Islamic Fund Management
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Structurally, the main characteristics of an Islamic fund will not differ from a conventional
investment fund. For example, the choice of legal structure for the investment vehicle and the
choice of jurisdiction will still be driven by the following considerations:
1. A flexible, cost-efficient regulatory framework, particularly with regard to the need to
obtain approval from the supervisory authorities and possibly seek a stock exchange
listing.
2. A favourable tax regime with tax neutrality and tax incentives for both investors and
fund managers.
3. A robust supervisory, audit and monitoring process that provides transparency and
emphasises investors’ protection.
4. A strong capital market which has a steady supply of Shariah-compliant assets, a build-
up of listed Shariah-compliant companies, and captive demand for Shariah-compliant
investments.
Notably, capital-market authorities in most jurisdictions, except Malaysia, have not issued
specific guidelines on Islamic fund management. Instead, the provisions on Islamic funds are
embedded in the general guidelines and regulations on fund management for the conventional
space.
3.1.1 Structural Differences in the Development of an Islamic Fund
Additionally, Islamic funds must comply with Shariah requirements to ensure end-to-end
compliance in, among others:
 Shariah governance.
 Shariah stock screening.
 Purification of income.
 Zakah calculation.
 Management of risk.
Shariah Governance of an Islamic Fund
Based on the summary of the key features of a conventional versus an Islamic fund highlighted
in the main differentiating factor is the Shariah governance of the fund. An Islamic
AMC will have an independent Shariah advisor or Shariah board comprising three to five
Shariah scholars. This board will establish compliance parameters for funds launched, usually
prior to the establishment of the fund and before any assets are acquired. The Shariah board
will also be responsible for publishing an annual statement, which sets out how the fund has
complied with Shariah. The statutory documents of the fund need to clearly set out the roles
and responsibilities of both the Shariah board and the fund manager, to avoid any potential
conflict of interests, which is an area of concern for international regulators.