Page 138 - Profile's Unit Trusts & Collective Investments - March 2026

Chapter 8 Classification of CISs

What are Shari’ah compliant funds?
Shari’ah compliant funds observe the laws of “Islamic Finance” by applying strict ethical rules
to their investment activities. For example, Shari’ah funds may not invest in companies
which make money from gambling, alcohol, pornography, pork products or military
equipment. Earning interest, or riba, which is considered an unjust unearned gain, is forbidden under
Shari’ah, and a fund which inadvertently earned interest would be required to donate this to charity.
Running a Shari’ah compliant fund is fairly onerous: all investments have to be carefully screened
and audited by a Shari’ah supervisory board made up of recognised authorities. The Accounting and
Auditing Organisation for Islamic Financial Institutions (AAOIFI) was created in 1990 to set compliance
standards for entities that wish to operate in accordance with Shari’ah.

SA General funds
ASISA introduced a new subcategory effective from 1 October 2024. Funds in this sub category
are those that invest 80% in shares on the JSE across all industry sectors and market capitalisations.
These funds invest 100% in SA and have no offshore exposure.
SA Large Cap funds
These are funds that seek long-term growth through investment in the shares of companies
with very large market capitalisations. At least 80% of assets must be invested in large cap shares
and 100% of share purchases must be in this investable universe at time of purchase. For the
South African–Equity–SA Large Cap sector (to be renamed to South African–Equity–SA Large
Cap in October 2025), large cap companies are those that fall within the top 40 JSE listed shares
by market capitalisation (or, shares which have a market capitalisation greater than or equal to the
company with the lowest market capitalisation in the FTSE/JSE Top 40 index). Currently, most of the
South African–Large Cap sector funds are index funds tracking the top 40 or 50 shares on the JSE.
These are passive funds. An actively managed large cap fund seeks to outperform its benchmark.
The ASISA standard makes provision for other large cap sectors (such as Global–Equity–Large
Cap or Worldwide–Equity–Large Cap) but there are currently insufficient funds to warrant such
categories. A large cap fund that is not in the South African–Equity–SA Large Cap sector would have
to invest in shares of an appropriate foreign index published by a recognised exchange.
Mid and Small Cap funds
Funds is this sector (previously called Smaller Companies) invest in established mid cap
companies as well as in emerging companies that are in the initial phase of business growth. New
investment by the funds is restricted to shares that fall outside of the top 40 JSE shares (or in shares
which have a market capitalisation smaller than the company with the lowest market capitalisation
in the FTSE/JSE Large Cap index, or an appropriate foreign index published by an exchange). At
least 80% of the fund must be invested in this universe at all times. Due to both the nature and focus
of these funds, they may be more volatile than funds that are diversified across the broader market.
New investment by funds in this category is restricted to small and mid cap shares, but if a fund
holds a share that increases in value to the point that it becomes a constituent of the Alsi40, the fund
manager is not obliged to sell the share (provided that it does not constitute more than 20% of the
fund’s assets).
In JSE terms, mid cap shares are not particularly small – the FTSE/JSE Top 40 and the FTSE/JSE
Mid Cap index (together approximately the top 60 shares of around 270 listed companies) account
for 85% to 90% of the total market cap of the JSE, with the remaining shares making up a relatively
small portion of the market. Theoretically, a Mid and Small Cap fund could invest entirely in mid cap
shares (without contravening the fund’s mandate), which would mean companies with market caps
averaging around R25bn.
Considering that the smallest 50 JSE companies have a combined market cap of under R6bn,
companies worth R100bn on average are not that small.
Benchmarks for these funds vary. The most common is a combination of small and mid cap
indices, but some CIS managers use the FTSE/JSE All Share index, and the median performance of

136 Profile’s Unit Trusts & Collective Investments March 2026