Investments
What is a sukuk fund and what risks does it have?
An explanation of funds that invest in sukuk and the key risks investors should understand.
The short answer
A sukuk fund pools investor money to buy a portfolio of sukuk. Risks include credit risk of issuers, structural differences between sukuk types, liquidity and governance; read the fund’s prospectus to understand holdings and methodology.
What a sukuk fund typically does
A sukuk fund invests in multiple sukuk issued by sovereigns, corporates or special purpose vehicles. The fund manager selects sukuk based on investment policy, credit assessment and Shariah screening.
Because sukuk are structured certificates, a fund may hold different sukuk forms (asset-backed, lease-based, or others). That heterogeneity affects how income is generated and what happens in default.
Principal risks to consider
Credit risk: the issuer may default on payments. Structural risk: the legal form of the sukuk determines investor rights. Liquidity risk: some sukuk markets are thinner than conventional bond markets, making sales harder or more costly.
A fund’s Shariah methodology and the Shariah board’s interpretations are also relevant; different boards may allow different sukuk types. Fees and duration risk (sensitivity to interest-rate-like changes in the market) matter for total return.
What this means in practice
- 1Read the fund prospectus and the list of holdings to see what type of sukuk are included.
- 2Check the credit ratings of major issuers and the manager’s credit due diligence process.
- 3Review the fund’s Shariah board statement and the methodology used for selection.
- 4Consider fund fees, liquidity policy and how the fund values holdings.
- 5If the religious structure matters to you, seek a scholar’s view on the fund’s sukuk types and documentation.