An investment fund is a joint pool wherein the investors contribute their surplus money for the purpose of its investment to earn Halal profits in strict conformity with the precepts of Islamic Shari’ah. The subscribers of the Fund may receive a document certifying their subscription and entitling them to the pro-rata profits actually earned by the Fund.
These documents may be called ‘certificates’, ‘units’, ‘shares’ or may be given any other name; but their validity in terms of Shari’ah, will always be subject to two basic conditions:
Firstly, instead of a fixed return tied up with their face value, they must carry a pro-rata profit actually earned by the Fund. Therefore, neither the principle nor a rate of profit (tied up with the principle) can be guaranteed.
Secondly, the amounts so pooled together must be invested in a business acceptable to Shari’ah. It means that not only the channels of investment, but also the terms agreed upon must conform to the Islamic principles.
Some commonly used Islamic funds are:
- Equity Funds
- Ijarah Funds
- Commodity Funds
- Murabaha Funds
- Mixed Funds
- Capital Protected Funds