I’ve received a number of emails from readers over the last couple of years asking me about haram and halal investment options in stocks, the forex and binary markets, and how to invest in accordance with Sharia law and Islamic law.
As a result, I’ve asked someone with experience in Islamic investing options to assist and provide a guest post.
Before we dive into the Islamic investment options, I need to do a quick Islamic refresher and answer a few basic Shariah questions:
What is Halal?
Halal is an Arabic word that means permissible, or lawful.
The opposite of the word ‘halal’ is ‘haram’ which means prohibited or unlawful. It’s important to keep that in mind as you read through this article.
Halal = permissible, and
Haram = NOT permissible
Both halal and haram are applicable to all facets of Islamic life, not just investing of course, but for the purposes of this article, we’re going to focus exclusively on stock trading, investments, and forex.
What is Halal Investing?
Halal investing refers specifically to investing as per Shariah Law (or Islamic law). Throughout this article you might find these two words, Shariah and Islamic, used interchangeably Shariah is the law that forms part of the Islamic traditions and customs.
In Islam interest is forbidden – and this is clearly a defining tenet of investing – earning interest. Since earning interest is forbidden under Shariah law, that now begs the question … is investing haram in Islam?
Is Investing Haram in Islam?
Some important questions are at play …
- What investments are there where interest (riba) is generally not involved, and,
- Where can you find Halal investment opportunities?
Remember, the term Halal investing is about investing in funds or transactions which are in compliance with Shariah Law.
There’s an important distinction though, and that is, when you are investing according to Islamic law, it prohibits investment in certain types of companies industries, and investments (discussed in greater detail below).
In addition, when you are investing according to the traditions of Shariah law, you are encouraged to invest in a socially responsible way, for example, investors are advised not to invest or engage their funds in industries that are closely linked or associated with things like smoking, alcohol or pornography (more on this below).
Having reviewed the above, there are many options for halal investment in Canada, and halal investment options in the USA, both are in accordance with Shariah law, and these will be reviewed below.
In addition, halal life insurance in the USA and Shariah-compliant forex trading is also gaining popularity in the USA and Canada who wish to invest according to Islamic law, so, we’ll cover that as well.
So, the first question is … is the stock market halal, but, before we move on, you should watch this short two minute Youtube video that discusses “what is halal investing?” The video provides an excellent short synopsis around the basics of halal investing, and will provide further context as we move through this article:
Is the Stock Market Halal or Haram?
As per the majority of Islamic scholars, there is nothing wrong with investing in the stock market, halal trading or investing in shares. There is also nothing unlawful with shariah-compliant forex trading as well, however, there are some guidelines that need to be followed. These guidelines ensure that the income from the stock market is per Shariah laws.
So, what are the different halal ways to invest money?
Halal investment in stocks is all about investment decisions as per Islamic principles.
Listed below you will find an example of a number of Shariah-compliant stocks, or companies that you can invest in. This list is by no means an entire list of Shariah-compliant stocks, but, is a list of some of the larger blue-chip companies that trade publicly on the Nasdaq, New York, and Toronto stock exchanges.
Just keep in mind what I mentioned earlier, that according to Shariah law, it is forbidden to invest in certain industries and companies that fall outside the ethical domain. Also, the stocks listed below are listed for reference purposes … the list in no way is an endorsement of the stock or company itself, but, will provide a reference of some of the larger blue-chip companies that are Shariah-compliant.
List of Halal Stocks:
- Dupont – NYSE:DD
- Pfizer – NYSE:PFD
- Abbott Labs – NYSE: ABT
- Chevron Corp.
- Canadian National Railway – TSE:CNR
- Magna International
- BHP Group Limited
- Gildan Activewear
- Intel Corp – NASDAQ: INTC
- Exxon Mobile
- Saputo Inc – TSE:SAP
- Adobe Inc. – NASDAQ: ADBE
- Johnson & Johnson – NYSE: JNJ
- Rio Tinto
- Salesforce – NYSE: CRM
- Texas Instruments – NASDAQ: TXN
- Merck & Co.
- Air Products & Chemicals
- Prologis Inc.
- And many more
Remember, halal investors need to consider that their halal stock investment must fall into the classification of socially responsible or ethical as an investment.
Islamic principles state that investors share profits and loss, they do not receive interest (riba) and there is no investment made in businesses that are forbidden.
So, the next question is …
Is It Halal To Invest in Stocks and Recognize a Profit in the Capital Appreciation?
From a haram or halal perspective, there is nothing wrong with halal investing and earning a profit.
Earning money due to price appreciation of the underlying asset, or from profit distribution of different businesses does not constitute a violation, and so, since Islam is based on permissibility, investing in stocks is halal.
If the primary business of the company is something which Islamic or Shariah law prohibits, then investment in the stocks of this company is certainly haram. Some examples of what Shariah law would prohibit include:
- Interest or speculation
- Anything involving alcohol, pork, or meat products that are not slaughtered in an Islamic way
- Production of weapons of mass destruction
Are Bonds Halal or Haram
Quite simply, bonds pay interest and earning interest is riba. It is possible to buy a Shariah-compliant “bond” called a sukuk which is a financial instrument that is similar to a bond, where the sukuk issuer sells a group of investors a certificate and uses the proceeds of the certificate sales to purchase an asset where the group of investors has fractional ownership.
Someone investing in a sukuk would not own the debt owed by the bond issuer, but rather, they would own a percentage of the underlying asset that is linked to the investment. In the end, the holder of the sukuk would receive earnings generated by the underlying asset. A sukuk and bond do share some characteristics, but, keep in mind, a bondholder owns a debt obligation where a sukuk holder owns a portion of an asset. You can get more information on sukuk here.
Halal Investment Options in America and Canada
Even though a quarter of the world’s population is Muslim, halal investment opportunities, or halal ways to invest money, are still unfortunately somewhat limited, but, the good news is that things are changing.
Here are some of the best halal investment options in both the USA and Canada. We’ll cover the USA first.
Halal Investment Options in the USA:
Shariah-compliant investments in America: For all Muslims who are looking for Halal investing options in America, here are some options:
- Wahed Invest – This is a popular New York-based company that allows investment in different halal financial assets, and that includes gold, global equities and also emerging market equities. Investors can create their account and start investing with a very small amount of just $100.
- Iman Fund – There are many benefits of investing in the Iman Fund. This fund provides diversification with a rich halal investment portfolio, and that covers more than 100 Sharia-compliant companies. These companies are all in different sectors. The fund is available with low annual fees.
- Amana Funds The Amana Funds work by employing the various proprietary screens.Amana Funds Islamic screens were developed with Fiqh Council of North America (FCNA) and the Council issued the fatwa in the early 2000s. Also, Saturna Capital, the investment advisor for Amana Funds, uses Malaysia-based Amanie Advisors as its Sharia consultant, which issues a halal certification each quarter on the Amana Funds’ portfolios. There’s more information on Amana below.
- Azzad Funds – Azzad Asset Management offers eight stock portfolio options and two mutual funds, and all of their investment options are screened by AAOIFI (the Accounting and Auditing Organization for Islamic Financial Institutions)
Halal Investing Canada Options:
The longest-running halal mutual fund in Canada is Global Iman Fund. Global Iman Fund has been in operation since 2009. Their minimum investment is $500 and investments in Global Iman Fund can be part of your RRSP or TFSA.
You can also buy shares in Bullion Management Group (BMG), which offers mutual funds that represent shares of physical gold, silver, and platinum, stored in secure vaults.
Any reputed halal stockbroker can explain all of the options more clearly than what has been listed below, but, to give you a start:
- An advisor with complete knowledge on different Shariah investments: If you have plenty of money to invest, then the best option is to get in touch with a bank and get help from a professional investment advisor. Such an advisor will have access to various global exchanges that have easy access to different traded funds and also Islamic bonds that can help in diversifying the portfolio.
- Investment in Mutual Funds – Halal mutual funds are about different kinds of investments. Such a portfolio is usually managed by fund management. One of the most popular halal mutual fund is Global Iman Fund which is in operation since 2009.
- Investment in Precious Metals Mutual Fund – Gold and Silver have always been stores of value. Investors can purchase from Bullion Management Group which provides mutual funds that represent platinum, silver and also gold. These are all stored in different secured vaults. There is a management fee.
- Property or Land Investment – Investors can also purchase property or land and then earn profit from its rent or by selling it at a higher price in the future.
- Investment in Housing Cooperatives – These Islamic Housing Cooperatives were specially developed so that the Muslims could buy homes without the use of interest-free loans. Members usually purchase shares that help in purchasing homes of other members. Dividends are usually received on the basis of the rent or the share from these homes.
- Invest with a Robo-Advisor – the Robo-advisor options are listed in greater below, specifically, Wealthsimple’s halal portfolio that can also be part of your TFSA or RRSP.
List of Apps that Provide Halal Investing in both the USA and Canada
Halal investing opportunities are a smart decision for investors with less capital to invest.
Keep in mind, and as always, investors are advised to do a bit of homework before they choose any kind of investment opportunity.
Wealthsimple halal investment offers a simple and low-cost halal investment opportunity – a smart way to build wealth. Accounts can be opened in as RRSP, RESP, TFSA, LIRA, RRIF, personal, corporate, or joint.
Investors can also optimize the performance of their portfolio. Thus, it is a good opportunity to invest only in those companies which are in accordance with Islamic laws.
Wealthsimple investments are first screened by the Sharia scholars who consider different factors, and one can, therefore, assume that these investments are being done by Shariah principles and guidelines.
The Wealthsimple halal portfolio includes 50 stocks that are selected for tracking the market.
Fees to open an account are based on the total amount invested with Wealthsimple, and range from 0.50% of total assets invested for portfolios from $1 to $100,000, and decrease to 0.40% for portfolios larger than $100,000.
Investors can make an investment in companies across the globe. Thus, through Wealthsimple Islamic investment is made simple and as per the Sharia laws. There is an increased chance of lowering the risk of losing money and maximizing profits.
The challenge with the Wealthsimple portfolio is that 100% of the allocation is in equities. The portfolio itself is well diversified across industries, but, for any investor, putting 100% of your portfolio strictly into stocks is very aggressive, even for the youngest of investors.
If this is all of your savings, and you’re not allocating to any other asset class, then you need to be aware that your portfolio will have huge swings with the market, and will not be counterbalanced by an appropriate asset allocation. As an example, Jack Bogle, the founder of Vanguard, suggests that you invest your age in bonds. So, for example, if you are 30, then your portfolio allocation would be 30% bonds and 70% equities.
Since Wealthsimple allocates 100% of the portfolio towards equities, if you invest 100% of your net worth into this portfolio, and don’t have a cash allocation, then you might be invested appropriately from an equity diversification perspective, but, not from an overall asset allocation perspective. You can keep some of your investments in cash (instead of bonds which pay interest), but, keep in mind, your cash allocation won’t pay interest.
You would be best suited to keeping 50% (or your appropriate allocation) of your assets in Wealthsimple, and the balance elsewhere (perhaps look at doing the Sukuk yourself – see below).
If you are considering Wealthsimple Shariah investing, do not forget to do your market research.
You can sign up for a Wealthsimple account by following this link.
The Amana Funds work by employing the various proprietary screens.
Amana Funds Islamic screens were developed with Fiqh Council of North America (FCNA) and the Council issued the fatwa in the early 2000s. Also, Saturna Capital, the investment advisor for Amana Funds, uses Malaysia-based Amanie Advisors as its Sharia consultant, which issues a halal certification each quarter on the Amana Funds’ portfolios.
Amana Funds is a family of mutual funds. While the funds may incur a profit or a loss, their long-term objectives are to grow or preserve investors’ capital or generate income, depending on the Fund. For example, through September 30, 2019, the Amana Growth Fund Investor Class has returned 12.78% annually for 10 years, in line with its long-term capital growth goal.
The Amana Funds investment process is straightforward and clearly explained on this link to the web page for the Amana Mutual Funds Trust.
Sukuk Investments (covered above)
Sukuk Investments are quite similar to bonds but these are Halal.
Sukuk investments are actual certificates that are generally not based on the debt amount or on interest. Debts are actually a way to exploit a person, receiving a loan. In Islam, when money is lent just for receiving interest, it is known as haram. Thus, making an investment in the regular bonds and in various options that provide interest are haram. However, Sukuk investments are totally Halal.
Such investments that provide profit from the company’s assets are Halal.
M1 Finance provides bonds and individual stocks investments along with Robo-advising services which are totally commissioned free.
Through the platform, users get the benefit of rebalancing, tax efficiency, recurring deposits and more. It is quite simple to create an account and begin investing with a token amount which is quite low – it is as low as $100.
The entire process is straightforward. The interface is simple and helps investors in opening different accounts. Here the clients have an opportunity to carry out trading without any commission or fee.
Robinhood investors who wish to make an investment in cryptocurrencies, ETF’s or stocks find Robinhood quite a lucrative option.
The best part about Robinhood is that there is no need to pay any kind of commission or charges for using the platform. Traders have commission-free opportunities. There is an opportunity to make an investment in stocks of one’s preference.
There is also a scope to build a customized Islamic investment portfolio with companies that offer Halal profits. Finbox is a third-party screening service that can be used to find lucrative halal screening options. Traders can also diversify their holdings. Traders are advised to purchase a wide range of stocks when considering a single investment. Once it is done, it is recommended to executive a number of sophisticated strategies and then secure bigger position.
Fundrise is one of the more popular investing platforms.
Through this, clients are able to make an investment in real estate and not in different stock. When using Fundrise, traders purchase real estate with the help of a negotiated sale. Thus, it is possible to have the price at a minimum level. Traders can easily have a diversified Islamic investment portfolio.
This portfolio might include several real estate assets. Traders can also get help from real estate professionals who offer suggestions on investment opportunities. If you are looking for Halal investment options in USA and Canada, it is important that you rely only various Halal resources. A third-party screen can be used to know more about the income sources of the specific company.
ShariaPortfolio is a popular asset management firm that specializes in various halal investing and Sharia-compliant opportunities. The primary goal of the company is to offer halal investment options. There is no scope to invest in companies engaged in manufacturing alcohol, gambling industry or alcohol. Besides this, there is also a screening of businesses that provided extremely leveraged operations.
Is a Systematic Investment Plan (SIP) Halal or Haram?
A SIP is halal provided you authorize the investment, and the investment itself is being made in a Shariah-compliant investment (meaning an equity or sukuk investment). For reference purposes, a SIP is an automatic deduction of a pre-set amount from your bank account on a monthly, or calendar-based schedule, to be invested in a mutual fund or similar investment.
Is a Mutual Fund Halal?
It is halal to invest in a mutual fund, or ETF provided the securities of the underlying investment itself are halal, and there are no instruments inside the fund or ETF which are riba. Should there be any interest-bearing or riba earned, then it is imperative that the investor keeps track of and donate those proceeds to a charity
Are 401(k) Halal?
In spirit, there is nothing wrong with investing in a 401 (k), but it is imperative that the underlying investments themselves are halal, and for that reason, most adherent Muslims won’t invest in a 401 (k) unless they can be assured that the investments are halal, that no riba is earned, or, that they can direct the proceeds of the investments themselves to assure Shariah-compliance.
Is Forex Haram?
In the USA and Canada, there are many brokers who provide shariah-compliant forex trading. An Islamic Forex account can be opened where interest-free Forex trading is possible. Such an account is also known as ‘No Riba Forex’ account.
An experienced halal forex broker can help investors understand the different aspects of options trading or halal trading, and whether adakah forex haram. With the right guidance and experience, it is possible to earn a reasonable return through forex trading.
Are Binary Options Haram?
Binary options are a somewhat contentious issue within Islamic investing. The quick answer is no, it is not halal to invest in binary options. The problem is, the spot financial markets are done on a 24-hour basis, and since at 5 pm, all open positions are rolled over to the next 24-hour cycle, daily interest is added to the brokerage account, and since interest is haram according to Shariah law, in theory, binary trading is haram.
To overcome this dilemma, there are some clever swap-free account types that eliminate riba.
There are many more apps that offer additional services that help in catering to Muslim community.
So, is investing Haram in Islam? To answer this simply – it is NO!
It is not haram in Islam and can be a good way to increase wealth, however, one needs to consider different factors when considering investment options or shariah-compliant forex trading options.
If you enjoyed this article, you might also enjoy: How to Become a Decamillionaire, Grow your Net Worth to $10 Million, and Join the 1% Club
Good luck with your wealth-creating journey.
If you enjoyed this post, you might also enjoy this one: How Much Money Do You Need To Never Have To Work Again? Let’s Do The Math.
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