Assalamualaikum! There are a lot of misconceptions about Halal Investments In India. Because of this large number of frauds are happening. And many Muslims are losing their hard-earned money worth billions (of Muslim wealth). Further, even the so-called finance experts in India are mostly Hindus who are not aware of the actual rulings of Islam. Hence, I have started this thread to educate people about the real concept of Halal Investments, Halal Business & Islamic Finance. I am an MBA Graduate, having experience as a Business Development charge for various startup projects. I have helped companies to grow from scratch and establish businesses. I have done a lot of research in Islamic Finance and I strongly believe, the schemes which are being offered by Halal Companies in India are not at all halal. And thus are ending up winding up businesses and leaving a lot of financial damage to the community.
Our aim is also to educate and empower the Muslim Community, not just in India but also in abroad countries. Thus, we have provided some free services for students, and entrepreneurs to avail the benefits and grow their careers. InshaAllah. We are available at https://www.indianmuslims.co.in (please visit and install this application on your mobile for regular updates) and inshaAllah I will be posting more information about halal jobs, halal investments, halal business, and Islamic finance in this thread. JazakAllah
In order to understand Halal Investments. First, we need to understand the types of partnerships
1. Sole Proprietor
Usually, many startups or small businesses go for sole proprietorship registration. In this case, the business owner is only one person. There are no other legal partners in the business. Sole Proprietorship registration is usually done at the state level through a labour license or trade license. There is no formal registration process and the complete control of the business lies with one person. In this case, the pan card of the owner is used.
However, in order to bring full validity and formal registration to this method of business. The Ministry of Corporate Affairs (MCA) has introduced (OPC) Private Limited. OPC Stands for "One Person Company". This stands the same as Sole Proprietor with one person having complete control over the company. But with formal registration. In this case, a new pan card is issued in the name of the company. And the company name ends with OPC Private Limited.
2. Firm Registration
A firm is registered when two or more persons come together to form a company. In this case, a memorandum is made outlining the ratio of investment of partners. For example, two investors, investing 50:50% or three partners investing 33:33:34%, etc.. The ratio is divided according to the investment done by a partner. However, in this case, one partner is considered as a managing partner and the other as a sleeping partner. This process can be registered at state level and firm registration certificate is issued. And a new pan card is issued in the name of the firm.
MCA does this process of registration through LLP (Limited Liability Partnership). Where the partners are considered as directors of the company and a formal registration is issued with the company name ending with LLP.
Private Limited required minimum 2 directors (partners) to register a company. And maximum of 200 shareholders (partners) or investors. A new pan card is issued in the name of private limited.
4. Public Limited
Public Limited requires minimum of 3 directors, 7 share holders and there is no limit for maximum number of share holders in public limited. A new pan card is issued to a public limited company.
Above four are the legal form of business registrations in India, where investment can be invited. However, in order to legally register your investment. You should be either direct partner or share holder which requires you to sign legal documents and submit to the government.
However, many companies offer halal investment opportunities without legally registering the people who are investing in the above methods. In this case, you are not a direct partner of the company, but you just invest with the company. This method is called as hedge fund. Where you just invest your money and take profits/losses.. you are not legal partner in the company.
However, even this method of investing is legal in India. In this case, the company managing your investment is called as "Hedge Fund Manager" and you are not a direct investor or partner of the company. Your investment can be any time accepted or removed in hedge fund. Whereas if you are a legal partner (or share holder) as mentioned in above companies process. Then the company should follow the legal procedure to remove you as a partner and should be intimated to the government. Please remember sole proprietor or OPC cannot register you as legal partners. They can only act as Hedge Fund Managers.
Jazakallah khair for sharing these posts.
I have invested small amount in share market but I am so confused.So many doubts crop up as I don't have much knowledge of commerce etc.
I am still confuse with hedge funds ? Is it like short selling? Selling of shares before you get an official email that share has been transferred to your demat account or is it something else ? Is this halal .I did Google search earlier it was so confusing most of website said it is haram some said it is ok.i don't know.
Jazakallah khair for sharing these posts.
I have invested small amount in share market but I am so confused.So many doubts crop up as I don't have much knowledge of commerce etc.
I am still confuse with hedge funds ? Is it like short selling? Selling of shares before you get an official email that share has been transferred to your demat account or is it something else ? Is this halal .I did Google search earlier it was so confusing most of website said it is haram some said it is ok.i don't know.
Assalamualaikum
Hedge funds are totally different from share market. Hedge funds can be managed by any of the companies mentioned above. Whereas share market is only related to public limited companies. These companies should be further listed in stock exchange to issue public shares. Which can be bought by anyone.
In hedge funds, the money is managed by any individual or company. The money can be invested anywhere by the manager. It could be in number of projects or even in share market. The decision and risk lies with the hedge fund manager. And upon notice of investor, the hedge fund manager returns the money. This process is done through manual bank transfer.
Where as in share market. There are platforms which allow you to buy and sell shares. You are in complete control of your money. When to buy and when to sell. Any profits directly comes to you and even the loss.. there is no third party like hedge fund manager.
Buying and selling of these shares is called as trading. There are various opinions on these. Some say it is haram and some say it is halal. Here we need to understand one thing. Shares are assets of a company. Hence investing in share market is halal. And based on the value of shares. You can always buy and sell. However it is always safe side to donate 8-12% of the money to poor people as most of the companies have interest based transactions which are an average of 8-12% per annum (depending on countries it can vary)
Second important rule of halal investment is. A person can sell only what he owns. He can't sell something which is not in his possession. Short selling is something where the shares are borrowed and they are not in possession of the person. Hence it is considered as haram to do short selling. If you are confident that the share is in your total control, then only you can sell.
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