Development of Islamic mutual funds in Malaysia

Islamic mutual funds (IMFs) continue to grow as an alternative investment vehiclefor investors wishing to integrate Islamic values and secular financial objectives in theirinvestments. The most distinctive feature of IMFs lies in screening strategies based on theapplication of Shariah (Islamic law). Conventionally, this mainly involves the applicationof exclusionary screening, whereby fund managers screen out companies involved incertain activities, including riba (interest), gharar (uncertainty), and maysir (gambling),and prohibited products from their portfolios as prescribed by the Quran, Sunnah andrelated Islamic texts. The central outcome is that the managers of IMFs, unlike those ofconventional mutual funds (CMFs), necessarily access only a subset of the population ofinvestments available. This has dramatic implications for many conventional dimensionsof mutual fund behavior, including performance, the flow of funds, and the fund selectionbehavior of investors. This chapter provides a comprehensive overview of thedevelopment of Islamic managed funds in Malaysia. It discusses the historical, regulatoryframework, financial reporting, benchmark indices and operational aspects of Islamicmanaged funds. � 2014 Nova Science Publishers, Inc.