Islamic Exchange Traded Fund (ETF)

ETFs are essentially unit trust funds that are listed and traded on a stock exchange. They are open-ended with a unique in-kind creation and redemption mechanism supported by a system of participating dealers and liquidity providers. The difference between ETFs and unit trust funds is in the manner their units are bought and sold.

ETFs are listed and therefore their units can be bought and sold anytime during stock exchange trading hours. Investors buy and sell ETF units through their stockbroker rather than through unit trust agents. ETFs are index tracking fund. Most ETFs are passively managed index funds although there is ongoing work being done to create enhanced and actively managed ETFs. In the managing of index funds passively, managers do not pick stocks based on fundamental analysis. Instead, managers aim to track the performance of a benchmark index.

Islamic ETFs and conventional ETFs share common characteristics. The main difference between a conventional ETF and Islamic ETF is the benchmark index that the Islamic ETF tracks. An Islamic ETF only tracks an Islamic benchmark index where the index constituents comprise of companies which are Shariah-compliant. The provision for the establishment of Islamic ETF is embedded in the Guidelines on Exchange-Traded Funds. On 22 January 2008, Malaysia launched the region's first Shariah-compliant ETF. 


(MIFC)


http://islamic-wealth-management.net