The term “Islamic Sharia Compliant Investment Fund” in this blogmeans a joint pool of collective investments funds, wherein the investors contributes money for the purpose of its investment to earn halal profits in strict conformity with the precepts of Islamic Shariah and Fiqh (Jurisprudence), and managed by a professional fund/money manager.
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 Shariah and Islamic Fiqh, will always be subject to two basic conditions:
Firstly, instead of a fixed rate of return tied up with their face value, they must carry a pro-rata profit actually earned by the Islamic Investment Fund.
Therefore, neither the principal nor a rate of return (tied up with the principal) can be guaranteed. The subscribers must enter into the fund with a clear understanding that the return on their subscription is tied up with the actual profit earned or loss suffered by the Fund. If the Islamic Investment Fund earns huge profits, the return on their subscription will increase to that proportion. However, in case the Fund suffers loss, they will have to share it also, unless the loss is caused by the negligence or mismanagement, in which case the Fund Manager, and not the Islamic Sharia Compliant Investment Fund, will be liable to compensate it.
Secondly, the amounts so pooled together and collectively invested by the fund manager must be invested in a business acceptable to Shariah and the fiqh (Jurisprudence) related to Islamic schools of thought (madhabs). It means that not only the channels of investment, but also the terms agreed with them must conform to the Islamic Economic principles and values.
Keeping these basic requisites in view, the Islamic Investment Funds may accommodate a variety of modes of investment which will be discussed in subsequent blogs.