Investing in a mutual fund is similar to buying and selling. In Islamic law, all transactions in muamalah (buying and selling) are permissible as long as they do not contradict Sharia. Moreover, there are now many Sharia-compliant mutual fund products available, which are bound by two contracts – in accordance with Islamic law – namely wakalah and mudharabah contracts.

Wakalah is the delegation of authority by one party to another in matters that may be delegated. In this case, the investor appoints the Investment Manager. The investor gives a mandate to the Investment Manager to carry out investment activities for the investor's benefit in accordance with the terms set out in the Mutual Fund Prospectus.

As for mudharabah, it is when one person entrusts their capital to another person to trade with the understanding that any profit obtained is shared between the two parties according to the agreed terms. This contract applies between the Investment Manager and the investor or client.

To be more confident, you can also invest in a Sharia-compliant Mutual Fund.

Read also:

What is the difference between conventional and Sharia-compliant mutual funds?

Can a mutual fund be inherited?

Does a mutual fund carry risk?