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A Guide To Halal Investing For Beginners
Ruby Layram
9th Jul 2024
For many of our readers, it is important that investments are Halal. This means that investments must be permissible in the eyes of Shariah law. Navigating this type of investing can be a little confusing. Which is why we’re here to help!
In this guide, we will explore what Halal investing is, provide examples of Halal investments and share some top tips for understanding whether or not an investment is Halal.
- What is Halal investing?
- The basics of Halal investing
- Examples of Halal investments
- How to know if an investment is Halal
What is Halal Investing?
Halal investing is a method of investing that is mainly followed by people who are part of the Islamic faith. It ensures that people do not make investments that go against Islamic beliefs.
Defining ‘Halal’
First things first, let’s clear up what “Halal” means. Halal is an Arabic term that means “permissible” or “lawful” in Islamic law.
In the context of investing, it means making financial decisions that are in accordance with Islamic principles. This involves avoiding certain practices and industries that are considered Haram (forbidden).
The Basics of Halal Investing
Now that we’ve defined Halal, let’s dive into the basic principles that guide Halal investing. These principles ensure that your investments are both ethical and aligned with your faith.
No Debt or Interest
One of the key tenets of Halal investing is avoiding debt and interest. This is because Riba (interest) is prohibited in Islam.
So, when you’re looking at potential investments, you want to steer clear of companies that earn a significant portion of their income from interest or are heavily leveraged with debt.
You can check out our guide on how to research stocks to understand a little bit more about uncovering this type of information.
No Investing in Haram Companies
Next, you need to avoid investing in companies that engage in activities considered Haram. This includes industries like alcohol, gambling, pork products, and conventional financial services (like banks that deal with interest).
It’s about making sure your money doesn’t support activities that go against Islamic values.
You might like: What is ethical investing?
No High-Risk Investments
Islamic investing also shies away from excessive uncertainty and speculation. This means avoiding high-risk investments, like certain types of derivatives or highly speculative stocks.
The idea is to invest in stable, tangible assets that have a clear, predictable income stream.
Donating Profits Generated by Haram Companies
Sometimes, despite your best efforts, you might end up with some profits from Haram activities. When this happens, the ethical thing to do is donate those profits to charity.
This way, you’re cleansing your income and ensuring that your investments remain pure and Halal.
Examples of Halal Investments
Alright, let’s get to the fun part: what can you actually invest in? There are plenty of options that align with Halal principles, so you don’t have to feel limited in your investment choices.
ETFs
Exchange-Traded Funds (ETFs) can be a great option for Halal investing. There are specific Halal ETFs designed to include only Sharia-compliant stocks.
These funds are diversified and managed according to Islamic principles, making them a convenient choice for many investors.
Stocks
Investing in individual stocks is also an option, but you’ll need to do your homework. Look for companies that have minimal debt and do not engage in Haram activities.
It’s a bit more work, but it can be rewarding to build a portfolio of ethical companies you believe in.
Real Estate
Real estate is another fantastic option. Buying property, whether residential or commercial, is generally considered Halal as long as the financing method used is Sharia-compliant.
Plus, real estate can provide a steady income through rent, which aligns well with the principles of Halal investing.
Commodities
Investing in commodities like gold and silver is also permissible in Islam.
These tangible assets have intrinsic value and are often seen as a safe haven during economic uncertainty.
Just make sure the transactions are straightforward and comply with Islamic trading rules.
How to Know if an Investment is Halal
Now, you might be wondering, “How do I know if my investment is truly Halal?” Great question! Here are a couple of ways to ensure your investments are Sharia-compliant.
Speak to a Professional
Consulting with a financial advisor who specializes in Halal investing can be incredibly helpful. They can guide you through the process and help you identify Sharia-compliant investments.
Many Islamic banks and financial institutions offer advisory services specifically for Halal investing.
Do Your Research
It’s also essential to do your own research. There are plenty of resources available online that can help you understand whether an investment is Halal.
Look for reputable sources and be thorough in your research.
Many companies also provide information on their business practices and financials, which can help you make informed decisions.
Halal investing doesn’t have to be complicated or limiting. By understanding the principles of Halal investing and doing a bit of homework, you can build a portfolio that aligns with your faith and values.
Whether you choose ETFs, stocks, real estate, or commodities, there are plenty of ethical and profitable options out there.
Are you interested in learning more about investing? Why not sign up to the MoneyMagpie bi-weekly Investing Newsletter? It’s free and you can unsubscribe at any time if you find it isn’t for you.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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