Could you please advise whether exchange traded funds are a permissible vehicle to invest in -sharīʿah compliant ones? We have to put our compulsory pensions at work into different investments and these are some of the options available. If we do not choose the sharīʿah compliant investments, the money will be put into the non sharīʿah allocations determined by the company.
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykumwa-rahmatullāhiwa-barakātuh.
ETF-funds[i] trade in the stock exchange market. Contemporary scholars have differences of opinion on the Sharī’ah Compliancy of buying and selling shares in a company or joint stock exchange markets. Those who believe it is permissible to purchase and sell shares of a company state that it will be permissible with the following conditions[ii]:
- The company in question is not dealing in Ḥarām items, such as alcohol and pornography.
- The company is not solely dealing in liquid assets, such as cash, bonds etc. but rather is dealing in illiquid assets as well.
- The income that the company has received through interest, an equivalent percentage on the receivables ought to be given in charity.
Based on this, the precautionary view would be that you abstain from making any choice as to how your pension fund is to be structured.
And Allah Ta’āla Knows Best
Khalil Johnson
Student DarulIftaa
Canada
Checked and Approved by,
Mufti Ebrahim Desai.
[i] An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks.[1][2] An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features “Exchange-traded fund – Wikipedia, the free encyclopedia” , accessed 26 November 2013. http://en.wikipedia.org/wiki/Exchange-traded_fund.
In order to understand ETF, I checked