Jumat, 06 Januari 2023

Sharia Investment: Definition, Characteristics, Types, and Benefits

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By:
Team of Hukumindo

Previously, the www.hukumindo.com platform has talk about "Mengenal R. Soebekti, Ketua Mahkamah Agung RI Periode 1968-1974", "The Role of Law in Sharia Economic Development", "What Are The Competences of The Religious Courts To Adjudicates In Sharia Economic Cases?" you may read also "Contoh Gugatan Ekonomi Syariah" and on this occasion we will discuss about 'Sharia Investment: Definition, Characteristics, Types, and Benefits'.

For some Muslim brothers, avoiding something that might bring usury is a very important thing. Therefore, many use various sharia products which are of course halal and in accordance with Islamic law. Currently, investment also has many sharia-based products. Investment is basically a commitment that is owned by someone towards a number of assets in the present, which are expected to be able to provide benefits in the future. Sharia investment is an investment activity with the basic principles of using sharia in its business processes. Actually what is sharia investment? Does sharia investment bring profit like conventional investment? The following is a discussion related to sharia investment starting 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 law. Islamic sharia principles that apply to sharia investments are regulated by the Indonesian Ulema Council through the fatwa of the National Sharia Council (DSN).[1]

Sharia investment is currently implemented by approximately 29 DSN MUI fatwas. The fatwa from the DSN MUI is actually not binding, but the fatwa will still be a reference in sharia investment practices in Indonesia. The thing that makes sharia investment different from other conventional investments is that sharia investment is guided by Islamic law in its implementation.[2]

Characteristics of Sharia Investment

In addition to applying Islamic principles and sharia, the following are some of the characteristics of sharia investment:[3]
  1. Business Activities That Are Not Contrary to Islamic Principles. Investment products come in a variety of forms, including stocks, bonds, mutual funds, and so on. Sharia investment has provisions in which business activities carried out by Islamic investment issuers must not conflict with Islamic law. For example, sharia investment is not suitable for companies engaged in the production of alcohol.
  2. Avoid Riba. In accordance with Islamic principles which prohibit usury, sharia investment also does not use usury (for example interest) as investment returns from investors. The system implemented by Islamic investment is usually in the form of profit sharing. Profit sharing is where the investor will get some of the profits from the company, but it is possible that the investor will suffer a loss if the company also suffers a loss.
  3. Profit and Loss Conference. In sharia investment, deliberations or agreements or contracts need to be carried out. Both investors and issuers must hold deliberations to reach consensus. With this agreement, investors can at least avoid misleading information (ghahar) and excess risk (masyir).

Types or Sharia Investment Products

It turns out that sharia investment has quite unique characteristics compared to conventional investments in general. Furthermore, what investment products can become sharia investments? The following is a discussion of several types of sharia investment products:[4]
  1. Sharia Shares. Sharia shares are proof of ownership of a company which of course will be in accordance with Islamic principles. Stock investment in general itself can be categorized as a musyarakah or syirkah activity, in which investors invest in capital and obtain income in the form of business profit sharing rights (dividends). Because of this form of stock investment, stock investment actually does not conflict with sharia principles. Even so, not all shares can be categorized as Islamic shares. The thing that must be remembered is that the business activities of companies that issue investment assets must not conflict with sharia principles. Stock investors in Indonesia can invest in Islamic stocks by looking at the Sharia Securities List (DES). DES is a list of stocks that are not against Islamic law in the capital market. Only the Financial Services Authority (OJK) and parties that obtain approval from OJK can determine the DES. Parties that can become DES Issuing Parties are: (a). Parties that obtain approval from OJK; (b). Sharia Investment Manager; (c). Investment manager who has a Sharia Investment Management Unit.
  2. Sharia Bonds or Sukuk. The next sharia investment product is sharia bonds or what is 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 thing that most distinguishes between Islamic bonds and conventional bonds is the yield which is not a form of interest. In addition, there are still some more differences between sukuk and conventional bonds, including the existence of underlying assets and forms of securities which are proof of ownership. Sukuk or Islamic bonds will be guided by Islamic laws which tend to avoid usury. Even so, Islamic bonds still have the characteristics of conventional bonds where the return on this investment will be paid regularly and the principal amount 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.
  3. Sharia Mutual Funds. Islamic mutual funds are an investment platform organized by investment managers where investments are made by depositing funds into Islamic securities, for example Islamic stocks, tribes and other Islamic securities. The main difference between Islamic mutual funds and conventional mutual funds is the management of Islamic mutual funds that takes into account Islamic laws. In addition, asset instruments invested in Islamic mutual funds must be securities instruments of companies whose business activities do not conflict with Islamic principles. Mutual funds also have a cleaning system for non-halal wealth (cleansing), whereas conventional mutual funds do not have such a 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 apart from providing income for investors, it turns out that it also has several other benefits, you know. The following are the benefits of investing in sharia investments:[5]
  1. Halal Investment. Sharia investment is a lawful investment in which all investment activities must be guided by Islamic principles and sharia. Sharia investment products will avoid usury as well as company business activities that conflict with sharia. For this reason, it can be ascertained that sharia investment is a halal activity.
  2. Minimal Risk of Fraud. The sharia investment process will always avoid bad things such as fraud, extortion, and other bad actions. In addition, sharia investments will usually uphold the principle of transparency where sharia investments – such as sukuk – will usually carry out detailed reporting on the company's business processes. This transparency activity is certainly carried out so that the company's business activities can be ensured in accordance with Islamic principles and Shari'a and finally investors can avoid the risk of fraud. Even so, always make sure that you invest in instruments that are registered with the OJK to avoid fraudulent investments!
  3. Avoid Riba. Riba is something that is forbidden in Islamic principles. Sharia investment is here to provide a halal investment alternative. So, the income that exists in Islamic investments will usually be in the form of profit sharing, margin fees, and other returns.
  4. Small Loss Risk. Islamic investment has a risk of loss which tends to be less than conventional investment. This happens because sharia investment is based on the element of kinship. Sharia investment also has a contract or agreement before the investment is ratified, so investors and securities issuers can negotiate with each other to get a mutual agreement and ultimately the investment risk is minimized.
  5. Small Loss Risk. Islamic investment has a risk of loss which tends to be less than conventional investment. This happens because sharia investment is based on the element of kinship. Sharia investment also has a contract or agreement before the investment is ratified, so investors and securities issuers can negotiate with each other to get a mutual agreement and ultimately the investment risk is minimized.

The above is an explanation related to sharia investment. In fact, sharia investment has various characteristics and various types of products. Are there sharia investment products that you would like to make your future investment choice? There are several ways you can start investing in both conventional and sharia stocks. Hopefully this article can help you to find out about sharia investment.[6] And if you have any legal issue with this topic, contact us then, feel free in 24 hour, we will be happy to assist you. 


*) For further information please contact:
Mahmud Kusuma Advocate
Law Office
Jakarta - Indonesia.
E-mail: mahmudkusuma22@gmail.com

________________
References:

1. "Investasi Syariah: Pengertian, Karakteristik, Jenis, dan, Manfaat", //dailysocial.id., Diakses pada tanggal 6 Januari 2023, Link: https://dailysocial.id/post/investasi-syariah
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.

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