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Fatwa CenterInvesting in a Child Trust Fund (CTF)
Question
My parent(s) invested in a medium-risk child trust fund (CTF). It avoids companies with high debt/interest, or >5% income from haram activities (alcohol, tobacco, hotels, gambling, pork, weapons). Non-compliant gains are purified via sharia-approved charities. The provider also offers life insurance and non-sharia products e.g. CTFs or independent saving accounts (ISAs). Is it permissible to use the fund at 18 and continue investing in their sharia ISA?
Answer
All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad (sallallaahu 'alayhi wa sallam) is His slave and Messenger.
What we consider to be the stronger view is the prohibition of participating in these mixed investment funds, so long as they engage in unlawful dealings such as interest (riba) and other prohibited transactions, even if the percentage is small. This is also the ruling issued by the Fiqh Academy of the Organization of the Islamic Conference, which stated: “The basic ruling is that it is impermissible to invest in companies that engage at times in unlawful activities—such as interest and the like—even if their primary activities are permissible.” [End quote]
This is in addition to the fact that some of these funds do not adhere to Islamic rulings in investment through muḍarabah and similar contracts.
It is also not permissible to enter into life insurance services if the insurance is commercial, because it involves prohibited elements such as gambling and consuming people’s wealth unjustly—unlike cooperative insurance.
And when the child reaches the legal age and the guardianship is lifted, and he is able to manage his own money, and the fund is already performing what is called "purification" of the unlawful earnings, then there is no harm in benefiting from that money after purification. However, we believe that you should now terminate the contract with this fund, if possible, and take your capital along with its lawful profits.
However, if terminating the contract and taking your money is not possible, then we hope there is no sin on you in that, while you continue to seek a way to free yourself from this investment. In this situation, if transferring to their Islamic investment account is possible, then that becomes obligatory for you.
With this, the answer to the second part of your question becomes clear; we say that if the investment in the fund’s Islamic account adheres to the Islamic guidelines, and this is what is available in your country — and there is no independent Islamic alternative — then we see no objection to investing in it.
Allah knows best.
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