INVESTMENT EXPENSE Definition

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INVESTMENT EXPENSE is any cost of investment realized aside from the principal investment itself. For example:, in mutual funds, investment expesne is normally contained within five types of investment costs that must be measured to determine your total investment expense: a. Annual mutual fund expenses (i.e. the expense ratio) b. Front or back end sales loads; c. Portfolio turnover and trading costs for the fund (i.e. bid/ask spread, premium for large block trades, etc.) d. Brokerage commissions; and, e. Other (i.e., wrap account fees, annuity mortality & expense charges, etc.).

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OPPORTUNISTIC BEHAVIOUR occurs where one party takes advantage of his superior knowledge, in order to further his/her interests, by failing to disclose such information to the other party. This would occur, for example, if a supplier of widgets had information about a product which was deliberately withheld from the potential buyer, in the knowledge that such information would negatively affect the price of the product or the willingness of the buyer to purchase it.

PROFIT AND LOSS SHARING (PLS) is the method utilized in Islamic banking to comply with the prohibition of interest. The Islamic solution, commonly referred to as Profit & Loss Sharing (PLS), suggests an equitable sharing of risks and profits between the parties involved in a financial transaction. In the banking business, there are three parties - the entrepreneur or the actual user of capital, the bank which serves as a partial user of capital funds and as a financial intermediary, and the depositors in the bank who are the suppliers of savings or capital funds. There are two different partnerships of the type mentioned in Islam: the partnership between the depositors and the bank, and the partnership between the entrepreneur (or the borrower) and the bank. Under this proposal, financial institutions will not receive a fixed rate of interest on their outstanding loans, rather, they share in profits or in losses of the business owner to whom they have provided the funds. Similarly, those individuals who deposit their funds in a bank will share in the profit/loss of the financial institution.

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