What are 'Shariah-Compliant Funds'

Shariah-compliant funds are investment funds governed by the requirements of Shariah law and the principles of the Muslim religion. Shariah-compliant funds are considered to be a type of socially responsible investing. 

BREAKING DOWN 'Shariah-Compliant Funds'

Shariah-compliant funds are one of many categories found in socially responsible investing. Similar to other socially responsible funds within the environmental, social and governance (ESG) universe, the funds screen potential portfolio investments for specific requirements desired by followers of the Muslim religion.

Shariah-compliant funds have expanded in popularity only recently, even though the concept was first developed in the late 1960s. The concept requires considerable effort to implement, since much attention must be paid to compliance with a comprehensive set of rules and requirements guided by the Shariah principles.

Shariah-compliant funds have many requirements that must be adhered to. Some of the requirements for a Shariah-compliant fund include the exclusion of investments which derive the majority of their income from the sale of alcohol, pork products, pornography, gambling, military equipment or weapons. Other characteristics of a Shariah-compliant fund include an appointed Shariah board, an annual Shariah audit and purifying certain prohibited types of income, such as interest, by donating them to a charity.

Shariah-Compliant Investments

A number of products and indexes exist to accommodate Shariah-compliant investing. Saturna Capital provides several Shariah-compliant investment funds through its Amana series. Its Amana Growth Fund (AMAGX) seeks long-term capital growth through investments adhering to Islamic principles. The Fund was launched on February 3, 1994. The Amana Growth Fund is a mutual fund investing at least 80% of its assets in common stocks. As of November 2017 it had $1.7 billion in total assets under management. It has an expense ratio of 1.10%. It requires a minimum investment of $250. Technology investments account for a significant portion of the Fund’s assets at 48%. Other sectors include healthcare, industrials, consumer defensive and consumer cyclical.

S&P Dow Jones Indices has created many Shariah-compliant indexes for Muslim investors. The S&P 500 Shariah was launched in December 2006. The S&P 500 Shariah Index is comprised of all of the Shariah-compliant constituents in the S&P 500. As of October 2017, it had 235 constituents with information technology accounting for the largest portion of the Index at 38%.

Other Shariah-compliant indexes maintained by S&P Dow Jones include: S&P Global Healthcare Shariah, S&P Global Infrastructure Shariah, S&P Developed Large and Mid Cap Shariah, S&P Developed Small Cap Shariah and the S&P Developed BMI Shariah Index.

RELATED TERMS
  1. Musawamah

    Musawamah is an Islamic finance term describing a sale where ...
  2. National Social Security Fund (China)

    National Social Security Fund (China) is a government-controlled ...
  3. Structured Funds

    Structured funds are managed portfolios that combine equity and ...
  4. Mutual Fund

    Mutual funds combine money from many investors to invest in a ...
  5. Fund

    A fund is a source of money that is allocated for a specific ...
  6. Active Index Fund

    Active index funds track an index fund with an additional layer ...
Related Articles
  1. Investing

    Shariah Compliance Principles

    Shariah compliant investments have social and financial rewards.
  2. Investing

    Socially Responsible Mutual Funds

    It is possible to avoid unethical investments and still profit from mutual funds. Find out how!
  3. Investing

    The 4 Best American Funds for Growth Investors in 2016

    Discover four excellent growth funds from American Funds, one of the country's premier mutual fund families with a history of consistent returns.
  4. Investing

    The 5 Best American Funds

    Discover five of the best-performing mutual funds offered by American Funds, based on the funds' five-year average annualized returns.
  5. Investing

    How Mutual Fund Managers Pick Stocks

    Learn about how mutual fund managers choose stocks based on the type of funds they manage and the investment goals of the funds' shareholders.
  6. Investing

    The lowdown on index funds

    If you can't beat the market, why not join it? Read on to see what your options are.
  7. Investing

    3 Mutual Funds With the Lowest Expense Ratios

    Learn about the three mutual funds that have one of the lowest expense ratios and focus on different investment strategies of investing in bonds and stocks.
  8. Investing

    Trading mutual funds for beginners

    Learn the basics about mutual funds, including the types of strategies available and the different fees they may charge.
  9. Investing

    VFINX vs. SPY: Mutual Fund vs. ETF Case Study

    Identify subtle differences between two excellent investment opportunities, the Vanguard 500 Index Fund and the SPDR S&P 500 ETF.
  10. Investing

    4 Expensive Mutual Fund Mistakes to Avoid

    Mutual funds are a good way to balance your asset allocation but there some potentially expensive pitfalls investors need to be aware of.
RELATED FAQS
  1. How can I buy an S&P 500 fund?

    Looking for access to the S&P 500? Learn how to access an S&P 500 index fund or ETF. Read Answer >>
  2. How Do I Find Mutual Funds That Track Indexes?

    Two good sources for finding index funds are Fidelity Investments and Vanguard. Read Answer >>
Trading Center