Sharia Compliance, Mutual Fund Performance, and Investor Trust: Evidence from the Indonesian Islamic Capital Market

Abstract

The rapid expansion of Islamic finance has positioned Sharia-compliant investment instruments as an important component of modern financial markets, particularly in countries with large Muslim populations such as Indonesia. Despite the growth of Islamic mutual funds, questions remain regarding how Sharia compliance influences fund performance and shapes investor trust within the Islamic capital market. This study aims to examine the relationship between Sharia compliance mechanisms, mutual fund performance, and investor trust in Indonesia. The research employs a qualitative approach using a conceptual case study design based on document analysis of regulatory frameworks, Sharia fatwas, and institutional reports related to Islamic mutual funds. Data were collected through systematic literature review and document analysis, followed by qualitative data condensation, thematic categorization, and interpretative analysis. The findings reveal that institutional Sharia compliance mechanisms including Sharia screening, supervisory oversight, and cleansing procedures play a significant role in strengthening governance structures within the Islamic mutual fund industry. These mechanisms are associated with the growth of mutual fund performance indicators and increasing investor participation in Sharia-based financial instruments. The study concludes that Sharia compliance functions not only as a regulatory requirement but also as a strategic governance signal that enhances investor trust and supports the sustainable development of the Islamic capital market in Indonesia.