Comparing Shariah-Compliant ETFs and Conventional ETFs on Bursa Malaysia in 2026

Understanding ETF Investing in Malaysia: A Comprehensive Guide for Local Investors

Exchange-Traded Funds (ETFs) have become increasingly popular among Malaysian investors searching for cost-effective, diversified, and flexible investment options. Whether you are new to investing or looking to expand your portfolio, understanding how ETFs work and the specific opportunities available in Malaysia is crucial. This guide explores the fundamentals of ETF investing, highlights Bursa Malaysia ETFs, explores Shariah-compliant options, and reviews how Malaysians can access global markets through international ETFs.

What is an ETF? A Simple Explanation for Malaysians

An ETF is an investment fund that is traded on stock exchanges, much like shares of individual companies. It holds a basket of assets such as stocks, bonds, or commodities, designed to track a specific index or investment theme. For Malaysian investors, ETFs on Bursa Malaysia offer exposure to various sectors and indices, while international ETFs provide avenues to global markets.

ETFs combine the diversification of unit trusts with the trading flexibility of stocks. They usually have lower fees compared to traditional unit trusts, making them attractive for cost-conscious investors. Moreover, ETFs can be bought and sold throughout the trading day at market prices, providing better liquidity and transparency.

Key Features of ETFs to Know

• Diversification: ETFs typically contain multiple securities, reducing the risk of investing in a single stock.
• Lower Costs: Management fees are often lower than actively managed funds.
• Liquidity: ETFs are traded on exchanges, allowing intraday buying and selling.
• Transparency: Holdings are disclosed regularly, so investors know exactly what they own.

Bursa Malaysia ETFs: Investing in Local Opportunities

Bursa Malaysia lists several ETFs that track Malaysian indices such as the FTSE Bursa Malaysia KLCI (FBM KLCI) or sectors like banking and technology. These ETFs provide convenient access to Malaysia’s economic growth sectors. For example, the FTSE Bursa Malaysia Hijrah Shariah ETF tracks Shariah-compliant companies, catering to Islamic investors.

Investing in local ETFs allows Malaysians to invest in familiar companies and the Malaysian Ringgit (MYR) currency. This reduces foreign exchange risk and aligns portfolios with Malaysia’s economic environment.

Popular Categories of Bursa Malaysia ETFs

• Shariah-compliant ETFs: Align investment with Islamic principles by excluding companies involved in prohibited activities like gambling and alcohol.
• Equity ETFs: Provide broad exposure to Malaysian stocks.
• Sector-based ETFs: Focus on specific industries such as finance or technology.

Shariah-Compliant ETFs: Meeting the Needs of Malaysian Muslim Investors

Shariah-compliant ETFs follow Islamic investment guidelines, screening out industries and companies that violate Shariah principles. This is a significant consideration for many Malaysian investors who seek to align their investments with their faith.

Bursa Malaysia offers several Shariah ETFs that track indices certified by the Shariah Advisory Council of the Securities Commission Malaysia. These funds ensure that holdings comply with strict Islamic finance criteria, providing peace of mind to investors.

Accessing Global Markets: International ETFs for Malaysians

Malaysian investors have growing access to international ETFs through foreign stock exchanges and licensed local platforms. Investing in global ETFs allows diversification beyond the Malaysian market and exposure to fast-growing sectors such as technology, healthcare, and emerging markets.

Examples include US-listed ETFs tracking the S&P 500, MSCI World Index, or sector-specific themes like clean energy. Currency exposure must be considered carefully, as international ETFs typically trade in foreign currencies such as USD or EUR, introducing foreign exchange risk.

Benefits and Risks of International ETFs

• Benefits: Geographic and sector diversification, access to global leaders, and exposure to sectors underrepresented in Malaysia.
• Risks: Currency fluctuations, different regulatory environments, and potentially higher transaction costs.

Step-by-Step Guide for Malaysians to Start Investing in ETFs

1. Understand Your Investment Goals: Define your risk tolerance, investment horizon, and desired returns.
2. Research ETF Options: Review local Bursa Malaysia ETFs and international ETFs that fit your objectives.
3. Open a Trading Account: Choose a licensed broker or platform that provides access to desired ETFs.
4. Fund Your Account: Deposit MYR and consider currency conversion if investing internationally.
5. Place Your Order: Buy ETF units during market hours, paying attention to bid-ask spreads.
6. Monitor and Review: Track your ETF investments and rebalance your portfolio as needed.

A Practical Case Study: Balancing Local and Global ETFs for a Malaysian Investor

Consider Amir, a 35-year-old Malaysian professional who wants to build a diversified portfolio with a moderate risk profile. Amir allocates 60% of his investment capital to local Bursa Malaysia ETFs focused on blue-chip stocks and Shariah-compliant holdings to align with his values.

The remaining 40% is invested in international ETFs tracking the S&P 500 and a global technology index to benefit from growth outside Malaysia. Amir is mindful of currency risk and uses MYR forex rates to decide when to purchase international ETFs.

This balanced approach helps Amir capture Malaysia’s economic potential while diversifying globally to reduce concentration risk.

Comparing Local Bursa Malaysia ETFs and International ETFs

“While ETFs provide a straightforward path to diversified investing, Malaysian investors should carefully weigh currency exposure, fees, and their investment objectives. Diversifying between local and international ETFs can offer balance but requires regular review and understanding of shifting market conditions.”

Conclusion: Three Actions for Malaysian Investors to Begin ETF Investing

1. Educate Yourself: Gain a clear understanding of how ETFs function and the options available on Bursa Malaysia and international markets.
2. Start Small and Diversify: Begin investing with a balanced mix of local and international ETFs to mitigate risks.
3. Consider Shariah Principles if Relevant: Explore Shariah-compliant ETFs to align your investment with personal values.

Frequently Asked Questions (FAQ) About ETF Investing in Malaysia

1. Are ETFs suitable for beginner investors in Malaysia?

Yes. ETFs are generally easy to understand, offer diversification, and have lower fees than many mutual funds, making them a good starting point for beginners.

2. Can Malaysian investors purchase international ETFs easily?

Yes, through approved brokers or online platforms providing access to foreign stock exchanges. However, investors should consider currency risk and additional fees.

3. What are the main differences between ETFs and unit trusts in Malaysia?

ETFs trade like stocks on exchanges with intraday pricing, usually have lower fees, and greater transparency. Unit trusts are actively managed with end-of-day pricing and may have higher fees.

4. How can I find Shariah-compliant ETFs on Bursa Malaysia?

Look for ETFs that track Shariah-compliant indices certified by the Securities Commission Malaysia’s Shariah Advisory Council.

5. Are there risks unique to investing in ETFs?

While ETFs generally reduce single-stock risk through diversification, investors face market risk, tracking error risk, and for international ETFs, currency risk.

This content is for informational purposes only and not financial advice.

Disclaimer

This article is for informational purposes only and should not be taken as financial advice. Please consult a licensed financial advisor before making investment decisions.