This is an umbrella fund minimum 80% of which is invested on a continuous basis in public sector and/or private sector debt instruments. In order to make these funds interest-free ones, their portfolios must not contain any bond, debenture, asset-based securities (VDMK) or commercial paper not complying with the interest-free financing principles, but lease certificates issued by the public sector or private sector. The remaining 20% of these funds must be invested in participation accounts, share certificates complying with the interest-free financing principles, or commodities.
The operational rules of this fund are based on fixed return investments in securities. In order to hedge the risk, Capital Market Board (SPK) limits the value of investment to be made by this fund in commercial papers, bonds or lease certificates issued by a single issuer. Maximum 10% of this fund may be invested in commercial papers issued by a single entity or maximum 10% of this fund may be invested in commercial papers. Said limit restrictions are applicable to all securities investment funds. The purpose of the limit restrictions is to hedge the risk. Investment banks are subject to the limit restrictions too, but their limit restrictions are somewhat lighter because of the fact that their investment range is very limited. For example, maximum 10% of an investment fund may be invested in bonds and debentures issued by a single entity, but the same limit is 25% for lease certificates. Maximum 3% of the portfolio of a debt instruments fund may be invested in savings accounts of a single commercial bank and maximum 10% thereof may be invested in savings accounts of all commercial banks, but the limits for participation banks are 6% and 25% respectively. In spite of this relaxation, the range of financial instruments in which participation banks are allowed to interest is still very narrow.
This is an umbrella fund minimum 80% of which is invested on a continuous basis in share certificates issued by entities located in Turkey, including privatized entities. The remaining 20% of this fund must be invested in financial instruments complying with the interest-free financing principles. Therefore, there is no obstacle to establish share certificate funds complying with the interest-free financing principles.
This is an umbrella fund minimum 80% of which is invested on a continuous basis in gold, other precious metals and capital market instruments backed by precious metals and traded in the Stock Exchange.
In order to ensure a precious metals fund to be an interest-free fund, the precious metal it represents must exit in physical form and be stored in favor of the buyers of the fund. The buyers must be entitled to physically withdraw the precious metal. Naturally, the establisher of the fund may impose additional obligations for physically depositing or withdrawing the precious metal. Furthermore, the commodity covered by the fund may be lent in accordance with the market conditions. Usual capital market funds earn interest at a fixed interest rate from lending their commodities; but the funds established in accordance with the interest-free financing principles are subject to a restriction. The restriction is that the commodity covered by such fund may be lent only for funding the obligatory costs of the fund and that the lender must not buy or sell the commodity. Otherwise such lending will form a derivatives transaction and a non-existing commodity will be bought or sold. The lending rules specified above are applicable to the other types of fund too. The lending rules specified above were set by the members of the Advisory Board, so that different alternatives may be developed for different applications.
In order to establish a commodity fund complying with the interest-free financing principles, the commodity must exist in physical form. Its return will consist of the revaluation of the commodity. Storage, insurance and management costs of the portfolio of such fund will be deducted from the revaluation of the fund. Most of the commodity funds available in the worldwide are not based on commodities existing in physical form, so that insurance, etc. costs do not incur for them, so that they have competitive advantage over the interest-free commodity funds.
This is an umbrella fund minimum 80% of which is invested on a continuous basis in participation certificates of other funds and Stock Exchange investment funds.
An interest-free basket fund may be established to invest in various funds established in accordance with the interest-free financing principles. However, there are only a few interest-free funds in the present for basket funds to invest in, so that such funds will be functional only if the market expands more. Because such funds are scarce and their volumes are not large enough in the present, basket funds do not look feasible yet.
This is an umbrella fund minimum 80% of which is invested on a continuous basis in capital market instruments issued by international private and public sector entities.
International interest-free investment instruments are further reviewed by the Advisory Board, and they must be reviewed because each structure considered interest-free may not comply with the interest-free financing principles applicable in Turkey. For example, the Advisory Boards of the domestic participation banks did not approve the musharaka lease certificates issued in certain countries, so that they consider unsuitable to invest their investment funds in such lease certificates or add such lease certificates in the portfolios of their investment funds.
This is an umbrella fund not falling in the scope of the funds described above. The instruments contained by this fund are changed on a continuous basis without being subject to a general limit like 80%. However, the financial instruments to be added in such fund will be subject to the limit restrictions imposed by the Capital Market Board. For example, maximum 10% of the portfolio of this fund may be invested in participation accounts, and maximum 10% of it may be invested in capital market instruments issued by a single entity. These limits were set by the Capital Market Board to hedge the risk of this fund. There are variable funds established in accordance with the interest-free financing and listed in the Individual Retirement System (BES). The funds in question invest in share certificates, public and private sector lease certificates, gold, and participation accounts. However, the restrictions imposed by the law make participation funds more advantageous than variable funds in the eye of establishers, because the above mentioned 10% limit applicable to variable funds is 25% in participation funds. Participation funds look more advantageous than variable funds in the eye of establishers of interest-free funds.
This is an umbrella fund minimum 80% of whose portfolio is invested on a continuous basis in gold, other precious metals, and precious metal-based capital market instruments traded in a stock exchange. Such fund denominated in US$ or any other foreign currency may be established in Turkey. In this case the name of the fund will depend on the products it invests in. If a fund buys financial instruments issued abroad in a ratio exceeding 20% of the fund’s volume, it will be called a foreign securities investment fund and in this case minimum 80% of it must be invested in international securities. If such fund buys financial instruments issued in Turkey, its name will depend on its content. Funds denominated in US$ will be valued at the US$ sale exchange rate offered by the Turkish Central Bank and will be traded in TL. The resolution passed by the Capital Market Board in September 2015 allows such funds to be traded in a foreign currency.
This is an umbrella fund whose portfolio is invested on a continuous basis in lease certificates, participation accounts, partnership shares, gold, other precious metals, and other capital market instruments not based on interest and approved by the Advisory Council.
The term ‘participation fund’ refers to investment funds complying with the interest-free financing principles and has been recently allowed into the system by the Capital Market Board. The definition given above does not mean that participation funds are the only interest-free fund. Share certificate funds 80% of whose portfolio is invested on a continuous basis in share certificates complying with the interest-free financing principles and 20% of whose portfolio is invested in lease certificates are interest-free funds too. The concept of participation fund was created in order to allow managers of interest-free funds not to be subject too much to the restrictions imposed by the Capital Market Board and to manage such funds in a more flexible way, and is a kind of variable fund. Given that the financial instruments available to participation banks are very limited, it would have been much more difficult for them to do business in this market had they been subject to the full restrictions.
As it is in all other funds, prices of participation funds are calculated with reference to the total value of the assets comprising their portfolios, and are announced in participation unit share price. These funds are invested in a broad range of different instruments, but the calculation method remains the same. Each share certificate, lease certificate and participation account in which a participation fund is invested has its own unit share price and return. The prices of the said assets are multiplied by the number of shares held in that participation fund to calculate the return or loss of the fund. The type of asset comprising the largest part of a participation fund affects the price of that participation fund most.