20-30K would be a great sum to depart with. Especially with the extremely HIGH risk of the stock market! Mr K could lose his investment just like that. Not to mention his assumed lack of knowledge in handling his investment... and also the limited TIME he has to monitor the movements of the prices!!! This is proving too much 'cost'! Not only to enter is high, other intangible costs such as time and tense situations have to be undergone. Thus, Mr K has decided that he should not go into shares directly. He neither has the capital, expertise, time, and I bet you, the guts and risk-profile that it takes to be there in the first place.

But GOOD NEWS FOR HIM! He can go in to Unit Trusts! :) Not only will his money be managed by experienced fund managers, but the risks would also be lessened through portfolio diversification (buying many shares from many counters). The entry fee is also relaively low, where most unit trust funds in Malaysia accept initial investments as low as RM1000. Mr K now has a place in the world of share markets... even though not directly! :)

So, as you can see, Unit Trust allows people with less capital, wich less risky risk profile, to be able to get involved (even tough not directly) into the stock market.

But still, people with tons of cash, could also enter. But most of the experts prefer to bet their hard earned cash in the ever vilatile stock market... But let them be, because they can afford to lose so much.

ISLAMIC UNIT TRUSTS

Now to the main question of Islamic Unit Trusts. Basically it means funds that do not put their investments into instruments that are againts the SYARIAH law of Islam. This would include interest bearing instuments (such as conventional banks, insurance, etc), gambling, alchohol and spirits etc.

As long as it all strays away from these evils, then it's considered an Islamic Unit Trust Fund. Examples might include the Public Islamic Equity Fund by Public Mutual, and also the performing Public Ittikal fund from the same company.

Muslim investors who are sensitive (and all should be) potantially non-halaal investments, should stick to Islamic Unit Trusts Funds.


Tomorrow's Entry --> More On Unit Trusts... CHEERS!