1. Vanguard total bond market index fund institutional shares
2. PGIM total return Bond Fund
3. PIMCO income fund institutional class
4. PIMCO International bond fund Institutional class
5. Vanguard target retirement income fund
6. Dodge & Cox stock Fund Class X
7. JP Morgan US research enhanced Equity fubd
8. MFS Growth Fund Class R6
9. John Hancock funds
and many others.
Now, I am not sure if these investment firms are having Halal stocks so i am unable to decide what to do with this 401K money that I earned. Another thing is, I can't choose the brokerage option unless I change my job and I am not planning to do it in near future. Please advise on this matter.
الجواب حامدا ومصليا
In principle, investing in any fund that primarily deals in ḥarām business is impermissible. In the context of mutual funds, which make up the majority of 401(k) investment options, there are multiple securities wherein money is invested,[1]and each one requires a review to determine permissibility.
Each mutual fund’s composition of the various holdings and the sector weightings will be considered in determining its permissibility. Thereafter, if the majority of the holdings of a mutual fund are invested in permissible businesses, such as textile, automobile, and technology companies, it is permissible to invest in these 401(k) plans. If the majority are in impermissible businesses, such as in alcohol companies, or in bonds, it is impermissible to invest.
If there are minority ḥarām investments in the fund, the proportionate amount must be calculated and given in ṣadaqa.[2]However, it is impractical to calculate specific proportions for each mutual fund due to the plethora of securities in each fund, so a reasonable amount must be given in ṣadaqa.[3]
The following chart lists the aforementioned funds, their majority holdings, and their rulings:
|
Fund |
Reason* |
Status |
|
(VBTIX) |
Majority Investment in Bonds [4] |
Impermissible |
|
(PDBAX) |
Majority Investment in Bonds [5] |
Impermissible |
|
(PIMIX) |
Majority Investment in Bonds [6] |
Impermissible |
|
(PFORX) |
Majority Investment in Bonds [7] |
Impermissible |
|
(VTINX) |
Majority Investment in Bonds [8] |
Impermissible |
|
(DOXGX) |
Majority Investment in Sharia Compliant Sectors [9] |
Permissible |
|
(JDESX) |
Majority Investment in Sharia Compliant Sectors [10] |
Permissible |
|
(MFEKX) |
Majority Investment in Sharia Compliant Sectors [11] |
Permissible |
* Disclaimer: This information is based on the current fiscal year.
The following method may be used to calculate the permissibility of a mutual fund:
- Identify the ticker symbol of each fund.
- Use reliable websites like Morningstar.com to determine each fund's holdings.
- Look at the overall portfolio composition and determine the majority of the holdings. If the overwhelming majority are in permissible sectors such as technology, energy, utilities, or basic materials, then it is permissible. Avoid funds that include bonds.
If one has already invested in impermissible stocks and mutual funds, it is necessary to divest and give the earnings (money above employer and employee contribution) in ṣadaqa. Although there may be “free money” from the employer match, there is no baraka in ḥarām wealth. Furthermore, if a person’s 401(k) does not have Sharia-compliant options, they may speak to their employer about allowing investment in specific Sharia-compliant mutual funds. Otherwise, they can opt for a different retirement plan, such as an IRA or Roth IRA, even if there is no employer match.
And Allah knows best.
Ml. Abdullah Mohammed
Student, Darul Iftaa Chicago
Checked and Approved:
Mf. Abrar Mirza
Head Mufti, Darul Iftaa Chicago
[1] Fernando, Jason. “What Is a 401(k) and How Does It Work?” Investopedia, March 19, 2023. https://www.investopedia.com/terms/1/401kplan.asp.
[2] Usmani, Mohammed Taqi. “Islamic Investment Funds.” Book. In An Introduction to Islamic Finance, 207–11. Karachi, Pakistan: Maktaba Ma`ariful Quran, 2018.
“Shariah Standard #21: Financial Papers (Shares and Bonds).” Essay. In Shariʻah Standards:
Full Text of Shariʻah Standards for Islamic Financial Institutions as of Safar 1437 a.h.-December 2015 A.D, 562–66. Manama, Bahrain: Accounting and Auditing Organization for Islamic Financial Institutions, 2015.
[3] “Shariah Standard #21: Financial Papers (Shares and Bonds).” Essay. In Shariʻah Standards: Full Text of Shariʻah Standards for Islamic Financial Institutions as of Safar 1437 a.h.-December 2015 A.D, 562–66. Manama, Bahrain: Accounting and Auditing Organization for Islamic Financial Institutions, 2015.
[4] “Vanguard Total Bond Market Index I (VBTIX) Holdings.” Yahoo! Finance, October 20, 2023. https://finance.yahoo.com/quote/VBTIX/holdings?p=VBTIX.
[5] “PGIM Total Return Bond Fund -Class A (PDBAX) Holdings.” Yahoo! Finance, October 20, 2023. https://finance.yahoo.com/quote/PDBAX/holdings?p=PDBAX.
[6] “Pimco Income Instl (PIMIX) Holdings.” Yahoo! Finance, October 20, 2023. https://finance.yahoo.com/quote/PIMIX/holdings?p=PIMIX.
[7] “PIMCO International Bond (USD-HDG) Instl (PFORX) Holdings.” Yahoo! Finance, October 20, 2023. https://finance.yahoo.com/quote/PFORX/holdings?p=PFORX.
[8] “Vanguard Target Retirement Income Fund (VTINX) Holdings.” Yahoo! Finance, October 20, 2023. https://finance.yahoo.com/quote/VTINX/holdings?p=VTINX.
[9] “Dodge & Cox Stock X (DOXGX) Holdings.” Yahoo! Finance, October 20, 2023. https://finance.yahoo.com/quote/DOXGX/holdings?p=DOXGX.
[10] “JPMorgan US Research Enhanced Equity I (JDESX) Holdings.” Yahoo! Finance, October 20, 2023. https://finance.yahoo.com/quote/JDESX/holdings?p=JDESX.
[11] “MFS Growth R6 (MFEKX) Holdings.” Yahoo! Finance, October 20, 2023. https://finance.yahoo.com/quote/MFEKX/holdings?p=MFEKX.