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

Keynotes / Most Obvious Part of Shariah-compliant Funds

• Shariah-compliant funds are investment funds that comply with Islamic law.
• They are different from conventional investment funds because they have many requirements, such as appointment of a Shariah board and prohibition from investing in companies that derive a majority of their income from sale of alcohol, pork products, gambling etc.
• While Shariah-compliant funds have grown at a respectable clip, it is difficult to accurately estimate the industry’s size or valuation.

Understanding 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 Islamic religion.
Shariah-compliant funds have expanded in popularity only recently, even though the concept was first developed in the late 1960s. According to a 2011 report by consulting firm PricewaterhouseCoopers (PwC), Shariah-compliant funds grew at an annualized rate of 26% in the first ten years of this century. The report further states that “an inflection point” in their growth occurred between 2002 and 2003, when petrodollar liquidity multiplied and capital markets in the Gulf Cooperation Council (GCC) countries matured to enable investment.
According to a report by the Malaysia Islamic International Financial Center, total global Islamic assets under management (AUM) were $70.8 billion at the end of the first quarter of 2017.The corresponding figure in 2008 was $47 billion. However, it is difficult to accurately estimate the industry’s size or valuation because much of the investment occurs through private placement. The funds are also not traded in secondary markets, thereby providing less of a window into their constituents.
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 a 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.
These rules can add complexity and costs to the management of a Shariah-compliant fund. For example, Shariah boards are constituted of Islamic scholars whose fees can run into millions of dollars per year, adding to the overall cost of managing the fund. The scholars have varying interpretations of Islamic law, making it difficult and time-consuming for them to arrive at a consensus for analysis and implementation regarding a particular course of action.
Popular categories of investment for Shariah-compliant funds include real estate and exchange-traded funds. Private equity is also considered a good investment but carried interest is considered a problem within Shariah law.

Examples of 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.

Questions And Answers…
What are the four types of investment funds?
Most mutual funds fall into one of four main categories – money market funds, bond funds, stock funds, and target date funds.
What is conventional investment?
Conventional categories include stocks, bonds, and cash. Alternative investments can include private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts. Real estate is also often classified as an alternative investment. See also Venture Capital.
What is Islamic vs conventional fund?
Conventional Bank treats money as a commodity and lend it against interest as its compensation. Islamic banking products are usually asset backed and involves trading of assets, renting of asset and participation on profit & loss basis. Relation of customer & bank is of Creditor-Debtor.
What is the difference between Islamic and conventional investment?
In Islamic banking leasing, ownership remains with bank and risk and reward bear by the bank as owner of asset. In conventional banking, fixed rate of interest being given to depositors. In Islamic banking, profit are distributed out of profit earning by bank for the month as per decided weightages.
How is conventional investment different from Islamic investment?
The difference between conventional Islamic investment lies in the benefits given. The advantages of Islamic investment are in the form of profit sharing, while the conventional concept is interest. In the teachings of Islam, interest is haram, because it does not recognize value for money.
How is conventional fund different from Shariah fund?
They are different from conventional investment funds because they have many requirements, such as appointment of a Shariah board and prohibition from investing in companies that derive a majority of their income from sale of alcohol, pork products, gambling etc.
What are the two types of investment funds?
There are two main types of investment funds: mutual funds, and non-redeemable investment funds. Investors in mutual funds are generally able to purchase or redeem securities of mutual funds on demand for a price representing a proportionate interest of the fund’s net assets.
What are 3 types of funds?
There are three types of funds of the Central Government – Consolidated Fund of India (Article 266), Contingency Fund of India (Article 267) and Public Accounts of India (Article 266) mentioned in the Indian Constitution.
Is mutual funds haram or halal?
Following the Shariah principle, you can invest in stocks or mutual funds. However, it can be challenging to select Shariah-compliant stocks. In that case, investing in a Shariah based mutual fund can help. There are Shariah-compliant mutual funds available in India.
Is Bank Islam Islamic or conventional?
Bank Islam is the pioneer of Islamic banking in Malaysia, and has played a major role in the development and growth of the nation’s Islamic financial industry.
What is the difference between Sukuk and a conventional bond?
What is the difference between Islamic loan and conventional loan?
Conventional financing profits by charging interest on the loan, meaning that borrowers will end up paying back more than they borrow. Islamic financing is instead based on making a profit through the sale of commodities.
Why Islamic banking is better than conventional?
Justice and Fairness. The foundation of the Islamic Banking model is based on a profit-sharing principle, whereby the risk is shared by the bank and the customer. This system of financial intermediation contributes to a more equitable distribution of income and wealth.
Is Islamic bank better than conventional?
Furthermore, the logistic regression results reveal that Islamic banks perform well in asset quality, management adequacy and sensitivity to market risk whereas conventional banks are efficient in capital adequacy and liquidity.

Useful links
The IMF And Islamic Finance
Shariah-compliant funds: A whole new world of investment
Shariah Compliant Funds: How are they different?