1. Definition of Saving:
An amount of money which is saved from a present income for future
used is called saving.
Or
A part of income which is saved for the priority needs of future over
present.
Meaning Of Saving:
According to Professor of Economics, Laurence J. Kotlikoff, "saving means
different things to different people. To some, it means putting money in
the bank. To others, it means buying stocks or contributing to a pension
plan. But to economists, saving means only one thing—consuming less
out of a given amount of resources in the present in order to consume
more in the future. Saving, therefore, is the decision to defer
consumption and to store this deferred consumption in some form of
asset."
A person does not know what will happen in the future, money should be
saved to pay for unexpected events or emergencies. An individual’s car
may breakdown, their dishwasher could begin to leak, or a medical
emergency could occur besides the risk of living longer than expected,
people save against more mundane risks, such as losing their job, saving
for education, saving for children's education, saving for holiday or travel
for religious reasons such as Hajj. Without savings, unexpected events can
become large financial burdens. Therefore, savings helps an individual or
family become financially secure.

2. Money can also be saved to purchase expensive items that are too costly
to buy with monthly income. Buying a new camera, purchasing an
automobile, or paying for a vacation can all be accomplished by saving a
portion of income.
Concept Of Saving In Islam:
Saving is employed according to the requirements and means of
incentives that give individual to practice saving application. It do not
neglect individual and guided to lead his saving motives as a caution to
ensure safety for him for future. It also rises to the individual standard of
living but caution towards wastage and guide to make profit. Islamic
Financial System do not neglect saving motives of saving. It makes clear
to individual step by step as when he makes his saving interest, it
exercises a practical devotion of worshipping.
Saving Conduct:
Saving is one of the qualities of the member of health and welfare
community. Saver do not spend wastefully in regards to what he receive
funds in his hand, saving conduct is the saving for future of community
for common goals.
To be considered financially secure, an individual or household should
save at least six months’ worth of expenses. For example, a household
that has $2,000 per month of expenses should have at least $12,000 in
savings ($2,000 multiplied by 6 months). To reach this amount, it is
recommended that 10- 20% of net income should be saved until the
appropriate amount of savings is reached. Net income is the amount of
an individual’s take-home pay after taxes and other deductions have
been taken out of a paycheck.

3. To help a person choose saving over spending money, money should not
be viewed as what is remaining after current needs and wants have been
satisfied. Pay yourself first is a popular and very effective saving strategy
that can help individual’s choose saving over spending money. Paying
yourself first means to set aside a portion of money (10-20% of net
income is recommended) for saving each time a person is paid before
using any of the money for spending. To successfully practice the pay
yourself first strategy a person should set personal goals. Setting goals
helps a person choose to save rather than spend money. A goal is defined
as the end result of something a person intends to acquire, achieve, do,
reach, or accomplish. Financial goals are specific objectives to be
accomplished through financial planning and include saving money.
Setting goals helps an individual identify and focus on items that are most
important to them and then make decisions that help obtain those items.
If a person clearly understands what they are giving up in exchange for
the benefits of saving money, then their saving goals will become more
attainable and realistic.
Saving Convert into Investment:
What is an Investment?
Definition:
According to economists, investment refers to any physical or tangible
asset, for example, a building or machinery and equipment.
The practice of investment refers to the buying of a financial product or
any valued item with the anticipation that positive returns will be
received in the future.

4. An investment is an asset or item that is purchased with the hope that it
will generate income or appreciate in the future. In an economic sense,
an investment is the purchase of goods that are not consumed today but
are used in the future to create wealth. In finance, an investment is a
monetary asset purchased with the idea that the asset will provide
income in the future or appreciate and be sold at a higher price. There
are common apprehension & economic principles which can be taken as
guiding rules of the Islamic Financial System for investment.
Types of Investment:
Following are the types of investment.
1) Capital Investment
2) Equity Investment
3) Real Estate Investment
4) Stock Investment
5) Financial Market Investment
6) Share Market Investment
7) Gold Investment
Capital investment:
It is defined as the expenditure that may be incurred by a business
organization in order to purchase machineries and other fixed assets. This
expenditure is normally beneficial as it lays the foundation for future
investments of similar kind.
Equity investment:
It refers to the trading of stocks and bonds in the share market. It is also
referred to as the acquisition of equity or ownership participation in the
company. An equity investment is typically an ownership investment,
where the investor owns an asset of the company.

5. Real estate investment:
It has been a major form of investment and a major form of capital
budgeting and is a very lucrative option for investing. Real estate can
broadly be defined as immovable property. Land and things attached to it
in permanence, such as buildings, come under the category of real estate.
Investment in real estate has its fair share of risks.
Stock investment:
The process of stock investment enables the stock traders or investors to
trade in securities. Investors can operate individually or under the
guidance of investment management companies. The system of stock
investment is not devoid of prices and the process involves a considerable
amount of risk and uncertainty.
Financial market Investment:
When investing in the financial market, traders are provided with the
opportunity to deal in financial securities, commodities and other freely
interchangeable goods at affordable rates of transaction.
Share Market Investment:
Shares are purchased and sold on the primary and secondary share
markets. To invest in the share market, investors acquire a call option,
which is the right to buy a share, or a put option, which is the right to sell
a share. In general, investors buy put options if they expect prices to rise,
and call options if they expect prices to fall.
For currency rate exchanges, investors may buy a swap option. The value
of a derivative depends on the value of the underlying asset.
Gold investment:
It is a long-term investment scheme involving low risks. People willing to
invest in gold have a natural advantage because the demand for gold is

6. much more than its actual supply. The price of gold is generally in a
continual rise. However, investors should not invest all their funds in one
kind of gold investment.
The gold industry is huge and has many facets, and a savvy investor can
exploit this. Money can be invested directly in gold mines, for example,
which can be more profitable than investing in physical gold.
Guidelines for Investment In Islam:
 Rule of Profit & Loss sharing is Participation.
 Loan leads to seeking price of money that increase in capital.
 Financing is made on principle of safety for capital and obtaining
profit.
 Expenditure is deducted from profit and not from capital.
Profit which can be distributed is net profit and not gross profit.
 Islamic Financial System allow participation in Joint Stock
Companies or Limited Liability Companies from its accounts or can
participate in a part of the capital of existing companies
 Financing working capital in projects at short term financing with
participation which is not lent at interest.
 Legitimate participation is a way of seeking profit through money
from the money owner and work close of participator at a common
purpose among each participant for earning profit.
 Riba Free Financial House can may be the money owner and saver
the participator or vice versa.
 The Riba Free Financial Houses are permitted to be a participator
from employer to re-participate with the previous participated
funds on a Profit & Loss basis.

7.  The Riba Free Financial Houses can be the second participator if it
receives participation from the first participator.
 The Riba Free Bank may be the second participator if it receives
participation from the first participator.
 The Riba Free Finance House as money owner bears loss alone as
long as the participator does not exceed his role.
 If the Riba Free Finance House works as a participator it does not
bear loss as is sufficient that the Riba Free Finance House’s effort
and work are of no return
 It is allowed that the profit between money owner and participator
is pre agreed. But if it is determined sum of principal amount of
money with the condition of no loss then participation becomes null
and void.
 Riba Free Finance House can trade its funding precious stone and in
foreign currencies on its conditions written down in the exchange
contract.
 Investment in financial securities is only valid in shares and not in
debentures.
Participation:
Participation operations lead at the end to an ownership that is applied in
projects or transactions. Islamic Financial System through its Banking
System contributes in solving the problems.
DiminishingParticipation Method:
 Entrepreneur presents the project to Financier.
 Financier sees its viability of the project.
 Financier financer as the partner of the project.

8.  Entrepreneur pay through earning of profit in parts.
 If entrepreneur owner keeps it ownership to him, the profit is
distributed between financier and entrepreneur according to the
proportions agreed upon.
 In case entrepreneur pay the financing either at once or in
installments financier has no right to obtain any privilege because of
the increase in prices.
 The financier or bank invest in project with the capital and therefore
it is treated as a partner in the transaction either equally or in part
and any change in the value of the transaction the working partner
has always the choice either to sell and earn profit or buy himself
according to market price.
 In hire selling method the financer has to participate in construction
on the land then rents the housing units.
 The land owner pays the ownership and rent and finally become an
ownership to its hirer after a period of time.
 Rent installment includes a calculated part of costing.
Rules of Participation:
 Each participation transaction is under a contract and conditions
that specify investment and profit in proportion of each partner and
instruct two matters:
 The First: The participator should keep accounts for the business
operation.
 The Second: The accounts of the participation transaction should be
checked by the expert accountant to approve their results.
 Islamic Finance has a social target.

9.  Participation through financing for the purpose to enlarge economic
base and opening doors for every one desiring in work and in
production.
 For small worker who needs a small financing forcing him to keep
accounting books is asking him impossible act which could makes
him reject financing.
 Keeping accounting books and auditing exceed the value of the
financing.
 The expense of this checks are treated as the cost of the
transaction.
Input and Output Method Of Participation:
Input Method:
A person of financer who is taking a part in daily business operations and
contributes his efforts like active partner or active participator this is
called input method of participation.
Output Method:
Financer or Rab-ul-Maal who is not taking any part in business run. He
just finances the person (Mudarib) according to his abilities on pre
determined rate of share profit and loss.
Stages of Profit Determinants:
The First stage: Every participant determines the share according to
the rules of participation contract.
The Second Stage: By preparing Profit & Loss account of investment
operations and determining the portion resulting from participation
transactions and from the results of investment projects which the
financier operates alone.

10. The Third Stage: The distribution of net profit and loss of investments
among the group of investors and the financier or bank and everyone
according to his share in investment, as the shares with a sum of its
funds in transactions.
After that it is distributed among every one of investors.
Limitation of Participation:
Financing appraisal is based on straight line method, applying 12-P
Formula. It is a pre participation activity.
12-P Formula
 Person who is financing to whom?
 Purpose for which financing works out?
 Project for which financing is required?
 Period for which finances to stay as financing?
 Product that development through financing?
 Process to be used for financing?
 Price is the volume of finance require?
 Place locations where finance shall be utilized?
 Participation, relationship and responsibilities of financier and user?
 Pact terms and condition of financing between parties of financing?
 Professionalism, ability, experience, knowledge and expertise in
purpose?
 Perfectness in Performances?
 Profitability by the application of twelve “P” formulas which is the
RISK base perimeters.