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Do IEF’s Managers Keep Their Promises? The Case of Malaysian Islamic Equity Funds

Feranda Ayu Syafitri, Yunieta Any Nainggolan

Abstract


Abstract. Islamic Finance in Malaysia has been growing significantly for the past decades. Many finance products in Malaysia today, one of them being the equity funds have adopted and inserted the Islamic law or best referred as shari’ah law in their business exercise. However, the information of how comply the funds to shari’ah law is often absence in the prospectus. Thus, this reason motivates us to examine the fund’s shari’ah compliance based on their own screening method and MSCI Islamic Index. The result on this study shows that IEFs are more complied to their own screening index stated on their prospectus with average of compliance rate 57.94% rather than MSCI Islamic Index (53.78%) with debt ratio screening being the strictest screening criteria to pass. Malaysian IEFs with more non-Malaysian firms in their holdings also appear to be more complied than those with more Malaysian firms.

Keywords: Islamic Equity Funds; Malaysia; Shari’ah Screening Method; Shari’ah Compliance

 


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