SHARIA MUTUAL FUND

1. Understanding Islamic Mutual Funds

Shariah funds derived from the word "mutual", meaning manage or maintain. "Fund"
means money and "sharia" means the rules according to Islam. So the Islamic mutual
fund means a vehicle used to collect funds from public investors to invest in a portfolio
of securities by investment managers in accordance with the provisions of Islamic
sharia.

2. History of Islamic Mutual Funds

In Indonesia the existing mutual funds from 1977 through PT. Danareksa. Products

offered are not varied as it is now, its spread is still limited to certain circles.  In line with
the introduction in 1996 as a mutual fund year by Capital Market Supervisory Agency,
the rapid projection of mutual funds had begun. Only within one semester, at the end of
1996 was born 24 mutual funds. Later in the first half of 1997 was born 35 new mutual
funds. Until June 1997, Bapepam has given an effective notice to 60 mutual funds with
total funds managed by 6.6 trillion. PT. Mutual funds and PT. BDNI is a pioneer mutual
funds. In 1997, the state-owned securities company PT.Danareksa also a pioneer of
Islamic mutual funds issue. Mutual funds became the first capital market instrument
which operates Islamic sharia and as a first step the birth of Islamic capital market. It's
just that the development of Islamic mutual funds have not been as expected.

3. Type of Islamic mutual funds

Islamic mutual funds have three types, namely Mutual Batasa Sharia, Sharia and
Danareksa PNM Syariah Balanced. Mutual funds are mutual funds in the form of Sharia
Batasa collective investment contract which is open under the laws of capital markets
No. 8, 1995 and decree No. Bapepam chairman. Kep. 22/PM/1996 Date 30 April 1997,
as amended by decision No. Kep 07/PM/1997 On 30 April 1997.
Collective investment fund contract between PT. Batasa Capital as investment manager
and PT. Bank Niaga, Tbk. As stated in the certificate custodian bank No.3 on 1 July
2004.

Mutual fund investment objective in accordance with the Collective Investment Contract
is to maintain capital value and obtain the optimal level of profits in the long run to the
capital who want to follow the sharia of Islam with the net investment results of the
elements of usury and Gharar.

Batasa sharia will invest funds in debt securities and money market instruments that
follow the Islamic sharia and equity securities by a certain percentage of the value of net
assets as follows:

a. 70% -100% in debt securities / investments, including bonds that are equipped with

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the Repurchase Agreement and money market instruments that follow the Islamic
sharia.

b. 0% -30% of market instruments that follow the Islamic sharia.

Second, PNM sharia mutual funds are open-end mutual funds Collective Investment
Contracts (CIC) on the basis of Law No. 8, 1995 on Capital Market and its implementing
regulations. Islamic Collective Investment Contract between investment PT.PNM
Management as Investment Manager and Deutsch Bank branch in Jakarta as a
custodian bank deed done No. 22 On 18 April 2000, made before Koesbini
Sarmanhadi, SH.MH; Notary in Jakarta.

PNM sharia is a mixture of mutual funds (balanced funds), which aims to obtain an
optimal investment value growth in the long term by investing in equity securities, debt
securities and money market instruments and the companies business activities and
results of operations in accordance with Islamic shariah.

Third, Danareksa Sharia is a mutual fund Balanced Collective Investment Contract that
tertuangkan in Deed. 31 On 15 November 2000 and changes to the KIK mutual funds.
Balanced Islamic Danareksa aims to get growth in long-term investment value and earn
revenue to investors who want to follow the Islamic sharia.Danareksa wealth will be
invested in Syariah Balanced minimum of 25% to a maximum of 75% in equities and a
minimum of 25% to a maximum of 75% in debt securities and money market
instruments by following the Islamic sharia. Darareksa Syariah Balanced performance
measurement is an average income between income levels wadi'ah Bank Indonesia
Certificates (SWBI) and the growth of the Jakarta Islamic Index (50%).

4. Islamic Mutual Fund Forms

Viewed from the aspect of law, mutual fund is composed of 2 forms, namely:

a. Company Form
Mutual fund company in the form of a separate legal entity which means operating as a
limited liability company with activities solely to mutual funds. Characteristics of mutual
fund corporate form are as follows:

• The law is a limited liability company

• Sponsor must deposit at least 1% of capital base
• Investors are shareholders
• Investment Manager to act as property manager of mutual funds.
• custodian bank to act as a storage and administration of mutual funds wealth.
Open-end mutual fund company has three potential funding sources consisting of:
• Dividend
Open-end mutual fund company's proceeds from the issuance of shares, with a mutual
fund shall provide dividends to shareholders.
• Capital gains
Retrieved from sales of mutual fund portfolio is common when selling mutual fund

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portfolio at a price higher than cost. Excess between the selling price and the cost is
called the capital gains and mutual funds are distributed to shareholders.

• Increasing the price of mutual funds

This price is derived from the sale of mutual fund shares in the secondary market (open-
end). This selling price is actually the market price. Thus, the increase in prices is the
excess of price above cost. It could be argued, mutual fund holders can obtain capital
gains twice, ie when receiving a distribution of mutual fund capital gains when
publishers sell mutual fund portfolios and when you sell it back.

b. Mutual Fund Collective Investment Contract (KIK)

Mutual shaped KIK is a contract between fund managers and custodian banks binding
unit holder where the investment manager is authorized to manage portfolios of
collective investment and custodian banks authorized to conduct collective
custody.Characteristics of mutual funds are:

• The law is a collective investment contract

• Sponsor must deposit at least 1% of the participating units specified in the contract.
• Investment Manager to act as property manager of mutual funds.
• custodian bank to act as a storage and administration of mutual funds wealth.

5. The nature of Islamic mutual funds

Judging from its nature, mutual funds grouped into:

a. Mutual fund company closed form

Closed mutual funds are mutual funds that can not buy back the shares already sold to
investors, mutual fund characteristics are:
 Shares of mutual funds listed on the stock exchange
 In general, only one bid
 Investors can not sell back shares of its mutual fund to mutual fund company or
investment manager
 Offers to buy shares of mutual funds made on the stock exchange at a price
above (with premium) or below (discount) the net asset value (NAV)

The components are the same benefits as stock investors typically are:

• Dividends
• Stock bonus
• Capital gains

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b. Open-end mutual fund company

Open-end mutual fund is a mutual fund company that can offer and buy back shares
from investors up to the amount of capital that has been issued. Characteristics of
mutual funds are:

 Shares of mutual funds is not listed on stock exchanges

 Investors can sell back shares of its mutual funds to investment managers at the
expense of mutual fund accounts or own account
 share purchase price of mutual funds based on Net Asset Value

Then open the form of mutual fund company expects profits from its investment
(return on-investment) consists of the following components:

1. Dividend income
2. Capital Gain Distribution
3. Change Net NAV (NCIN)

A prospective investor who will invest funds in one mutual fund company open a
form generally will deal with relevant parties as follows:

a. Mutual Fund Companies

Is a limited company which has obtained a business license from Bapepam in

order to fund that will manage and be responsible for mutual fund shareholders.

b. Investment Manager

Is a company which has obtained a business license from Bapepam as an

investment manager and there is a minimum employee has obtained permission
from Bapepam profession as deputy manager of the investment.

c. Sales Agent

Sales agents carry out direct sales to public investors through its branches or its
sub-agency.

d. Custodian
Is an institution that serves to secure document storage and securities
(securities).

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 e. Transfer agent

The function of transfer agent is conducting the registration of the shareholders

of record requests regarding the purchase and redemption of mutual funds and
make a list of its shareholders up to date.

c. Mutual funds are open only shaped KIK

Characteristics of mutual funds are:

 Unit non-listed equity securities

 Investors can sell back the units of its mutual funds to investment managers at
the expense expense account or mutual fund account.
 purchase price of investment units based on net asset value.

6. Advantages of Islamic mutual funds

Islamic mutual funds have some advantages that can be given to investors,
among others:

a. More optimal results

With a relatively small fund, the benefits of investments in mutual funds is

relatively higher than the investments in banking products. This is because our
funds will be combined with other client funds that could invest in financial
products such as bonds and shares sharia

b. Investment Manager

Our funds are managed by investment managers who do have the competence
to make an investment. Then we can sit back and let the experts working for us.

c. Diversification and differentiation with a very large fund, we could diversified

investments (spread) with a very well so the risk becomes relatively smaller.

d. Liquidity is assured

e. Price flexible

Benefits provided reksadan sharia to the government and stock exchanges,

among others:

1. Mobilizing public funds, where mutual funds are an appropriate area for
investment by investors of all strata.
2. Increasing private sector role in collecting national public funds.

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3. Encouraging trade in securities in the Indonesian capital market, thus
increasing the liquidity of the stock and the capitalist market (market
capitalization)
4. Can correct the interest rate due to the shift of funds from banks to capital
markets.

7. Islamic mutual fund risk

In mutual funds generally consist of 2 types of risks, namely loss due to the
reduced value of NAB perunit and risk liuiditas:

1. Risk reduction in NAV per unit of investment (NAV / unit)

Reduced NAV / unit price of NAV / unit in the Saar investors buy an indicator of
loss for investors. The fall in the price of NAV / unit caused by the decline in
value or price of securities owned by mutual funds. The main cause of decline in
the prices of securities, among others:

a. Changes in economic conditions, political, including also social and security

conditions in and outside the country which may affect the performance of the
company, not even the companies that have been going public on the stock
exchange.

b. Event of default (default) from the issuer, the issuer a letter berhara or parties
involved in the transaction and investment management in fulfilling its
obligations.

2. Liquidity Risk

Related quickly than investors can liquidate their investment by reselling the
investment units held.

8. The relationship between investors and mutual funds islamic

a. Agreement between the investor and the institution should be done with the
system mudaraba / Qiradh, where owners of property (capital) to provide wealth
to the workers to become commercial capital, with the proviso that the profits are
shared in accordance with the terms agreed upon by both parties.

b. Islamic mutual fund shares can be traded. Because the stock is maal (wealth)
nilik investors that can be utilized and which are not traded on any element of
fraud (gharar) because its value is clear.

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c. Mutual fund investment activities

o In conducting its investment activities of Islamic Mutual funds can do anything

as long as not contrary to the sharia.

o Akad done by sharia mutual funds with emitten can be done through
mudharabah (Qiradh) or musharaka

o Buying and selling mutual funds also allowed sharia as mudharib make buying
and selling shares.

9. Performance of Islamic Mutual Funds

There are two important things that must be considered in measuring the Islamic
mutual funds, among others:

• The outcome (rate of return) earned equal to or greater than the level of the
portfolio (portfolio return) with the risk of the same or less than the level of market
risk (market risk).

• To diversify so as to eliminate the systematic risk that is not measured by

calculating the correlation between the level of the Islamic mutual funds with the
level of the market portfolio.

10. Monitoring the performance of Islamic mutual funds

The things that need to be monitored are:

• Total investment return (total return)

Total investment return is the ratio between the increase in NAV per unit share

• The development of NAB

The development of procedures for calculation of NAV and the NAV must be
continuously monitored the idmuat in the media.

• Periodic Reports

11. Empowerment through mutual funds Islamic Ummah

Mutual funds are investment instruments that are used to channel funds small
public savings and provide benefits that are relatively similar. On the other side of
this accumulated fund is the investment side. From the aspect of investment or
disbursement of funds absorbed earlier.

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12. Things that need to be in Islamic mutual fund investment

1. Institutional unknown in Islamic sharia legal institutions such as the

present.

2. With the company's investor relations agreement between the

institutional investors should be done with mudharabah system.

3. Mutual fund investment activities. In conducting its investment activities

of Islamic mutual funds can do anything as long as not contrary to the
sharia.