Equity Funds - Guarantee of capital of the fund by the manager
To attract investors, many conventional fund managers guarantee to the investors the nominal value of their investment. This is not acceptable from Shari’ah point of view. Many advanced to a manager that guarantees it return at the end of the period (or at any time in the future) makes it, from contractual point of view, a lender-borrower relationship. Profit on such money will then be a form of usury (riba), even of such profit is variable. In an Islamically managed fund no such guarantee should be made.
Source: An Introduction To Islamic Banking, Shaykh Dr Mohamed Ali Elgari. Republished with permission.
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