An Islamic investment fund which derives its income from purchasing commodities on behalf, and for the benefit of, clients. The fund, established on the basis of murabaha contract, resells the commodities to clients against deferred payment at an agreed mark up (margin of profit) over the actual cost. In this sense, this fund is a special case of a commodity fund. However, a murabaha fund is, by nature, a closed-end fund and its shares/units cannot be negotiable, i.e., they are not tradable in the secondary market. That is because in murabaha, the underlying commodities are typically sold to the clients immediately after purchase from the supplier, whilst the deferred price becomes a debt payable by the client. Accordingly, the murabaha fund effectively owns no tangible assets. At all times, it comprises either cash or receivables, and its shares/units represent either cash money or receivable debts, and both are not negotiable from a shari’a perspective. If these shares would be exchanged for money, selling must be at par value.

Murabaha funds are relatively lower risk than other types of Islamic investment funds. Nevertheless, these funds face the so-called trade risk (counterparty risk), which arises from the client’s inability to pay the price. Moreover, currency risk could also be existent if the murabaha cost and/or price are denominated in foreign currencies.