Islamic Fund Management
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From an Islamic perspective, fund management addresses the following issues faced by an
individual investor seeking Shariah-compliant investment avenues:
 Search cost in selecting Shariah-compliant investments.
 Screening requires a considerable amount of information (e.g. company annual reports,
accounts) to be scrutinised, perhaps over a period of several years, to discern trends and
know if the investee company has kept to its stated objectives. The fund manager either
adopts its own screening methodologies or tracks an Islamic index.
 Skills are required to analyse financial ratios.
 Conflicting advice is often given by Shariah scholars, financial advisers and other
consultants. This raises the issue of interpretation and coordination at the level of the
individual investor.
 Shariah governance in the form of investment reviews and audits.
summarises the roles and advantages offered by Islamic fund management from
both the economic and Islamic perspectives.
Figure 2.3: Roles and Advantages of Islamic Fund Management
Source: ISRA
2.1.4 Different Types of Islamic and Conventional Funds
There are three general types of funds: open-ended, close-ended and exchange-traded. Each of
these offers investors an easy and low-cost opportunity to invest in a diversified pool of
investment with specified investment objectives (Foster, 2014). Specifically, these funds differ
in the following aspects:
 An open-ended fund has no limit on the number of units/shares that it can issue. An
investor can purchase/sell units directly from the fund or through authorised agents.
The fund creates more units to meet demand from investors and the money collected is
invested in securities that form the portfolio of the investment fund. The performance of