Investing The Islamic Way – Introducing Shariah Compliant Mutual Funds

Imagine you have saved up a certain amount of money. What is the one thing you would want? A safe place to store it, right? Now imagine if you could not only keep your money safe but also increase it over time! How? By investing in a Mutual Fund.

A mutual fund is simply a collective investment scheme. A number of people pool in their investments and hand them to a fund Manager. The fund manager becomes the caretaker of your investment and invests on your behalf in securities such as stocks, bonds, money market instruments and similar assets. Investment in these securities generate returns that are passed onto you and the cycle repeats.

This method of collective investment allows small investors access to access to professionally managed, diversified portfolios of equities, debt instruments i.e. TFCs and Govt. Securities and other securities, which otherwise would be quite difficult (if not impossible) to create with a small amount of capital.


Sounds amazing, right? But one thing will still be on your mind: Is this Islamic? Coming from a religiously-oriented culture, many of us disregard any financial methods right away because we believe they are not Islamic; and all of them run on the concept of interest. While this was true a few decades back- now it’s not! If you are someone who wishes to grow your investment in a Halal way, Islamic Mutual Funds are made for you! These funds are specifically tailored for people focused on Halal income and the investments in these funds are in Shariah- Compliant Securities.

The Shariah Advisor Board of the Fund lays down certain principles relating to Shariah compliance- for example, the company must not be excessively financed with debt, should not engage in unlawful activities like alcohol trading etc. Only companies that meet these requirements are invested in by the Mutual Fund. Hence, returns from these investments are free from Riba’a/interest.

Types of Islamic funds

Islamic Mutual Funds are of many types. Each type has different characteristics, invests in different types of securities and has its own risk profile. It’s almost like a person with its own personality! So how do you go about deciding which fund is, in literal terms, made for you? If you are adventurous, aggressive and a risk seeker, then high risk funds such as Equity and Balanced Funds should be your choice. If you like a lower but more steady flow of returns, Money Market and Income Funds are a better option.

Let’s delve deeper into the list of funds we’ve compiled for you. We discuss two contrasting options: low and high-risk funds of each entity. So, stay tuned for the next sections!

HBL Islamic Money Market Fund

The objective of HBL Islamic Money Market Fund is to seek high liquidity, competitive return and maximum possible preservation of capital for investors by investing in low risk Shariah Compliant securities

The mutual fund has been giving positive returns over the benchmark rates all months this year and before as well. If you made an investment of PKR 10,000 on 6th Apr 2017 in the fund, you will be:

  • Entry load = 0
  • Total units bought = 96 (10,000/103.9476)
  • Management fee = Max of Rs. 100 (rounded)
  • Total revenue = 9969
  • Total costs = 100
  • Actual 1-year return = -1.13%

Don’t let the -1% return figure scare you! Mutual funds are held on an average for 3-5 years which allows much time for the fund value and investment to grow. On the other hand, these calculations do not take into account the dividends and other mid- year payments received which will further improve the return, even making it positive in some cases.

Please note that for the purpose of keeping it simple, we have not considered taxes in this analysis.

HBL Islamic Stock Fund

The objective of this fund is to achieve long-term capital growth by investing mainly in Shariah compliant equity securities.

If you made an investment of PKR 10,000 on 6th Apr 2017:

  • Entry load = 200
  • Total units bought = 59 (9,800/164.7298)
  • Management fee = 142
  • Total revenue = 7120
  • Total costs = 342
  • Actual 1-year return = -28.22%

The performance of this fund is tied closely to the performance of the KMI index- which is the benchmark for all Islamic Stock investments. However, out of all funds compared, HBL’s Stock fund has performed most poorly- so before you invest, make sure to go through the fund’s past performance.

Al Ameen Islamic Cash Fund (AICF)

AICF is an open‐end Shariah Compliant Money Market Fund which aims to provide high liquidity and competitive returns while seeking maximum possible preservation of capital by investing in low risk and liquid Shariah Compliant instruments.

As you can probably make out a trend, the money market funds are generating superior returns than their equity counterparts, indicating the stable income stream. If you made an investment of PKR 10,000 on 6th Apr 2017:

  • Entry load = 0
  • Total units bought = 96 (10,000/103.9414)
  • Management fee = Max 100 (rounded)
  • Total revenue = 9977
  • Total costs = 100
  • Actual 1-year return = -1.23%

Remember the interim dividends that have not been included. This is almost identical to HBL’s money market fund.

Al Ameen Shariah Stock Fund (ASSF)

ASSF wants to maximize total returns and outperform KMI index by investing in a combination of securities offering long term capital gains and dividend yield.

This represents a volatile fund with more risk tolerant investors. If you made an investment of PKR 10,000 on 6th Apr 2017:

  • Entry load = 250
  • Total units bought = 56 (9,750/171.95)
  • Management fee = 166
  • Total revenue = 8280
  • Total costs = 416
  • Actual 1-year return = -16.4%

Although this fund is also riskier, it’s return figures are better than HBL’s Stock fund. However, the returns are heavily dependent on the stock market (83% of total investment is in equity securities). Also remember that Equity funds are long term investments- their value is better over a number of years.

Meezan Cash Fund

If you have short-term idle cash and looking for a good investment opportunity, this fund offers returns along with high liquidity and low risk.

If you made an investment of PKR 10,000 on 11th Apr 2018:

  • Entry load = 0
  • Total units bought = 189 (10000/52.67)
  • Management fee = 98
  • Total revenue = 9836
  • Total costs = 98
  • Actual 1-year return = -2.62%

The performance of this fund has been lower than the others. Due to unavailability of data, NAV for April 6th 2017 was used instead of offer price. As offer prices are greater than NAV of the same time period- the return is lower than calculated. Before you make an investment here, do go through this fund’s past performance before making a decision.

Meezan Islamic Fund

The fund has provided a staggering return of 1390% since its inception in 2003. The fund, as can be identified by the Risk level, is more suited to investors looking for higher returns through riskier investments.

If you made an investment of PKR 10,000 on 6th Apr 2017:

  • Entry load = 200
  • Total units bought = 113 (9,800/86.23)
  • Management fee = 161
  • Total revenue = 8065
  • Total costs = 361
  • Actual 1-year return = -19%

Meezan has performed poorer than UBL’s high-risk fund. However, a poor return should not surprise us since it has been a bad year for the entire stock market.

AKD Islamic Income Fund

This fund invests in a wide variety of assets (stocks, bonds etc.). This very feature offers the rewards of diversification, and at the same time it might suffer a bit since stocks in particular are risky assets. We have already seen that other money market funds, usually invest in extremely safe assets such as term deposits.

If you made an investment of PKR 10,000 on 21st Feb 2018:

  • Entry load = 100
  • Total units bought = 196 (9,900/50.5185)
  • Management fee = 98
  • Total revenue = 9849
  • Total costs = 198
  • Actual 2-month return = -1.5%

The figures use February as a starting point due to unavailability of data. The actual return over a one-year span will be better. Income funds mainly invest in short- term debt instruments such as Sukuks. Considering that their risk is higher that money market funds, the return is acceptable. If you are a middle route taker – this is a good medium risk portfolio.

AKD Islamic Stock Fund

The fund invests in the Capital Markets through an optimal combination of strategies in Shariah compliant equities providing capital growth and dividends- basically the more risk you can take, the returns you can expect!

If you made an investment of PKR 10,000 on 21st Feb 2018:

  • Entry load = 300
  • Total units bought = 188 (9,700/51.4012)
  • Management fee = 199
  • Total revenue = 9966
  • Total costs = 499
  • Actual 2-month return = 0.67%

This is the only fund in the portfolio that has a positive return, and a positive actual return. This is the best investment option out of all funds we have considered. However, we should bear in mind that the data we have considered is from February of this year. As a result, we cannot confidently say whether AKD has the best Islamic stock fund of them all.

Alfalah GHP Islamic Income Fund

The investment objective of Alfalah GHP Islamic Income Fund (AGIIF) is to minimize risk, construct a liquid portfolio of shariah approved fixed income investments and provide competitive returns to the unit holders. The management team shall ensure the active implementation of prudent investment practices of the highest professional standards and compliance with applicable laws.

If you made an investment of PKR 10,000 on 6th Apr 2017:

  • Entry load = 100
  • Total units bought = 93 (9,900/105.9362)
  • Management fee = 97
  • Total revenue = 9763
  • Total costs = 197
  • Actual 1-year return = -2.3%

This fund’s performance is a bit poor, considering some of its rivals have performed way better. Alfalah’s conventional funds have also struggled immensely over the last year. This continues to be the case with their Islamic funds.

Alfalah GHP Islamic Stock Fund (AGISF)

AGISF seeks to achieve long term capital appreciation and income from a diversified portfolio developed in consistence with the principles of Shariah.

If you made an investment of PKR 10,000 of 6th Apr 2017:

  • Entry load = 300
  • Total units bought = 117 (9,700/82.3028)
  • Management fee = 159
  • Total revenue = 7996
  • Total costs = 459
  • Actual 1-year return = -18.6%

Alfalah and Meezan have performed similarly. The market has seen dips in the relevant fiscal year which obviously impacts the returns on the funds as well. The market has become a little less volatile as of present and has been performing better mainly due to successful completion of the Senate Election, tax amnesty scheme, fewer political turbulences. So we can expect better returns in the future.

NAFA Islamic Money Market Fund

Provides competitive return with maximum possible capital preservation by investing in low risk and liquid Shariah Compliant instruments.

If you made an investment of PKR 10,000 of 1st Mar 2018:

  • Entry load = 50
  • Total units bought = 989 (9,950/10.0590)
  • Management fee = 99
  • Total revenue = 9935
  • Total costs = 149
  • Actual return = -1.14%

Compared to all others, this fund provides a slightly lower return- but we must consider that the investment has been made in March only. Most of the money- market funds have shown a similar pattern of returns, with returns being in the range of -1% to -2%

NAFA Islamic Stock Fund

Looks long term capital growth from an actively managed portfolio of Shariah compliant listed equities.

If you made an investment of PKR 10,000 of 6th Apr 2017:

  • Entry load = 300
  • Total units bought = 607 (9,700/15.9787)
  • Management fee = 151
  • Total revenue = 7580
  • Total costs = 451
  • Actual 1-year return = -22.71%

The return is not as low as HBL’s mutual fund but still one of the lowest of all the funds we have considered in this analysis.


Overall, the money market sector returns have been on a similar level. Among income funds, both of them represent a good option of medium risk investment. The returns for funds in the equity sector are low and show the riskiness of the investment. Ofcourse, that also means that in good times, a risk-taker will make large gains. Now that you know so much about these funds, which one do you intend to invest in?

Also check out our blog on top conventional mutual funds.