Towards Developing a Conceptual Framework for Islamic Unit Trust Funds

Abstract

There is increasing interest among investors in one of the latest investment vehicles - unit trusts. Unit trusts have several advantages as investments in comparison to other investment vehicles, as they are managed by fund managers and tied down by a trust deed. These advantages can be traced back to the investment diversification, professional management of the unit trust and the liquidity flow that can be obtained through sale and purchase of the unit trust. This paper presents an argument towards the development of the conceptual framework for Islamic unit trust funds, explored using references to the regulations in Malaysia, reviewing the types of unit trust funds, their distinctive features, Shariah principles that operate in the management of unit trust industry in Malaysia and the contributions that can be generated from unit trust fund to society. Some of the essential features of Islamic unit trust funds depend on the prohibition of riba, gharar and maysir, strict stock screening processes and purification processes. The main challenges to the unit trust industry are also discussed.