Dr. Monzer Kahf, a prominent economist and counselor states: “When we invest in stocks of companies without being able to have control on the management action and decision we must apply the following criteria:
1) We select companies whose main line of business is permissible.
2) We look at the financial statements of the company and avoid companies that are over-loaded with debts on the liability side, whose income from non-permissible activities is small relatively and whose cash, securities and receivables do not make more than half of their market value.
3) We still apply the purification principle by estimating the percentage that came from haram in both capital gain and dividends and give it away to Muslim charity.
When we invest in mutual funds, we cannot apply these criteria because we have no say in managing the fund. This is why we have to invest in Islamic mutual funds that apply these principles.
there are many countries like India that have no Islamic mutual funds, then if we invest in Mutual fund, we have to select these funds that specialize in industries that are permissible such as health care, technology, etc. even with this we still have to look at the report of the mutual funds and study the components of its investment and apply the purification principle to the best we can. Br. Javed, you need to apply this to the mutual fund you have and next time be more selective when you choose a mutual fund to invest in.”