Mutual funds are an important instrument to invest and accumulate wealth. In most cases, Islamic mutual funds are managed according to the Mudarabah – Principle. Mudarabah financing is a partnership involving one party who provides all of the funds (known as the rab-ul-mal) and one party that deals only with management of the enterprise (known as the mudarib).

The mudarib is solely responsible for the administration of the enterprise, for which he receives a share of the profits made in agreement with the rab-ul-mal. Shari’ah scholars argue that this form of commission-based payment is more efficient than a fixed salary since it encourages the mudarib to gain the highest profits possible.

Profits are shared by the partners. This also means, that the investment company only receives a payment, when the fund generated a profit. If the fund generated a loss, this must also be born by the investment company. Thus, the salary of the fund manager is completely variable.

Alternatively, an investment fund can also be managed according to the Wakalah – model. In this case the mutual fund company acts as an agent for

the investor. It manages the fund and receives a management fee, that is determined in advance in the contract and made up of a certain percentage of the entire fund volume, for example 1% per year.