ISLAMIC FUND

An Islamic fund is a Shari’a-compliant investment strategy in which investors can contribute money in exchange for permissible returns. In other words, it refers to Shari’a-compliant investment activities in which a group of investors pools their savings or money into a “fund” with a diverse portfolio to achieve financial goals. 

Islamic Capital Instruments	Islamic Fund
Definition	A Shariah-compliant investment strategy in which investors can contribute money in exchange for permissible returns.
Purpose	To pool investors, preserving capital and optimizing returns.
Characteristics and Features	Have similar economic objectives with conventional fund but different in essence and structure such as investible universe, role of Shari’a advisor, purification purpose and fee structure.
Types	1)  Open-ended and close-ended 2)  Categorization by investment: -   Equity funds -   Commodity funds -   Money market funds -   Ijarah funds
Shariah Contracts /Elements	Mudarabah contract and Wakalah contract
Example	Malaysian Pilgrim’s Fund by Tabung Haji is the world’s first modern Islamic fund.

The purpose of an Islamic fund is to pool investors, preserve capital and optimize returns whereas the fund must be invested in conformity with Shari’a principles by using either Mudarabah or Wakalah contract. Next, the characteristic of Islamic fund are the investment must be comply with the Shari’a principle which means Islamic fund is not allowed to invest in securities and assets that are deemed Shari’a non-compliant. Islamic fund is usually monitored by a Shari’a advisory appointed by the fund manager. 

There are two types of Islamic funds which are open-ended and close-ended funds and categorized by investment portfolios.  In an open-ended Islamic fund, an investor can purchase units in an open-ended fund directly from the unit trust company or through authorized agents with no restrictions on the number of units the fund will issue while a close-ended fund is set up as a company listed on the stock exchange and raises money from investors via initial public offering (IPO) with a limited number of units. 

For example, the contract between the investors and the Islamic fund company that is based on the Wakalah contract wherein the investor will be considered as muwakkil (principal) to appoint an agent could be the purchase or redemption of units while the Islamic fund company will act as wakil or an agent to execute the purchase or redemption on investors behalf. Lastly, Malaysian Pilgrim’s Fund by Tabung Haji is one of example Islamic fund in Malaysia as the world’s first modern Islamic fund that provides a savings and fund management center for Muslims intending to perform hajj in Makkah.