Haram income in charity


Dec 22 - 28, 2003



The Unit Trust of Pakistan (UTP), the managers of the Islamic Fund, has donated the Haram Income (income derived from interest-based sources) to the Sindh Institute of Urology and Transplantation. The remaining amout of such income, where authority is not received from the unit holders, will be paid to unit holders along with dividend who may dispose it off in any manner they may deem necessary, said the Financial Report of the Islamic Fund.

The decision to donate income of the Fund derived from interest based sources, (Haram Income), for charitable purposes was taken in accordance with the instructions of the Shariah Advisory Council.

According to the instructions of the Shariah Advisory Council, any income earned by the Fund from investments whereby a portion of income of such investees has been derived from Haram sources, such proportion of income of the Fund should be donated for charitable purposes.

The distribution of such Haram Income will either be directly by the Fund if the Unit holders have permitted the fund or by the unit holder if he has not given such permission to the fund, in such case, the management should intimate the unit holder about the portion of such Haram income in the income distributed by the Fund.

According to financial report of the Islamic Fund the per unit proportion of Haram income worked out at Rs0.16 on 831,113 units as on June 30, 2003. The unit holders have given permission for donation of the Haram income on 37,741 units.


UTP-Islamic Fund follows a balanced investment strategy and invests in a diversified portfolio of securities and Islamic instruments in accordance with the requirement of the Shariah, with a view to optimize returns balanced with risk.

As Shariah complaint debt instruments are not readily available, therefore UTP Islamic Fund has mainly invested in listed equity securities.

A Shariah Advisory Council, which has been appointed by the Management Company with the approval of the Security Exchange Commission of Pakistan (SECP), advises the Management Company on Shariah compliance.

As on June 30, 2003, the composition of assets of UTP Islamic Fund was 65.30 percent in equity, 28.81 percent receivables against equity securities sold in futures and 7.58 percent represents the amount kept in deposit with Islamic banks and in current accounts. The average investment in equity securities during the period was about 35 per cent.




UTP Islamic Fund was launched on December 27, 2002 with a seed capital of Rs60 million. The requirement of seed capital for launching an open-end fund is Rs250 million. The SECP, at its discretion, can allow an asset management company that has shown good performance to launch a new fund of reduced seed capital, so that asset management companies are not barred from introducing new investment schemes and services merely due to non-availability of initial capital.

A total of 1,066,506 units were issued during the current year, valued at Rs555, 920 million and 235,393 units were redeemed, with a value of Rs130, 671 million after appropriation of dividend.


UTP Islamic Fund was launched for public subscription on December 27, 2002. On January 6, 2003, when the Fund started its operations after the end of the initial period, the KSE 100 Index stood at 2,765.56. The market was on a constant rise since August 2002. After technical correction from the middle of January to the end of February, the market resumed its upward journey from March 2003. This was backed by a constant readjustment in lending rates by the State Bank of Pakistan and other lending institutions. The US war against the regime in Iraq also did not have any adverse impact on the stock exchange in Pakistan.

The budget for the current fiscal 2003-04 had an immediate impact on the stock market sending the market shooting up by 55 points to close at 3,197.18 points on the next trading day while trading volume hit 389.03 million. The effect of the budget continued to build until the closing day on June 30, 2003, when the Index closed at 3,402.48 points. The KSE 100 Index showed an overall appreciation of 23 percent from January 6, 2003 when the Islamic Fund commenced its operation to June 30, 2003.


The income for the period excluding unrealized gains on investments, was Rs39.460 million, which comes to Rs47 per unit and the net income including unrealized gains on the investments, was Rs70.146 million, which comes to Rs84 per unit. A cash dividend of 8 percent of the par value of units of Rs500 has been declared which comes to Rs40 per unit. The dividend yield works out to 15.76 percent on an annualized basis.

UTP Islamic Fund is distributing more than 90 percent of its income for the year, excluding realized and unrealized capital gains and therefore, the income of UTP Islamic Fund will not be subject to income tax under Income Tax Ordinance 2001. Out of the total distribution of Rs40 per unit, an amount of Rs37 is from capital gains and this amount will not be subject to income tax in the hands of the unit holders as well.




Poverty, which is growing at a formidable rate in Pakistan, is really a challenge not only for the economic managers but also for those who are well off as increasing poverty brings crime and hatred in the society. If other institutions also follow suit and donate a portion of their interest-based income for charitable purpose it may produce wonders in fighting against poverty in this country.