Islamic Funds and Wealth Management
This domain tests screening rules, purification arithmetic, and the governance of discretionary portfolios and collective investment schemes.
Screening
- Business activity - exclude alcohol, tobacco, gambling, conventional finance, pork, pornography, weapons.
- Financial ratios - commonly interest-bearing debt/total assets under 33%, interest-bearing securities/total assets under 33%, receivables/total assets under a set threshold, and non-permissible income under 5% of revenue.
- AAOIFI Sharia Standard 21 treats non-permissible income below 5% as purifiable; 5–33% as mixed; above 33% as impermissible.
Structures and rules
Equity funds, sukuk funds, commodity-murabaha money market funds, ETFs, REITs, waqf and zakat funds, discretionary managed accounts and screened robo-advisers. Prohibited techniques: short selling, margin trading, forwarding, conventional derivatives except limited hedging by wa'd; bay' al-dayn is restricted.
Worked example
An investor receives a $10,000 dividend from a company whose non-permissible revenue is 3% of the total. Purification = 3% × $10,000 = $300, donated to charity. Reasoning: the dividend carries a proportionate impermissible component; giving that fraction away leaves the investor with a clean 97%.
Traps
Applying one index's ratio set across every standard; forgetting purification; treating purification as zakat, which is a separate 2.5% obligation on zakatable assets after the hawl.