Is mutual fund halal?

Is mutual fund halal? Many Muslim brothers ask this question. Every day about 1500 people search for this question on Google and other social media.

Because the communication system has improved in this golden age of information technology, business has expanded.

Generally speaking, an asset manager collects small savings from various investors to form a larger fund in a mutual fund structure.

People used to sit in a particular place and do business with their bodies. But now, the scope of the company has increased.

They can buy and sell any product of another country sitting in one country. Similarly, shares of different companies are being bought and sold.

And from here, various questions are born. Because there are some unique features in the business principles of Islam based on which Halal and Haram are determined.

Based on Islamic business principles, we ask today’s question – Is mutual fund halal? Discussing his answer.

What are mutual funds?

Then the fund asset manager uses his skills and experience to invest in shares of various companies listed in the stock market and different products or services of the money market.

The asset manager uses his marketing knowledge and skills to earn profits through these investments.

Then at the end of the term, the investment profit is divided among the investors at a proportionate rate.

As a result, an ordinary investor can easily make a long-term profit against his small investment. Such a pooled investment vehicle is called a mutual fund halal.

Mutual fund halal or Haram in Islam?

Generally, mutual funds are halal. Although we call it typically halal, it has inherent conditions, and we discuss those terms below.

  1. Asset managers must adhere to Islamic rules when investing money in mutual funds.
  2. The Asset Manager may delegate performance to third parties if necessary. But the third party must be committed to Islamic law.
  3. The principal cannot determine the number of increments at the outset of the contract. f can fix the percentage share of the buyer’s dividend at the time of the contract.
  4. May resell no product before the buyer has taken it over, and it is a fundamental provision of Islamic business principles.
  5. Cannot engage in any transaction based on interest, as it is Haram in Islam at all times.
  6. And Can not purchase shares or products of invisible companies.
  7. Cannot purchase shares or products of any company – which has not yet existed.

Only mutual funds will be halal if all these conditions can full. Otherwise, it will be considered haram.

Although we have concluded that mutual funds are halal, their range is minimal because most stock exchange transactions are illegal.

Mutual fund investment, products, systems, and contract methods are prohibited mainly by Islamic law. Based on this, we do not recommend investing in this market first.

Because haram things are predominant in it, it is challenging to avoid. Nevertheless, if it is possible to avoid what is prohibited, the principle is that it is permissible.

 mutual fund halal
Mutual fund halal

Opinions of Islamic Scholars

Dr Zakir Naik says – All mutual funds are not Halal, and the only Sharia-compliant mutual fund is halal.

A mutual fund means a fund manager invests in various companies and buys shares of multiple companies.

So you do a pooling, you put your share of investment, and maybe thousands and hundreds of thousands of people may have set in the claim.

And the pool may be significant, maybe millions of dollars. Then that fund manager invested in five companies, ten companies, 20 companies, and 100 companies.

So it’s a pool of shares of different companies to mitigate your risk. It so depends on how expert the fund managers that way, the fund will perform.

So mutual funds which are Sharia compliant are permitted, but mutual funds which are not Sharia compliant are not Halal.

So if the fund manager knows the Sharia, and if that mutual fund has a Sharia board that looks into

Find yourself if you know the Sharia can check. So to buy a share of a company, you must first see the company’s activity; the core activity should not be haram.

They should not be selling alcohol, and they should not be selling pork. It should not be an interest-based company like a bank or an investment-based company based on a river.

So in the core activity, number one should not be haram.

Number two, we should see the debt and the cash ratio; if the company takes too much of a loan from the bank excessively, even that company becomes haram.

If it’s a small percentage, it depends on the maximum that some Islamic economists allow is up to 30% and 20%; some say 10%.

A bit of advice about by Dr Jakir naik

I think it should be bare and minimal. So there are various criteria for judging whether investing in that company is haram. Mahal, one thing is that the core activity should not be haram.

That is one aspect. But the other elements also include whether the company takes a loan, the cash-to-date ratio, and various other features.

So if all the aspects of Sharia compliance are, you can invest in that company, in a mutual fund halal, the fund manager investing in 100 local companies.

So if the fund manager has knowledge of the Sharia, and if the board of that company says there’s a Sharia compliant, then it is permitted.

If it’s a non-Sharia-compliant fund, you cannot invest in mutual funds.

There are very few Sharia-compliant funds available. Sometimes by nature, it can be Sharia-compliant, but it may not be Muslim-managed.

So based on that, we have to ask a person who is well versed in Islamic economics and take his guidance before investing.

mutual fund Halal

Otherwise, there is a high chance that you may make a mistake.

So only those which are Sharia compliant. For example, there was a fund launched in India by Tata.

I forgot the name, but it was by Tata company. It was Sharia-compliant for many years, and I’m unaware of it.

There is a particular UTI unit trust in India. Certain types of shares of UTI, not all of which are Sharia compliant. You have to do a survey now.

I had to survey India many years back. But now, I cannot tell at present which of the funds is Sharia compliant based on the that, that mutual fund halal, by nature, can be Sharia compliant.

Benefits of Halal Mutual Funds

A typical individual investor can get several benefits by investing in mutual funds. Some of them are below —

A. Advantage of the high rate of compounding Profit with controlled risk over the long term.

b. Income tax concessions and other tax benefits.

c. Profit from initial public offering or IPO. It is good to mention that mutual funds have a quota facility in IPO.

Again asset managers can participate relatively effectively in the book-building process.

d. Benefit from the professional expertise and research services of affordable investment and asset managers over the long term

Some mutual funds can be traded, like shares of other companies listed on the stock market.

Such funds are called closed-end mutual funds. Some mutual funds are bought or sold directly from the asset manager, and these funds are known as open-ended mutual funds.

A mutual fund is an investment medium that is almost 250 years old. Three types of institutions are directly associated with managing such funds.

They are-

  1. The trustee or custodial institution with BSEC. Per the trust agreement, whose job is to protect the fund’s investors’ interests.
  2. BSEC is a Registered Custodian Institution, Under which all the assets in the basket of specific mutual funds are kept safe.
  3. BSEC registered asset management company. Who is responsible for the proper investment of certain mutual funds halal?
What does the Islamqa website say about mutual funds?

We have not found any direct discussion on mutual fund halal or haram on the Islamqa website.

However, considering their other fatwas and the opinions of prominent Islamic scholars,

We can say that they will not give any idea different from what we have discussed above because all the ulama gives their views following the principles of Islamic business law.

So, in this case, it is impossible to have a big gap between the opinion of others to their opinion.

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