Is Sharia Compliant Investment Worth It?

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Every single investment is a leap of faith. For many choosing to invest in Shariah compliant investment products, that is especially true given their religious convictions. In recent years, there has been a boom in demand for both equities and fixed income, such as sukuk, and the profile of Sharia-compliant products has risen. However, misperceptions remain.

First, it is often thought that performance will suffer in Sharia-compliant investments, owing to their religious component, which imposes restrictions on what securities investors may buy. Second, a commonly held belief is that Shariah compliant investment is only really for Muslims and therefore irrelevant for mainstream investors looking to build genuinely diversified portfolios. Last, managers of Sharia-compliant funds are sometimes deemed to lack not only sufficient financial expertise but also knowledge relating to Islamic practices and Sharia law.

Shariah compliant investment

What is the advantage of Shariah Compliant Investment in Dubai?

To understand fully the advantages of Shariah compliant investment meaning, it is important to address these issues one by one.

Competitive performance

Claims that Sharia-compliant funds underperform when compared to conventional investments are not true. Comparisons between two commonly used indices, the MSCI AC Global Equity and the MSCI AC Asia ex Japan Equity and their Shariah equivalents, show that under certain conditions, the Sharia one can hold its own. Crucially, the performance of Sharia indices is largely determined by one factor: the performance of bank stocks. When bank stocks do well, Sharia indices underperform, and vice versa.

Clearly, banks are a major component within conventional indices. Yet, nearly ten years on from the last financial crisis and regulators still concede that some banks are too big to fail; capital inadequacy remains a problem in the wake of undemanding stress tests; ‘Chinese walls’ are weak in the face of continuing conflicts of interest, and transaction costs for bank customers are often excessive.

Therefore, for investors who are apprehensive about the reliability and stability of conventional global banking and finance, Shariah compliant investment funds list may offer a solid hedge against the next crisis. In fact, had Sharia precepts operated in 2008, they may well have prevented the last one. In the same way, Islamic restrictions on the debt would have prevented the asymmetries of a system where risk-taking rewards certain individuals while requiring taxpayers to cover any losses incurred.

Sound principles for investment plans

Another common misperception is that Sharia law dictates where investments can and should be made. In reality, Islam makes no distinction between the spiritual and the secular; Sharia law merely stipulates where investments cannot be made. For example, in terms of investments, Sharia places particular emphasis on haram or ‘forbidden’ industries. Haram extends to all products and services considered addictive, including alcohol and gambling. Accordingly, all income generated from the manufacturing and marketing of pork, prostitution or pornography, among other industries, is also forbidden.

Rather than simple moral prohibitions, the frame of reference of Islamic finance governs personal conduct including the individual responsibility to society and the notion of serving the common good. This social awareness is exemplified in the concept of gharar, which seeks to eliminate ambiguity and deceit in Shariah compliant investment guidelines, including fraudulent acts or other undesirable consequences. From a financial perspective, this means that investment cash flows must be tied to real assets.

Conclusion

There is a number of sharia-compliant companies working in Dubai. Among them one of the best institutions is banks. Well, Dubai banks are really professional and provide a lot of benefits through Islamic banking services. Among all Mashreq Capital is working with all kinds of banking options. Especially for shariah complaint investment in UAE, it is one of the most suitable banks for all types of clients.

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