Halal investing is investing in companies, also known as equities or stocks, and debt instruments, also known as income or Sukuks (Islamic Bonds) that are in line with Islamic principles of investing. Many conventional investment products aren’t compliant because they are involved with impermissible (haram) activities or generate interest (riba) as income. For example, profiting off debt is prohibited, so investing in conventional bonds (Government & Corporate) and Guaranteed Investment Certificates (GICs) are not allowed for observant Muslims. Additionally, halal investing prohibits investing in businesses that profit off the following activities:
- Tobacco/Illicit Drugs
- Conventional Financial Services
- Defense / Weapons
- Gambling / Casinos
- Adult Entertainment
This first screen is what is known as a business activity screen and is one step in the screening process. There is also a financial screening process to ensure that these same companies are not deriving significant income from interest (riba) or having excessive debt. The principles of these financial screens are:
- Companies which are directly active in, or derive more than 5% of their revenue (cumulatively) from the above-mentioned activities
- Total debt over total assets should not exceed 33.33%
- Sum of a company’s cash and interest-bearing securities over total assets should not exceed 33.33%
- Sum of a company’s accounts receivables and cash over total assets should not exceed 33.33%
If any of these companies exceed one of these percentages or are active in the non-compliant activities listed above, they are deemed to be non-investible.
What makes the Manzil mortgage fund Halal?
The Manzil mortgage fund was built from the ground up as a Halal investment fund. We worked very closely with our Shariah, legal, and audit teams to ensure it met the strict standards of AAOIFI and you can view the Shariah compliance certificate for the Manzil mortgage fund here. Because this fund does not invest in company stocks, we had to ensure that the underlying investment in the fund was also Halal. The Manzil mortgage fund is the only fund that invests in Halal mortgages in Canada and is the only investment vehicle that derives its profit back to the investors through the income it generates from the Halal mortgages it finances.
What risk profile is the Manzil Investment Fund?
The Manzil Investment Fund is a Halal income fund that directly invests in Canadian first mortgages using the Manzil Halal mortgage structure which makes it a lower-risk investment. As it doesn’t include equities (company stocks) which tend to be higher risk, you will find that this investment fund will not have as much fluctuation as you would expect in an all equities stock portfolio.
Will Manzil be making available equity-based portfolios so that we can diversify our holdings?
Manzil is currently working on structuring Halal equity funds which will allow you to invest in company stocks that meet the standards of AAOIFI and will be continually be monitored by our internal Shariah auditors and external Shariah advisors to ensure its continued compliance. Generally speaking, equity will fluctuate more than income, so you will have to have a higher tolerance for risk to invest in these Halal equity funds once they become available.
Is the Manzil investment fund considered to be an ETF (Exchange Traded Fund)?
No, ETFs are listed on the stock exchange like the TSX. The Manzil Mortgage fund is a mutual fund and can only be accessed through our distribution partners.
Is Manzil mortgage fund a bond fund?
No. Bonds pay interest (riba), which is not allowed under Islamic law. The Manzil mortgage fund invests in Halal mortgages and derives it’s payments to investors through revenues. Traditional bonds are not secured by assets whereas the Manzil investment fund is secured by Canadian real estate which is one of the major principles in Islamic Finance.
Does the Manzil mortgage fund have the ability to invest in Halal company stocks or Islamic bonds (Sukuks)?
The Manzil mortgage fund is not allowed to invest in company stocks, however, it does have the ability to invest in Shariah-compliant debt instruments such as Sukuks (Islamic bonds) and Shariah-compliant deposit instruments that yield a Halal return.
How does the Manzil investment fund differ from the Wealthsimple Halal portfolio?
The Manzil investment fund is considered to be an income fund, the very first of its kind actually, whereas the Wealthsimple Halal portfolio invests in Shariah-compliant company stocks and acts like an equity fund. The major difference here is the amount of fluctuation you will see in your investment portfolio. Because Wealthsimple’s Halal portfolio invests only in Halal stocks, you will see greater fluctuations with their portfolio than you would see with the Manzil Investment fund which invests in Halal mortgages as it derives its profits from the payments that are made from each Manzil mortgage client. Because of this, the Manzil mortgage fund can complement your Halal investment strategy by lowering the overall risk of your portfolio and provide you with the diversification you are looking for when it comes to a more balanced investing approach.
Can anyone invest in the Manzil investment fund?
Of course! Anyone who is a suitable investor can invest in this fund.