What is Shariah-compliant investing?

Shariah-compliant investing follows Islamic principles. The main rules are no interest (riba), no excessive uncertainty or speculation (gharar), and no investment in businesses whose main activity is forbidden, such as alcohol, gambling or conventional interest-based lending.

In Pakistan, Islamic mutual funds and pension funds put these rules into practice. Each has a Shariah adviser or board that approves its investments. Share funds screen companies on what they do and on their finances, for example how much interest-bearing debt they carry. Income funds buy instruments such as sukuk, Islamic certificates backed by assets instead of interest-paying bonds, and place cash in Islamic bank deposits.

If a company in the fund earns a small amount of income from non-compliant sources, the fund calculates that share and gives it to charity. This is called purification.

The PSX also runs Shariah-compliant share indices, such as the KMI-30, that track only companies passing the screens. Like any investment, an Islamic fund can lose value; Shariah compliance describes how the money is invested, not how safe it is. MUFAP lists every Islamic fund in Pakistan with its returns.