Understanding How Shariah Mutual Funds Work and the Principles of Sharia-Compliant Investment
JAKARTA, Cobisnis.com – For many people in productive ages, especially young people and young families, financial planning today is not only about asset growth but also alignment with the values they believe in. One instrument often chosen is Shariah mutual funds, which are seen as capable of combining investment goals with ethical principles in finance.
Justitia Tripurwasani, Director & Chief Legal, Risk and Compliance Officer and Head of the Shariah Investment Oversight Unit at Manulife Asset Management Indonesia, explains that the principles of Shariah finance actually provide a clear governance framework for economic activity.
According to her, Shariah finance emphasises tangible economic activity, clarity of contract (akad), and disciplined risk management. These principles also avoid riba (usury), gharar (excessive uncertainty), and maysir (gambling or speculation).
In Indonesia, the Shariah finance ecosystem continues to develop and becomes increasingly accessible to the public. This is supported by robust regulation and Shariah guidelines from related institutions, allowing retail investors to place their funds in investment instruments that conform to Shariah principles with greater confidence.
Regulation of Shariah Mutual Funds in Indonesia
The management of Shariah mutual funds in Indonesia is under the supervision of the Financial Services Authority (OJK). This body regulates the process of product issuance, transparency of information to investors, and the management of investment portfolios.
Moreover, each Shariah mutual fund product is overseen by the Shariah Supervisory Board, which is tasked with ensuring all investment activities remain in accordance with Shariah principles.
Meanwhile, the Shariah guidelines for financial products are issued by the National Sharia Board of the Indonesian Ulema Council (DSN-MUI), which issues various fatwas to ensure modern financial practices remain in harmony with Islamic law.
How Shariah Mutual Funds Work
In practice, Shariah mutual funds place funds only in instruments listed on the Shariah Securities List (Daftar Efek Syariah) and other permitted instruments such as sukuk.
The relationship between investors and the fund manager typically uses the wakalah contract, which grants authority to the fund manager to manage the fund in exchange for management fees. There is also the mudarabah contract, which governs the profit-sharing arrangement between the fund operator and the capital owner.
Certain practices common in conventional capital markets are not allowed in the Shariah system. For example, margin trading, short selling, and insider trading are considered contrary to the principles of justice, transparency, and rightful ownership of assets.
Cleansing Process in Shariah Mutual Funds
One important mechanism in Shariah investing is the cleansing process. This process aims to separate income derived from sources that do not conform to Shariah principles.
If a small portion of non-halal income arises beyond the control of the investment manager, that portion will be separated and allocated to social or charitable activities. This process is carried out periodically by the investment manager to keep the portfolio aligned with Shariah principles.
Investment in Harmony with Values of Life
Shariah mutual funds focus not only on financial returns but also on upholding ethical values in wealth management. Through screening of business sectors and Shariah oversight, investors are expected to avoid excessive risk while maintaining barakah in financial management.
Manulife Asset Management Indonesia itself has managed various Shariah mutual fund products for more than a decade. The company also implements cleansing in its investment management.
During 2025, the cleansing funds managed by the company reached around Rp298.7 million. The funds were then allocated to various social activities, such as renovating classroom spaces and building infrastructure in several regions of Indonesia.
This investment approach makes Shariah mutual funds not only instruments for asset growth but also part of a more responsible and meaningful form of financial management for society.