Friday, July 08, 2011

Islamic Exchange Traded Fund (Islamic ETF): new instrument on the Islamic capital market

The development of Islamic capital markets in domestic and global markets continued to show positive trends. This is caused by various factors that support these developments. The first factor is the issue of Islamic development which continues to progress very rapidly, so it must be balanced with capital market products in accordance with sharia to respond to market demand. The second factor is the Muslim investors who keep their funds in the stock market, but expect the product must be in accordance with sharia. It becomes something very positive because their awareness of Sharia compliant products require them to invest in shares in accordance with sharia. The third factor is the factor of competitive advantage compared with conventional products.
It is also supported by the regulation of Bapepam-LK and the MUI fatwa DSNM No 80 who has given the green light on the transactions that occur Islamic capital market. In the last month, Indonesia Stock Exchange (Indonesian Stock Exchange) has issued a new Islamic index to meet the demands of the times and to be able to compensate for joint-stock Index (JCI), the Indonesian Sharia issued Stock Index (ISSI). This index represents the performance of companies that fall into the category of sharia.

However, with the progress of the above, there are some products that have not been a serious concern by the stock exchanges of Indonesia, the Islamic products Real Estate Investment Trusts (iREITs) and the Islamic Exchange Traded Fund (IETF). Of the two products are quite interesting to discuss in my opinion is the Islamic ETF.

What is the Islamic ETF?

Islamic Exchange Traded Fund is a product in the stock market which consists of units (dimalaysia comprises 25 selected stocks, 30 stocks selected dieropa) which represents over a collection-a collection of effects that have been selected and must comply with sharia. Has an Islamic ETF differences with mutual funds, among the differences is this Islamic ETF can be traded on a stock exchange, while mutual funds do not. He also differs with the effects in general, the effect is a representation of the stock ownership of a company, while this Islamic ETF from several companies that have been selected by the issuer.

From the aspect of diversification, of the Islamic ETFs as mutual funds, we've automated mendiverasifikasi our portfolio because it not only consists of one effect, but some, when the problem occurs at one of our effects, then the effect of the others will help and this does not happen in the stock.
Another plus is the aspect of transparency, the Islamic ETF we are very transparent than mutual funds. In the mutual fund product we do not know where our investments are placed, only the fund managers and mutual fund companies who know about it. In the Islamic ETF as an investment disaham, we as the holder of this certificate to know what happened to companies incorporated in this Islamic ETF.

To purchase this Islamic ETF we have to buy them through companies that have a license to peddle copies of which have been listed on stock exchanges, just like buying stocks in general. While direksadana we buy through the company's mutual funds. From the aspect of the management fee, the Islamic ETF cheaper than mutual funds are generally below 1%, while mutual funds typically charge to 1-3%. Disaham While there is no management fee.

Another plus is, when we peddle copies of this Islamic ETF, not subject to any charge, the same as selling the stock. While we can apply sharia direksadana 3-5% fee, expensive is not it? From the aspect of its brokerage fee, Islamic ETFs just like shares of 0.6% while the mutual funds do not exist. The latter is a cash settlement is the same as the stock is t +3 which takes three days to melt, in contrast to mutual funds that can be done on the spot.

Does This product's on the Indonesia Stock Exchange?

It is very unfortunate at all, these products have not been there in the Indonesian stock exchange. In one meeting I had with one of the practitioners in the stock exchange, he said that this product is not very attractive to investors. Really? The next question is, if the funds were in demand by investors, the stock was in demand by investors, why better products and more competitive than mutual funds and shares sharia sharia is not interested?

I personally rate this is due to lack of socialization Indonesia stock exchange on products that are attractive as this Islamic ETF. If we look at the difference between the Islamic ETF, mutual fund shares sharia sharia and Islamic ETF would certainly be more competitive and more profitable than other investments. An examination of the profits, the Islamic ETF is more profitable than others. From the aspect of the fee, the Islamic ETF is cheaper. From the aspect of transparency, the Islamic ETF is more transparent than mutual funds that we do not know where the money we invested, but suddenly we see the index mutual funds drop dramatically and we do not know what the cause factor.
So, as investors we should be able to choose where we want to invest? Congratulations to choose. Wallahua'lam

The writer is a lecturer of Islamic Banking and Islamic Capital Markets at the University of Al Azhar Indonesia, Consultant Takaful, Islamic Banking and Capital Markets Group Zakirah Sharia, Fiqh Muamalah Trainer on Islamic Banking and Finance in Iqtishad MES Consulting. 

Written by Muhammad Iman Sastra Mihajat


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