Sharia Investment: Definition, Characteristics, Types, and Benefits

For some Muslim brothers, avoiding something that might bring us usury is a very important thing. Therefore, many use various sharia products which are certainly halal and in accordance with Islamic law. Currently, investment also has many products with a sharia basis.

Investment is basically a commitment owned by a person towards a number of assets in the present, which is expected to be able to provide benefits in the future (Tandelilin, 2017). Sharia investment is an investment activity with the basic principles of using sharia in its business processes. Actually what is Islamic investment? 

Does Islamic investment bring benefits as well as conventional investment? The following is a discussion related to Islamic investment from the understanding, characteristics, types, benefits of this particular investment product.

What is Sharia Investment?

Sharia investment is a commitment to assets with the aim of obtaining future profits with principles that are in line with Islamic sharia. The principles of Islamic law that apply to sharia investment are regulated by the Indonesian Ulema Council through the fatwa of the National Sharia Council (DSN). 

The current implementation of sharia investment is explained by approximately 29 DSN MUI fatwas. The fatwa from the MUI DSN is actually not binding, but the fatwa will remain a reference in the practice of sharia investment in Indonesia. The thing that makes Islamic investment different from other conventional investments is that Islamic investment is guided by Islamic law in its implementation

Sharia Investment Characteristics

In addition to applying Islamic principles and sharia, the following are some of the characteristics of sharia investment.

Business Activities That Are Not Contrary to Islamic Principles

Investment products have various forms, some of which are: saham, bonds, mutual funds, and so forth. Sharia investment has provisions in which business activities carried out by sharia investment issuers must not conflict with Islamic sharia. For example, sharia investment is not suitable for companies engaged in the production of alcohol.

Avoiding Riba

In accordance with Islamic principles that prohibit usury, sharia investment also does not use usury (for example interest) as a return on investment from investors. The system applied by Islamic investment is usually in the form of profit sharing. Profit sharing is where investors will get some of the profits from the company, but it is possible that investors will get losses if the company also suffers losses.

Profit and Loss Deliberation

In sharia investment, deliberation or agreement or contract needs to be carried out. Both investors and issuers must conduct deliberation to obtain consensus. With the agreement, investors can at least avoid misleading information (ghahar) and excess risk (masir)

Types or Sharia Investment Products

WahIt turns out that Islamic investment has quite unique characteristics compared to conventional investments in general. Furthermore, what investment products can be sharia investments? The following is a discussion of several types of Islamic investment products.

Sharia Stock

Sharia stocks is proof of ownership of the company which of course will be in accordance with Islamic principles. Stock investment In general, it can be categorized as an activity deliberation or shirkah, where investors make equity participation and earn income in the form of profit sharing rights (dividends). Because of the shape stock investment In this case, actually stock investment does not conflict with sharia principles.

Even so, not all shares can be categorized as sharia shares. The thing to remember is that the business activities of companies issuing investment assets must not conflict with sharia principles. Stock investors in Indonesia can invest in sharia shares by looking at the Sharia Securities List (DES). DES is a list of stocks that do not conflict with Islamic law in the capital market.

Only the Financial Services Authority (OJK) and parties that have obtained approval from the OJK can determine DES. Parties that can become DES Issuing Parties are:

• Parties that obtain approval from OJK
• Sharia Investment Manager
• Investment managers who have Sharia Investment Management Unit

Sharia Bonds or Sukuk

The next sharia investment product is sharia bonds or often referred to as sukuk. Sharia bonds or sukuk are securities in the form of certificates or proof of ownership where investors will receive income in the form of rent (ujrah) or other yields with a certain percentage. The most distinguishing thing between Islamic bonds and conventional bonds is that the yield is not a form of interest.

In addition, there are several other differences between sukuk and conventional bonds, including: underlying assets and the form of securities which is a proof of ownership. Sukuk or sharia bonds will be guided by Islamic laws which tend to avoid usury. Even so, Islamic bonds still have the characteristics of conventional bonds in which the return on this investment will be paid regularly and the principal value of the loan will be paid when the sukuk matures.

Just like conventional bonds, Islamic bonds can also be issued by the government or companies. 

Sharia Mutual Funds

Sharia mutual funds is an investment forum organized by an investment manager where investments are made by depositing funds into sharia securities, such as sharia shares, interest rates, and other sharia securities. The main difference from mutual funds Sharia and conventional mutual funds are sharia mutual funds management that pays attention to Islamic sharia. In addition, the asset instruments invested in sharia mutual funds must be company securities instruments whose business activities do not conflict with Islamic principles.

Mutual funds also have an illegal wealth cleansing system (cleansing), whereas conventional mutual funds do not have this mechanism. The final difference is that Islamic mutual funds are supervised by the Sharia Supervisory Board (DPS), while conventional mutual funds are not.

Sharia Investment Benefits

Sharia investment in addition to providing income for investors, it also has several other benefits, you know. The following are the benefits of investing in Islamic investments.

Halal Investment

Sharia investment is a halal investment where all investment activities must be guided by Islamic principles and sharia. Sharia investment products will avoid usury and company business activities that are contrary to sharia. For this reason, it can be ascertained that sharia investment is a lawful activity.

Minimal Fraud Risk

The sharia investment process will always avoid bad things such as fraud, extortion, and other bad actions. In addition, Islamic investments will usually uphold the principle of transparency where Islamic investments – such as sukuk – will usually report in detail about the company's business processes. This transparency activity is of course carried out so that the company's business activities can be ensured in accordance with Islamic principles and sharia and ultimately investors can avoid the risk of fraud. Even so, always make sure that you invest in instruments registered with the OJK to avoid fraudulent investments!

Avoiding Riba

Riba is something that is forbidden in Islamic principles. Sharia investment is here to provide a halal investment alternative. So, the income that is in Islamic investment will usually be in the form of profit sharing, margin fees, and other returns.

Low Risk of Loss

Islamic investments have less risk of loss than conventional investments. This happens because sharia investment is based on a family element. Sharia investment also has a contract or agreement before the legalization of the investment so investors and securities issuers can negotiate with each other to get a mutual consensus and ultimately the risk of this investment is minimal.

Have Social Value

Another benefit of Islamic investment is that it has a greater focus on social activities. Sharia investment can have a function as a driver of the community economy where investors provide funds to companies. Then, the company recruits workers which ultimately reduces unemployment. That way, in addition to earning income, sharia investment also adds worship value to investors.

Well, that was an explanation related to sharia investment. Apparently, Islamic investment has various characteristics and various types of products. Is there a sharia investment product that you would like to make your future investment choice? There are some ways you can do to start investing both in conventional and Islamic stocks. Hopefully this article can help you to find out about sharia investment, yes!

Reference

Tandelilin, E. (2017). Capital markets portfolio & investment management. Yogyakarta: PT Kanisius.

Image source header: Unsplash