At the end of this chapter, you should be able to:
1 Distinguish between open- and closed-end funds, as well as ETFs.
2 Identify the benefits and the risks of ETFs.
3 Describe the parties involved in managing ETFs.
4 Distinguish between conventional ETFs and Islamic-ETFs.
5 Identify the framework of stock borrowing and lending (SBL).
6 Identify the framework of the Islamic alternative of stock borrowing and lending (SBL).
7 Explain the practice of Islamic ETFs in Malaysia.
The discussion of exchange-traded funds falls under the category of asset management firms (Fabozzi, 2009). Basically, asset management firms are firms that manage funds of business, individuals, and foundations as well as local and state governments. These firms normally are affiliated with some financial institutions such as commercial banks and investment banks, as well as insurance companies. One of the businesses of these firms is managing exchange-traded funds (ETFs).
Before discussing the ETFs, it is worthwhile to look at other similar investment alternatives such as mutual funds, unit trusts, and so forth. In addition, we will discuss in detail conventional as well as Islamic ETFs.
An open-end fund is normally called a mutual fund. It is a portfolio of securities, mostly stocks, bonds, and money-market instruments. In this case, the investor owns the pro rata share of ...