The Islamic Mutual Funds

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The National Commercial Bank

The National Commercial Bank (NCB) started offering the mutual funds by accepting subscriptions in June 2002. The Saudi Cipital Markets Authority (CMA) regulates the mutual fund. The bank accepts 2000 Euros as the minimum initial subscription. The subsequent subscriptions are a minimum of 1000 Euros. The bank gives exemptions to investors who subscribe through Regular Investment Service. They are allowed to own contributions lower than 1000 Euros. The subscriptions are received by the bank, and investors make the redemptions in every Saudi Business Day. To subscribe, an investor fills and signs a copy of the terms and conditions form. He or she is also supposed to open an investment account (Williams, 2000).

It is a requirement that a minimum of 1000 Euros is maintained otherwise the fund manager has the authority to redeem the investors units on the next subscription day. The investment entails buying goods and commodities and selling them based on a markup compliant short term deferred payment terms. Investors also enter in a short-term trade transactions that give competitive returns and liquidity. Investing in other Shariah compliant short-term transactions requires approval from the fund manager.

An investor loses money if by the time of selling the units the value is less than the original money invested. The Fund manager would charge the fund in such a scenario. This is done every dealing day. Based on proportionate net asset value (NAV), a 0.50% annual fee is levied. Other expenses incurred by the investment include data processing, Shariah audit, and custody. These additional expenses do not exceed 0.50% of the funds NAV. Redemptions are only allowed on a Dealing Day if a written notification is received by the bank before noon a day before. The bank does not take subscriptions from US citizens and their entities. Furthermore, it does not trade the Fund in the US. Receiving or rejection of the membership application is at the discretion of the Fund manager.

The SAMBA Financial Group

The Samba Capital and Investment Management Company manage its mutual fund. The Funds main currency is the Saudi Riyal. Other international currencies are accepted at the exchange rate as determined by Samba.

Most of its equities provide a fixed income on investments. The screening criteria discussed here is based on the December 2011 report. The bank aims at the long-term capital growth through investments in Shariah compliant shares that diversify the risks. The investors who invest with Samba have unlimited liability. Their heirs, successors, and assigns are liable in case of the death of the investor

The mutual fund is classified as a high-risk investment. The fund management does not take responsibility for ignorance and other errors of either omission or commission committed by its agents. The bank accepts a minimum initial subscription of SAR 5000. The additional subscription is SAR 2500. The minimum redemption by investors allowed by the bank is SAR 2500. The subscriptions and redemptions are accepted every business day in Saudi Arabia

The bank charges an annual management fee of 1.75 % of the Net asset value. Redemption fees are calculated yearly. At the first year, the bank charges 1.5% of the NAV. In the second year, the bank charges 1.0%. The bank charges 0.5 percent in the third year while it charges no levies in the subsequent years.

Saudi Hollandi Bank

The Saudi Hollandi Bank runs the fund as it is listed in the Kingdom of Saudi Arabia. The Fund is operated in US Dollars, but the bank does not have restrictions on the currency because European currencies are accepted for trading. The current subscription is USD 3000. The bank offers a minimum subsequent subscription of USD 500. The Fund aims at achieving long-term capital appreciation by investing in diversified portfolios listed in European and other markets that are strictly Shariah compliant. Income from dividends comes second to growth, though important. Entities and persons, whose investment growth is above average performance, are given priority. The selection of shares follows a thorough and sensitive scrutiny to ensure none is associated with activities prohibited by the Shariah laws. A management fee of 1.8% is charged on NAV.

The Alinma Bank

Since the bank introduced the mutual fund, it has been running it through the Alinma Investment –ALINMA. The bank has classified the fund under the capital preservation. The bank accepts a minimum initial subscription of 5000 euros. The additional subscription is 1000 euros. A fund management fee of 20% is charged. The investors units in the fund are held in assets, benefits, and different types of goods. Trading in gold and silver is prohibited. Other goods to be traded are left at the discretion of the fund manager who concludes if they are Shariah compliant. The bank runs the fund with the aim of protecting capital via low risk investments. Other types of the Fund include the bank’s equity fund, which aims at attaining appreciation by trading Saudi equities approved by the Shariah Board, subject to Investment Funds Regulations issued by the Capital Markets Authority.

The Saudi Investment Bank

The Saudi Investment Bank runs the mutual Fund through Alistthmar Capital-SIBC as its arm of management. The accepted international currency of operation is the US dollar, although since it is listed in the local market, the local currency SAR is used. The condition for investors to have their subscriptions aims at encouraging growth. The investor must be willing to have capital growth through investment in GCC shares. Money held by the bank is traded in the operational market instruments provide they conform to the Shariah law (Mobey, & Parker, 2002).

The initial minimum subscription accepted by this bank is ten thousand dollars, with an additional subscription of one thousand dollars. However, for its other outlet, the initial subscription of twenty five thousand with the additional subscription of five thousand accepted. Investors in this sector must aim at trading in Saudi Equities that are quoted on the Saudi Stock market excluding the banks licensed in Saudi Arabia.

This bank has listed its mutual fund as a high-risk investment. It is valued weekly, and the bank management charges a fee of one point five percent. The screening by the Fund manager is so strict to ensure adherence to Shariah low. The bank also accepts subscriptions from the investors who were to invest in Murahaba trading. This branch is classified as a different branch specializing on capital investment. Its valuation is done on a daily basis. The requirements here include an initial subscription of two thousand with an additional five hundred subsequently. As opposed to the other sections, this is a low risk investment opportunity. Investors in this category must aim at achieving mid-term capital growth through investment in Murahaba and other Shariah compliant transactions.

Al Bilad Bank

The bank runs its mutual fund through the Albilal Investment Company represented by Asset management. The aim of the bank is to grow capital in the end by investing in diversified Islamic financial institutions that are Shariah compliant. The bank offers this as an open fund, which is a high-risk investment. The main currency of operation is the US dollar. However, other currencies of the countries in which the bank operates are accepted. The minimum subscription taken is USD 2000. The subsequent subscription is USD 500. The minimum amount allowed by the management for redemption is USD 500.

The bank charges a subscription fee of 3% on every subscription. The valuation day is every Sunday and Wednesday. The results are announced every Monday and Saturday. Payments for the redeemed units are always at the end of the fourth day after evaluation, which is usually Saturday and Tuesday. The bank does not charge redemption fees. However, it levies an annual management fee of 2 %. To join, an investor opens an account, fills an application, signs an agreement form, must have an email address, and should be eighteen years and above.

Riyadh Bank

The Riyadh bank has a mutual fund that is available in various categories. This fund serves people who are in employment and private sector. The first category is available to persons with a monthly income of at least SR 3000. This category is called the initial package. The second package called the inspiration package applies to people with a minimum monthly income of SR4000. The growth package is available to employees who earn at least SR 6000 and is the third fund. The fourth type is the achievement package and requires people who have a minimum of SR10000.

For membership, an investor is required to have a national ID, a letter from the employer indicating his salary, job title, and the date he or she joined the firm. The employer must also submit another letter accepting to transfer investor salary to Riyadh Bank. The investor is not permitted to have two packages at the same time (Fuller, 2000).

The bank charges a monthly fee if the account drops below the minimum level. The investment in the initial package is SR 500. SR 1000 applies to the inspiration package as a minimum balance. The growth package is maintained at a minimum of SR 2000. The Achievement package requires a minimum balance of SR 3000. The bank does not impose regular fees, but when the units are not utilized, a fee of SR 20 is charged.

The Arab National Bank

The Arab National bank, through its mutual fund, seeks to achieve capital growth through investing in a balanced portfolio of equities based on the Shariah principles. The bank offers the minimal of the requirements as compared to its competitors. The currency in which the fund is traded is the Saudi Riyal. However, other currencies are allowed (Frosdick, 1997).

The bank accepts an initial minimum deposit of SR 10000. The additional subscriptions are pegged at a minimum of SR 1000. The bank levies an annual management fee of 2%. Redemption fees are not charged. Membership is almost similar to others. An application form is filled. Moreover, an agreement form is signed, and an account is opened (Friedlob, & Schleifer, 1999).

The HSBC Bank

HSBC is one of the most respected fund managers in Saudi Arabia and the rest of the world. Its mutual fund seeks consistent exposure to markets through long-term investment. These investments grow by investing in stocks, convertible securities, and preferred stocks that conform to the Shariah principles. Its mutual funds are individually redeemable. Its operating currency is US dollars. However, it is flexible considering that it operates internationally. Other currencies are also accepted (Dowlen, 1995).

The bank accepts a minimum of USD 5000, though it varies upwards depending on the fund during the initial subscriptions. The additional subscriptions are at USD 1000. The bank accepts subscriptions during the Saudi business day. An annual fee of 2% is charged. There are regulation fees that are charged. Redemptions are allowed at a minimum of USD 25000.

Al Rajhi Bank

The aim of the bank is to grow capital gain in the end by investing in diversified Islamic financial institutions that are Shariah compliant. The bank offers this as an open fund, which is a high-risk investment. The main currency of operation is the Saudi Riyal. However, other currencies of other countries in which the bank operates are accepted. The minimum subscription taken is USD 2000. The subsequent subscription is USD 500.

The bank charges a subscription fee of 3% on every subscription. The valuation day is every Sunday and Wednesday. Payments for the redeemed units are always at the end of the fourth day after evaluation that is usually Saturday and Tuesday. The bank does not charge redemption fees. However, it levies an annual management fee of 2%. To join, an investor opens an account, fills an application, signs an agreement form, must have an email address, and should be eighteen years and above.

Conclusion

The Islamic mutual fund offers an opportunity to investors to diversify their risks. This is a good strategy, especially if some investments fail. The products are, however, similar. Only a few variations exist, especially on the fees charged.

References

Dowlen, A. (1995). Learning to manage risk in public services. Executive Development, 8(2), 19‑24.

Friedlob, G., & Schleifer, L. (1999). Fuzzy logic: application for audit risk and uncertainty. Managerial Auditing Journal, 14(3), 127-135.

Frosdick, S. (1997). The techniques of risk analysis are insufficient in themselves. Disaster Prevention and Management, 6(3), 165‑177.

Fuller, C. (2000). Modelling continuous improvement and benchmarking processes through the use of benefit curves. Benchmarking: An International Journal, 7(1), 35‑51.

Mobey, A., & Parker, D. (2002). Risk evaluation and its importance to project implementation. Work Study, 51(4), 202‑206.

Williams, J. (2000). Unbending Gender: Why Family and Work Conflict and What to Do about It. Oxford: Oxford University Press.

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