Everything You Need to Know About Halal Investment

Afiyah
Post : May 26, 2023

Investment strategies can be guided by personal ethics, environmental goals and also religious beliefs. No matter what your strategy is, there is a wide range of investments that are available to help you start the perfect investment plan which aligns with your values.

Halal investing is one form of value-based investing that is designed for Muslims. These are investments that are made according to the Islamic principles which can offer many benefits. Halal investment is also a process that encourages disciplined investment for Muslims.

Let us take a look at what Halal investment is and what it looks like.

What is halal investing?

The term halal is an Arabic word that means permitted or lawful. People often refer halal to as food, but halal also describes the investments that are permitted within the laws of Islam. 

Halal investing is a religious form of investing that complies with the laws of Shariah. Topics such as debt, interest and social responsibility form the basic investing guidelines of halal investing. 

Since Halal investing avoids companies that generate revenue from sectors such as gambling, tobacco and alcohol it also becomes a form of socially responsible investing. 

Halal investing also means refraining from investing in companies that hold significant debt or interest income. 

How does halal investing help build wealth?

Shariah is the way of life and it applies to many facets including religious practices, charity as well as investing. 

With the halal investing methods, Muslims can build wealth without having to worry if their investments are Shariah compliant or not since many traditional methods are not. 

Most often Muslims are left with a tough choice with no halal options when it comes to investing. Even retirement plans do not offer halal options and this can make it difficult for an individual to plan a financial future. When this happens, many people are forced to compromise. Having to decide between religious values and a financial future can be a hard position to be in. 

With halal investing methods, Muslims are made to feel comfortable with investing which can also help with a retirement plan that works in accordance with Islamic law. 

Investment when tied with Islamic values provides ultimate comfort to Muslims and becomes not only a form of money management but also a way of thanking Allah.

Principles of Halal Investment 

The investments that are allowed for halal investing have different interpretations. Muslim investors generally accept these practices.

Paying or receiving interest

Islamic law prohibits paying or receiving interest such as the ones which are paid on a loan or debt. Though the term Riba is generally translated as interest, in Arabic it specifically means gaining profit from debt or loans. Such types of interest are not permissible. 

Investing in unlawful sectors

Specific industries such as alcohol, gambling, tobacco, manufacturing of weapons, pork products and traditional finance are prohibited by Islamic law. These are often known as sin stocks and Muslims must avoid them.

Excessive risk, speculation and debt

The Islamic Shariah discourages Muslims from investing in high-risk investments. Since Islamic law prohibits any form of investments that are made depending on luck such as gambling, uncertain investments and short-selling, should be avoided.

Investments with significant debt are also discouraged.

Charity

Upholding Islamic values is also a part of investing. The more money Allah blesses a person with, the more they can give back to the less fortunate ones. This not only brings in several rewards but also cleanses a person's finances that would fix any harm that may have been caused. 

Types of halal investments

It may not be easy to find halal investments, but certain resources make it easy. 

Stocks

It is acceptable to invest in halal stocks. Extra caution must be taken as some companies are considered risky or deal with prohibited industries. 

Funds

Funds are usually composed of many stocks, so it is necessary to pay extra attention to investigate than when you buy individual stocks. Exchange-traded funds, index funds and equity mutual funds all follow the same way as stocks on how they should be halal.

Real estate

Real estate investments are usually considered halal. The main thing to look for is if all mortgages are halal and do not incur interest from the loan.

Gold and other precious metals

Generally, gold and other precious metals are considered halal as they appreciate over time and do not pose any halal-related risks.

Sukuks

Sukuks are similar to bonds but are not debt-based. Bonds are loans from which the investor makes a profit from the loan, which means they are not halal. Whereas sukuk investors profit from investment income from companies that offer halal investing. 

Halal investment Australia

Afiyah Financial Services is a leading Islamic investment provider in Australia that is Shariah compliant. We ensure all our services are driven by Islamic values. For the best halal investment in Australia reach out to us and we will help you achieve your financial goals.

Conclusion

Just like the many forms of investing that are value-based, halal investing allows Muslim investors to work with companies that align with Islamic beliefs. 

If you need to implement an investment strategy that is right for you, talking to a financial advisor might help. 

Not sure where to start? Contact us so we can help you make the right investment choice that does not compromise your religious beliefs. 

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