Indonesia charts Islamic fixed income funds limelight

A confluence of economic factors, largely due to steep tariffs announced by the US President Donald Trump’s administration, saw Indonesia charting a 48.81% jump in total Islamic fixed funds AuM over Q3 2025 – a notable development that was captured by the IFN Investor Funds Database.

A primary impact was the fall of the rupiah’s valuation against the US dollar – dipping to IDR17,071 on the 8^th April 2025 after starting the year at IDR16,236. The Indonesian currency had recovered to IDR16,625 as at the 31^st October 2025 – down almost 3% the year-to-date (YTD).

The knock-on effect was higher imported inflation, coupled with a domestic liquidity crunch as Bank Sentral Republik Indonesia intervened heavily in the forex market to cushion volatility and slow the rupiah’s depreciation – in contrast to appreciations of neighboring country currencies.

Table 1: Indonesia’s inflation trend in 2025

Source: Bank Sentral Republik Indonesia

At the same time, Indonesia’s central bank lowered the benchmark interest rate from 5.75% at the year’s start – down in stages of 25bps each in May, July, August and September – to stand at 4.75% currently.

This tripartite drag on bank deposit returns led to many local investors shifting their passive cash into Islamic fixed income funds – mainly invested in sovereign and investment grade Sukuk – to preserve capital value and continue generating a steady income through such low-risk asset holdings. 

Tracking by the IFN Investor Funds Database showed that total AuM in Islamic fixed income funds rose 48.81% from US$1.14 billion at the 30^th June 2025 to US$1.69 billion at the end of Q3 2025 – the highest percentage increase across the Asia Pacific region.

On a psychological level, rumors of the rupiah’s denomination being revised was confirmed by the Indonesian finance ministry in early November 2025 – with a bill planned for 2027 to slash three zeros from currency notes. This could further boost an inflow into Indonesia’s Islamic fixed income funds.

Table 2: Islamic fixed income funds in Asia Pacific nations

Source: IFN Investor Funds Database

Pakistan charted the next highest AuM surge in Q3 2025 on very similar economic factors – particularly due to the central bank rate progressively reducing from 13% at the year’s start to 11% in May 2025 – plus additional AuM gained from nine new fund launches.

Regional leader Malaysia stayed in the forefront with a 13.92% total AuM rise to US$8.11 billion at the end of Q3 2025 from US$7.12 billion in the previous quarter – largely driven by flight to safety as global uncertainties weighed on equities. Bank Negara Malaysia kept rates steady, with a 25bps dip to 2.75% in June 2025 and the ringgit was a region’s top performer – rising over 7.6% YTD to the US dollar.

Overall, Islamic fixed income funds in the Asia Pacific region delivered the strongest quarter-on-quarter expansion – rising by almost US$2 billion, with the 20.24% growth rate outpacing the 12.34% gain of equity funds tracked by the IFN Investor Funds Database.

This combined pattern of rotation into lower-risk instruments alongside selective participation in higher-beta assets reflects a market where fund managers appear to be balancing growth with resilience, tightening exposures while still capitalizing on opportunity pockets across the region.