Islamic Exchange Traded Fund is Islamic mutual fund product in the form of a collective investment contract whose participation units are traded on the Stock Exchange, similar to stock transaction. Like Islamic mutual funds, Islamic ETFs are a collection of assets selected by the Investment Manager for a specific purpose. Investors may trade the ETF on the Stock Exchange like stock transaction, therefore the price of an ETF may change during trading hours.
Islamic ETF have several advantages compared to other investment products, namely:
1. EFFICIENT
- ETF have two types of markets, namely Primary and Secondary Markets, where investors can choose in which market they want to do transaction. Buying an Islamic ETF on the secondary market can be done in all securities companies. The transaction process is similar to stock transaction, just enter the code of the Islamic ETF and complete the transaction juts like transacting an Islamic stock. Islamic ETF can also be purchased through the primary market by directly contacting the dealer participating of an Islamic ETF.
- Islamic ETF have diversified portfolio. since Islamic ETF is a type of Islamic mutual fund, therefore it consists of several Islamic stocks. It helps investors to diversify their portfolio instead of focusing on few Islamic stocks.
- Settlement of Islamic ETF transactions in the secondary market similar to transaction of Islamic stocks, namely T+2, so investors can wait calmly for the settlement process to complete. In comparison, a mutual funds in general have a settlement process of 1-7 days, depending on the type of asset and the investment manager.
- Management fees of Islamic ETFs are relatively lower than mutual funds in general. Most ETFs are passively managed ETF therefore require fewer resources than most actively managed mutual funds which allow it to have lower management fees.
2. TRANSPARENT
- The portfolio of Islamic ETF is announced every day transparently. One of the channel to announce it is through the Indonesia Stock Exchange website. Investors can look for the composition of an Islamic ETF Portfolio at the end of each Exchange day.
- Because the composition of an ETF portfolio is announced transparently, the indicative net asset value (NAV) can be monitored in real time. Indicative NAV provide an indicative value of an ETF based on the market price of the contents of its portfolio.
3. FLEXIBLE
- Investors may buy and sell Islamic ETF anytime and anywhere through participating dealers and securities companies.
- The asset class of an Islamic ETF portfolio can be in the form of shares, sukuk or combination of both. However, Islamic ETF that is currently available are Islamic ETF with Islamic stocks as the asset class.
- Islamic ETFs can be purchased on the secondary market with a minimum purchase of 1 lot equal to 100 participation units. It allows Islamic ETFs to be traded below IDR 10,000 depending on the price of the Islamic ETF per participation unit.
4. SHARIAH-BASED
As a product that fulfill shariah principles, Islamic ETF can be an alternative for Islamic investors. Islamic ETF comply with shariah principles in the capital market as determined by the National Sharia Board-Indonesian Council of Ulama (DSN-MUI) and the Financial Services Authority (OJK).
- In terms of fund management, Islamic ETF follow fatwa of DSN-MUI number 20 concerning Guidelines for Investment Implementation for Sharia Mutual Funds. The management of sharia ETFs is supervised by the Sharia Supervisory Board and only invest in types of assets that comply with sharia principles.
- In terms of transaction of the participation units on the Stock Exchange, Islamic ETF follow fatwa of MUI DSN Fatwa Number 80 concerning the Implementation of Sharia Principles in the Equity Securities Trading Mechanism in the Regular Market of the Stock Exchange.
