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Definition: Shariah compliant Funds
Shariah compliant funds are investment funds that follow all the requirements and conditions of Sharia Law (Islamic Law) and principal of Islamic Finance. They have to follow various guidelines such as investing only in Shariah compliant stocks, executing a Shariah audit and purifying them by donating some part forbidden type of income to charity. They are not restricted to people of any particular religion.
Shariah principles prohibit interest based transactions, investing in unethical products like alcohol, tobacco or gambling. Hence Shariah compliant funds are constructed such that they do not have involvement is such sectors.
Islamic finance industry has undergone radical transformations in last few years. It is coming up as an alternate finance system not only in Muslim countries but in secular countries as well. Different Shariah compliant financial products, including banking products like savings and current accounts, investment accounts, financing products like Home financing and Ijarah, insurance products and capital market products like Mutual Funds, Portfolio Management Services are being offered in both Muslim and secular countries.
One can build a diversified portfolio using Shariah compliant stocks and these portfolios offer good returns. Portfolio managers attract Muslim investors who did not invest previously and investors of other religions who don’t like to invest in companies producing alcohol, tobacco products or doing other unethical or harmful activities.