Learn what sharia mutual funds are, how they work, and their advantages and disadvantages as an investment instrument that complies with Islamic sharia principles.
Sharia mutual funds are one of the increasingly popular investment instruments in Indonesia, especially for those who want to invest in a way that is in accordance with Islamic sharia principles.
In recent years, awareness of the importance of halal investing has increased among Indonesians, and sharia mutual funds have become the main choice for many who want to ensure that their investments are in accordance with Islamic teachings.
This article will provide a complete guide on what sharia mutual funds are, how they work, and their various advantages and disadvantages.
Definition of Sharia Mutual Funds
Sharia mutual funds are investment products that collect funds from many investors to be managed by professional investment managers, in accordance with Islamic sharia principles.
The main principle of Sharia Mutual Funds is that investments are made only in halal instruments, namely instruments that do not involve elements of usury (interest), excessive speculation (gharar), or investments in companies engaged in industries that are not in accordance with Islamic teachings, such as alcohol, gambling, tobacco, or other haram products.
For example, sharia mutual funds will only invest funds in stocks of companies whose business activities are in accordance with sharia principles, such as companies engaged in halal food, sharia banking, and other sectors that do not conflict with Islamic law.
Principles of Islamic Mutual Funds
In carrying out its operations, sharia mutual funds must comply with several basic principles that have been regulated by the National Sharia Council of the Indonesian Ulema Council (DSN-MUI).
These principles aim to ensure that the investments made are truly in accordance with the rules set out in Islamic sharia. Some of the main principles in Islamic mutual funds are as follows:
1. Prohibition of Usury
Sharia mutual funds may not invest in instruments containing riba (interest). Therefore, sharia mutual funds only invest funds in sharia stocks, sukuk (sharia bonds), and other halal instruments that are not involved in interest practices.
2. Prohibition of Gharar (Ambiguity)
Sharia mutual funds avoid investments that involve excessive uncertainty or speculation. Investments are made in instruments that have transparency and do not pose unpredictable risks.
3. Prohibition of Maysir (Gambling)
Sharia mutual funds cannot invest in companies or instruments involved in gambling or high speculation which is contrary to sharia principles.
4. Investment in Halal Companies
All funds collected by sharia mutual funds can only be invested in companies whose activities are in accordance with sharia principles. Therefore, shares purchased by sharia mutual funds must come from companies that do not operate in haram industries.
How Sharia Mutual Funds Work
Sharia mutual funds work in a similar way to conventional mutual funds, but with fundamental differences related to the sharia principles followed. Here is how sharia mutual funds work that you can know:
1. Fundraising
Investors buy units of Islamic mutual funds, which are equal to the amount of funds they invest. Each unit of participation has a value called the Net Asset Value (NAB), which reflects the value of the investment you have.
2. Investment Manager
The collected funds will be managed by licensed investment managers who have permission from the Financial Services Authority (OJK).
These investment managers are responsible for selecting investment instruments that are in accordance with sharia principles, such as sharia stocks and sukuk, and ensuring that all investments remain halal.
3. Investment Diversification
One of the advantages of investing in sharia mutual funds is diversification, which means that funds collected from various investors will be spread across various halal investment instruments.
This helps reduce investment risk and increase potential profits. This diversification can involve sharia stocks, sukuk, sharia deposits, and other money market instruments.
4. Distribution of Profits
The profits obtained from investment results will be distributed to investors based on the proportion of investment units they own.
These profits can be in the form of capital gains from increases in the price of investment units or dividends distributed by companies whose shares are owned by mutual funds.
Benefits of Investing in Sharia Mutual Funds
Investing in Islamic mutual funds provides a number of benefits, both financially and in terms of adhering to religious principles. Some of the main benefits that can be obtained from investing in Islamic mutual funds include:
1. Halal Investment
Sharia mutual funds provide a guarantee that your funds will be managed in accordance with Islamic law, avoiding practices that conflict with Islamic teachings such as usury, gharar, and maysir.
2. Diversification and Managed Risk
With funds collected from various investors, Islamic mutual funds have the ability to diversify investments, which aims to minimize risk and increase potential profits.
3. Easily Accessible for Beginner Investors
Sharia mutual funds can be accessed by anyone, even by novice investors who are just starting to invest. Many sharia mutual fund products offer investments with affordable minimum amounts, even starting from IDR 100,000.
4. Managed by Professional Investment Managers
Sharia mutual funds are managed by investment managers who are experienced and have in-depth knowledge of the sharia capital market. This allows investors to obtain optimal investment results without having to be directly involved in fund management .
Risks Associated with Islamic Mutual Funds
Despite offering various advantages, investing in Islamic mutual funds also has risks that must be considered by investors. Some of the risks associated with Islamic mutual funds are:
1. Market Risk
Like other investment instruments, sharia mutual funds are also affected by stock market and bond market fluctuations. If the market experiences a decline or instability, the value of investments can also be affected.
2. Credit Risk
Sharia mutual funds that invest in sukuk or other money market instruments may face risks related to the ability of the sukuk issuer to repay its debt.
3. Investment Manager Risk
The performance of sharia mutual funds is highly dependent on the investment manager’s expertise in selecting and managing investment instruments that comply with sharia principles.
If the investment manager fails to make the right decisions, the investment results may be affected.
Differences between Sharia Mutual Funds and Conventional Mutual Funds
The main difference between sharia mutual funds and conventional mutual funds lies in the basic principles of their management.
Conventional mutual funds may invest in instruments containing interest (riba) or shares of companies operating in sectors that conflict with sharia principles, such as alcohol or gambling.
Meanwhile, sharia mutual funds avoid all these elements and only invest in instruments that meet halal criteria.
Who is Suitable to Invest in Sharia Mutual Funds?
Sharia mutual funds are very suitable for investors who want investments that are in accordance with Islamic teachings.
In addition, sharia mutual funds are also suitable for novice investors who want to invest in the capital market but do not want to be involved in activities that are contrary to religious principles.
Sharia mutual funds are also ideal for those who want to invest in a safer way , with management carried out by professional investment managers.
Sharia mutual funds offer a very attractive investment alternative and are in accordance with Islamic sharia principles.
With various advantages such as halal investment, risk diversification, and easy access for novice investors, sharia mutual funds are the main choice for many people who want to manage their funds in a safer way and in accordance with religious teachings.
Although sharia mutual funds also have risks that need to be considered, with a good understanding and the right choice of products, Mutual Fund Investment can be an effective and profitable investment instrument in achieving your financial goals.
