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Bond Mutual Funds
Mutual funds are created by buying many securities and certificates by fund managers. These mutual funds can be both equity or bond funds. Additionally there are mixed funds which have both of these sub categories of assets. As bonds pay interest and government treasury bills are purchased at discount to principle value, is it allowed to purchase fixed income mutual funds? These fixed income mutual funds distribute income based on profitability of underlying assets. The value of these mutual funds may go up or may go down. The underlying securities are issued by governments, banks and corporates.
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3 Replies
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Bond Mutual Funds
updated 4 days, 20 hours ago
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Bonds, whether issued by governments or corporations, are essentially instruments of debt financing. They do have some dissimilarities from general loan transactions, but in Ghamidi sahab’s view it is not befitting for a God conscious person to invest in such instruments. He does, however, offer some relaxation for certain types of individuals. For details, please see:
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Thank you Mr Faisal. Can we expand on this discussion. I have heard Dr. Ghamdi’s lectures where he says that paying interest on financing is permissible. What sort of financing is he referring to. In today’s world, a company requires short term overdraft facilities to meet their liquidity requirements, raises capital for new projects through loans and bonds, also raises debt capital for general corporate purposes which may include refinancing of existing loans and bonds. Which ones of these debt forms are not permissible and are contrary to the principles of justice in our religion. My understanding from listening to Dr. Ghamdi is that they are all allowed for the companies active in permissible activities. Now my second part of the same question. If these are permissible, then investing in these forms of debt in the form of market securities and funds should be permissible as well, isn’t it? This is the way capital gets directed from savers to companies for companies to invest in commercial activities that create socio economic opportunities. Appreciate your guidance.
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Dear Faisal Sb or Umer Sb, bringing your attention back to my question. My confusion comes from one of the lectures of Ghamdi Sb where he permitted the use of principle secured investments to companies related to their investment plans including payment of salaries. Kind regards
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