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KembaraXtra–Islamic Finance–Islamic Capital Market – Mixed Islamic Funds
-Meaning of mixed Islamic funds:
-Mixed Islamic funds are Shari’ah-compliant investment funds that invest in a combination of asset classes,such as equities,leasing (Ijarah),commodities,and similar permissible assets
-Investors subscribe to these funds under different investment types within a single portfolio
-Asset composition rule:
-The tradability of mixed Islamic fund units in the market is allowed only if tangible assets constitute at least 51% of the fund’s total assets
-Liquid assets and debts must not exceed 49% or less
-This rule ensures that fund units represent real assets,not merely cash or debt,which is required under Shari’ah
-Market negotiation:
-Because tangible assets dominate the portfolio,the fund units can be negotiated and traded in the market at mutually agreed prices
-Market size and growth (2019 data):
-Malaysia had 440 Islamic funds with an estimated value of USD 32 billion
-Globally,Islamic funds were valued at approximately USD 140 billion
-Iran emerged as the fastest-growing Islamic fund asset market worldwide
-Among non-Muslim countries,the United States and Luxembourg were the most active in offering Islamic investment funds
-Assurance of Shari’ah compliance:
-Investments in Islamic equities ensure that funds are used to purchase Shari’ah-compliant assets only
-This gives investors confidence that their money is not used in prohibited activities
-Key benefits of investing in Islamic equity and mixed Islamic funds:
-Transparency:
-Shari’ah compliance requires high transparency from fund managers
-Fund managers must clearly disclose the industries,companies,and assets they invest in
-Financial screening:
-All companies and assets undergo Shari’ah screening
-Financial ratios,such as debt levels and interest exposure,are examined
-Islamic equity funds are generally more conservative and avoid companies with high debt,reducing financial risk
-Diversification:
-Funds invest in assets across multiple companies and sectors
-Diversification helps reduce the risk of capital loss if one company or sector performs poorly
-Liquidity:
-Islamic investors often prefer funds over fixed-term investments because fund units can be sold more easily
-This allows investors to access cash more conveniently during adverse situations
-However,Islamic investments,including Islamic funds,are generally less liquid than conventional funds
-Key takeaway:
-Mixed Islamic funds provide diversified,asset-backed,and Shari’ah-compliant investment opportunities,but still face relative liquidity limitations compared to conventional funds
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