Written by Ilham Indra, Marketing Communication at PT Korea Investment Management Indonesia. Reviewed by Compliance before publication.
This question cannot be answered in a word, because a mutual fund is not a single product. What decides it is the fund type and what sits in its portfolio.
Are Mutual Funds Sharia-Compliant?
It depends on the fund type. There are sharia mutual funds managed under Sharia Principles in the Capital Market and supervised by a Sharia Supervisory Board, and conventional funds that are not bound by those principles. Both are supervised by the Financial Services Authority.
What Sets a Sharia Fund Apart?
Aspect | Conventional fund | Sharia fund |
|---|---|---|
| Portfolio contents | Any securities permitted by regulation | Only securities on the sharia securities list |
| Contracts | General provisions apply | Contracts compliant with Sharia Principles in the Capital Market |
| Additional supervision | None | A Sharia Supervisory Board |
| Purification mechanism | None | Yes, for income not compliant with sharia principles |
The clearest differences are two: what may enter the portfolio, and the presence of an additional supervisor ensuring compliance.
Who Determines Whether a Security Is Compliant?
Determination is made through mechanisms set by the capital market regulator, referring to fatwas of the National Sharia Council of the Indonesian Ulema Council. The sharia securities list is published and updated periodically.
This article does not conclude the compliance status of any product. That status is established through official mechanisms, not through marketing content.
What Does the Sharia Supervisory Board Do?
The Sharia Supervisory Board oversees that a sharia fund is managed in line with the established principles, including the contracts used and the securities held. This supervision runs alongside that of the Financial Services Authority.
Are Sharia Funds Safer?
No. Sharia compliance concerns the principles of management, not the level of risk. A sharia fund can fall in value just as a conventional one can.
Sharia funds are also not covered by deposit insurance. Past performance does not guarantee future performance.
How to Check Before Buying
Check whether the product is stated as a sharia mutual fund in its prospectus.
Check for a Sharia Supervisory Board in the product documents.
Read the investment policy to see which securities may enter the portfolio.
If in doubt on matters of jurisprudence, seek the opinion of someone qualified in that field.
About the Manager
PT Korea Investment Management Indonesia is an investment manager registered with and supervised by the Financial Services Authority under licence number KEP-50/D.04/2019, operating in Indonesia since 2019.
Frequently Asked Questions
What sets a sharia fund apart?
Its portfolio is limited to securities on the sharia securities list, its contracts follow Sharia Principles in the Capital Market, and a Sharia Supervisory Board provides additional oversight.
Who decides whether a security is compliant?
Determination follows mechanisms set by the capital market regulator, referring to fatwas of the National Sharia Council of the Indonesian Ulema Council. The list is updated periodically.
Are sharia funds safer?
No. Compliance concerns the principles of management, not the level of risk. The value can still fall.
What does the Sharia Supervisory Board do?
It oversees that management follows the established principles, including the contracts used and the securities held.
Are sharia funds covered by deposit insurance?
No. That scheme applies to bank deposits, regardless of the management principles of an investment product.
How can you confirm a product is a sharia fund?
Check the prospectus. A sharia-managed product states it there and names its Sharia Supervisory Board.
Next Steps
Understand the basics in our article on what a mutual fund is.
See the range of funds managed by PT Korea Investment Management Indonesia on the Products page.