To recap, last time we discussed how to find halal stocks and stock funds. We also learned that most Shari’ah scholars agree that a two-step screening process (qualitative and quantitative) best determines compliance with the principles of Islamic financial transactions.
Investing doesn’t begin and end with stocks and stock funds. Financial professionals advise putting your money in a combination of stocks and bonds in order to achieve competitive returns and to even out the ups and downs we often see in the market. Studies show that asset allocation, or the mix of stocks, bonds, and (to a lesser extent) cash, may account for more than 90% of a portfolio’s performance. However, for Muslims, the Islamic prohibition on the giving and taking of interest means that conventional bonds, or fixed-income assets, are not an option. Or are they?
For most people, the phrase “fixed income” is synonymous with interest-bearing investments. But more generally, “fixed income” can refer to any investment that pays periodic, often predetermined, installments over time. When a homeowner leases the property to a renter, the owner is receiving “fixed income” from the renter.
A lot of the fixed income products available in the market are based on debt, so what you receive from them is riba, or interest. There are exceptions, including products called sukuk, Islamic bank deposit notes, and the dividends you get from stocks. What’s been missing until recently is a convenient way for the American Muslim investor to add these products to his or her asset allocation.
America’s First Halal Fixed-Income Fund
The Azzad Wise Capital Fund is a publicly available mutual fund that takes the broader definition of “fixed income “and brings it to life, in accordance with Islamic principles. The Fund invests in a variety of sukuk (Islamic bonds) and Islamic bank deposits involved in overseas development projects. It is registered with the Securities and Exchange Commission and is governed by the Investment Company Act of 1940. The Azzad Wise Capital Fund offers investors a strategy that aims for capital preservation and a competitive, though not guaranteed, rate of return from its asset-backed holdings. Simply put, it’s a financial product made in America, from overseas parts, compliant with Islamic principles. Although it doesn’t deal with debt instruments created from interest-based lending, the Azzad Wise Capital Fund does share in the profits from its ventures. And it has proven to be an ideal investment product for conservative, income-oriented investors and those who need a fixed-income component in their asset allocation strategy.
For the American Muslim investor, the Azzad Wise Capital Fund may be the missing piece of their asset allocation puzzle.
Stay tuned for next week’s article, The Nuts and Bolts of Ethical Investing.
Joshua Brockwell works as Investment Communications Director at Azzad Asset Management, headquartered in the suburbs of Washington, DC. Azzad serves as investment adviser to the Azzad Funds and is a Registered Investment Adviser (RIA) with the Securities and Exchange Commission (SEC). Azzad is committed to managing clients' money according to a socially responsible investment philosophy based on Islamic values and incorporating a rigorous and disciplined investment approach.
Mutual fund investments, including the Azzad Funds, are not FDIC-insured, so you may lose money. The Azzad Funds are available by prospectus only, which includes more information about the Funds’ objectives, risks, charges and expenses. Please read the prospectus before sending any money. To request a free copy, please call 1-888-862-9923, or visit us online at www.azzadfunds.com. Azzad Asset Management serves as the investment advisor to the Azzad Funds, which are self-distributed. 6/10.