Collective investment scheme

6 June 2016

This paper intent to analyze the performance of Islamic equity unit trust funds’ in CIMB Wealth Advisors Berhad by comparing with the FTSE Bursa Malaysia Composite Index (KLCI) as benchmark. This chapter will discuss the background of the study, historical development of unit trust industry in Malaysia, understanding unit trust, problem statement, research objectives and the significance of the study.

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1.1BACKGROUND OF THE STUDY
A plenty of investments alternative can be seen nowadays. But it’s depends on people which alternative they prefer to invest or depend on their skills of investing in such instruments. Most of the people who are lack in financial knowledge or investing skills will prefer to make investments in unit trust funds.

There has abundance of benefits in unit trust and also can be advantageous to the small investors. Unit trust is an ideal way for small investors to invest for their future.

Small investors are people who earn their living engaged in activities not related to the financial arena. They are aware that investing is important to them, but they lack of know-how to make the right decisions. For people who are unable or unwilling to do research and analyze investment markets and climate on their own, unit trusts is a good way to invest.

In order to maintain a portfolio of stocks in the share market, a person has to keep himself up-to-date with market information and climate. For many people, this is difficult, time consuming and expensive. By investing through unit trust, they transfer the stress of investing to people who are better equipped to look after their investments.

These are the professional fund manager. Unit trust can be classified by two classes which are known as a conventional funds and Shariah funds (Islamic law as revealed in the Quran and Sunnah). In Malaysia, majority of the society are Muslims.

So, rising in the demands towards the Islamic products in banking systems as well as in various investment alternative vehicles to fulfil the religious requirement by the Muslim society in Malaysia that represent more than 50% of the total population has prompted Malaysian government to introduce various measures with the aim of boosting the Islamic capital market (ICM).

The first Shariah-compliant fund in Malaysia was launched in 1993. Shariah-compliant instruments, particularly Shariah-compliant securities (shares), are the main source of investment for Shariah compliant funds. The development of the Shariah-compliant fund industry was further boost by the classification of Shariah-compliant securities (shares) introduced by the Shariah Advisory Council (SAC) of the Securities Commission Malaysia (SC) in 1997.

Though many studies regarding the performances of unit trust funds have been conducted by scholars all over the world yet, the results of most studies in Malaysia are proven inconclusive because the sample sizes used are small, Taib and Isa (2007). Low (2007) uses two different benchmarks to determine the performances of the unit trusts.

She uses KLCI Index and EMAS Index as her benchmarks in contrast to Abdullah, Hassan and Mohamad (2007), which only uses the KLCI Index as the benchmark of their study. The sample used by the latter was also small.

Only 65 unit trusts funds were used, of which only 14 samples are Islamic unit trust funds. This study will focuses on one of the financial products in the market which is the unit trust investment. It analyzes the performance of the Islamic unit trust fund in CIMB Wealth Advisors Berhad using Treynor (1965) and Sharpe (1966) model.

It also will use FTSE Bursa Malaysia Composite Index (KLCI) as the benchmark of the unit trust fund performance. KLCI will proxy as a market return to be comparing with the Islamic equity unit trust funds since KLCI is the benchmark that measures the performance of Malaysian’s economy.

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