Islamic Fund Management
50
ready to assume a marginally higher risk in return for slightly higher returns. Investors
can park their short-term surplus funds for a few months to a year in these funds.
c) Short-term funds: These funds invest predominantly in debt securities with an average
maturity of one to 4.5 years. They are suitable for conservative investors with a small to
moderate risk appetite and an investment horizon of a few years.
d) Dynamic bond funds: They invest across all classes of debt and money market
instruments, with various maturities. Their actively managed portfolios vary
dynamically with the fund managers’ views on interest rates. They are ideal for
investors who do not wish to make a call on the future direction of interest rates, but
still want to benefit from any positive movement.
e) Income funds : These funds invest in corporate bonds, government bonds and money
market instruments with an average maturity of 4.5 years or more. They are highly
vulnerable to changes in interest rates. They are suitable for investors who are ready to
assume high risks and have a long-term investment horizon.
f) Short-term and medium- and long-term gilt funds: They invest in government
securities with short- or medium- to long-term maturities. The average maturity of their
holdings can vary greatly as per their declared objectives. These funds do not carry
default risk since the bonds are issued by the government. The NAVs of these schemes
fluctuate according to changes in interest rates and other economic factors. These funds
have a high degree of interest-rate risk, depending on their maturity. The longer the
maturity of the instrument, the higher the interest-rate risk.
Figure 3.5: Basic Structure of an Islamic Fixed-Income Fund
Ownership
of assets Generate returns
Pool of investments
collected in the
mutual fund
Dividend
Responsible for
investing, monitoring
and management
Management fees
FUNDMANAGERS
CUSTODIANS OR
TRUSTEES
FIXED-INCOME
SECURITIES
Act on behalf of
unitholders
SUKUK
The Securities
Commission approves
the establishment of
funds and all licensed
fund managers
UNITTRUSTOR
MUTUAL FUND
INVESTORS OR
UNITHOLDERS
REGULATORS
Source: RAM