IslamQA

Investing in Index Fund

Answered according to Hanafi Fiqh by Muftionline.co.za

Q: I wanted to ask a query regarding Shariah compliant index funds. I read from Muft Taqi Usmani’s introduction to Islamic finance that investing in stocks is permissible based on 4 main conditions:

1. Majority of business activities being permissible,

2. Portion of income which is from Haram sources must be given to charity,

3. Majority of assets must be in illiquid form

4. One must disapprove of the company’s Haram practices at the shareholder meeting.

An index fund is made up of tiny percentages of shares from each company. For example, if you invested $1000 in an index fund made up of 50 companies which are equally weighted, you’d approximately hold $20 worth of shares in each company. One such index fund is called the MSCI Shariah Index – a sample of stocks from which a company called Wealthsimple in Canada would use in creating an investment portfolio. The companies are screened based on liquidity ratios, income sources, and a purification percentage provided every so often to enable the holder of these funds to purify ones wealth. Furthermore the screening takes place to ensure most income from the company and liquidity is up to the level required. I wanted to find out if investing in such a type of scheme is halaal? The only criteria it doesn’t seem to meet is the one where one must object to Haram business dealings in a shareholder meeting. As one would own such tiny percentages of these big companies, one wouldn’t have the opportunity or even be part of the shareholder meetings. Kindly advise if this would be required in this situation. 

Bismillaah

A: We do not concur with this view presently as the risk that these investments contain and the conditions related to limited liability are not in keeping with Islamic standards. .

And Allah Ta’ala (الله تعالى) knows best.

 

Answered by:

Mufti Ebrahim Salejee (Isipingo Beach)

This answer was collected from MuftiOnline.co.za, where the questions have been answered by Mufti Zakaria Makada (Hafizahullah), who is currently a senior lecturer in the science of Hadith and Fiqh at Madrasah Ta’leemuddeen, Isipingo Beach, South Africa.

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