Avoiding Haram on Your Halal Investments

For some people, investing is an integral part of their lives. Some even build their lifestyle around investing – relying on investing for long-term financial security, determining goals and routines based on market trends, and making investments a big factor for daily decision-making. 

While investing is a form of responsibility towards oneself, there is no denying that options are still limited for Muslims. As opinions remain polarised on the halal status of modern investing, Muslims need to have trustworthy investment options that align with their religious values.  

Luckily, with the rise of halal fintech apps such as Halal Money, it has never been easier for Muslims to dip their toes in investing.  

What is Halal Investing? 

Halal investing is a practice of growing one's wealth through investments that abide by Shariah principles or the Islamic law.  

Halal investing should be a part of every Muslim’s lifestyle, to ensure the money they are growing are earned through ethical means and its halal status is guaranteed. Among the various considerations of Shariah compliance and verification process, there are two main factors that make an investment halal: 

1. No Riba
   Riba (interest, usury) is prohibited under Islamic laws, therefore Muslims should avoid investments that generate income through interests.
2. No Haram Business
   Muslims are advised to avoid investing in sectors that take part in non-halal activities or may be harmful to the environment. These activities include alcohol, gambling, pork products, and weapons.

How Do You Make Sure Your Investments Stay Halal? 

The companies you invest in may tick all the halal boxes, but that doesn’t completely eliminate the possibility of them getting involved in indirect haram activities. One of the preventive measures you can take is doing an individual screening process. There are two types of screening procedures you can do from the comfort of your own home: 

Business Sector Screening
This process helps you ensure the companies you invested in are not affiliated with non-halal industries. However, it is worth noting that some scholars believe it’s still permissible to invest in companies that generate a small portion (generally 5% or less) of their income from non-halal activities. This is generally allowed as long as the non-halal income is purified.  

Financial Ratio Screening
Next to business activities, a company's compliance with the Shariah principles can also be measured by its financial ratios. According to Halal Times, the threshold for financial ratios is as follows: 

1. Total debt should not exceed 33% of its market capitalisation
2. Total interest income should be minimal, generally less than 5% of total revenue
3. Liquid assets (cash and receivables) should not exceed 50% of total assets

Prioritise Halal Investment Funds 

If you want a more flexible option, you can choose to invest in certified halal investment funds. This type of investment is usually pre-screened and regularly maintained by professional Shariah advisors to guarantee their halal status. 

An alternative you can consider is Halal ETFs by Halal Money. To maintain its Shariah compliance, Halal ETFs are exclusively invested in property, shares, and Islamic bonds (sukuk) while actively avoiding non-haram companies. Halal ETFs are suitable for both beginner and seasoned investors, as they have relatively low risk and don't require a minimum amount per trade, allowing users to invest as much or as little as they want. Additionally, they are a flexible investment option for modern-day Muslims with active lifestyle. Halal ETFs are available for purchase on the Halal Money app and can be traded at any time during market hours. 

Income Purification in Halal Investing 

Purification of income refers to the practice of “cleaning” portion of income that might be generated through non-halal means. Sometimes, halal investments can be unintentionally involved in practices that contradict Shariah laws. Whether the funds acquired are intentional or unintentional, it is necessary to purify them. The process of purification helps “cleanse” the money and retain its halal status. 

There are three methods of purification: 

• Dividend Purification Method
  Purification by donating the non-halal portion of the dividends earned.
• Capital Gains Method
  Purification method by selling shares that come from non-halal income.
• AAOIFI Method
  Purification by calculating and donating the exact amount of non-halal income generated per share. This is done annually.

Regular Halal Investing Portfolio Review 

Regularly reviewing your investment portfolio is another way to ensure your funds are still halal. When reviewing your portfolio, you need to ensure your funds are compliant with Sharia principles. Factors like market conditions, financial ratios, and business activities are subject to change and may affect the halal status of your investments. 

Additionally, regular reviews keep you informed and can help you make informed decisions should your portfolio need necessary adjustments. 

Choose Digital Halal Investments 

Thanks to technology, halal investments are now accessible to almost all Muslims. You can find different investment options tailored to your needs on various platforms, which now offer investment funds for an easier trading experience.  

Halal Money, for example, offers pre-screened halal ETFs that can be traded right on the app. Halal Money subscribes to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), and our ETFs are subject to a three-tier Shariah governance process to ensure its compliance.  

In conclusion, halal investing is a great way for Muslims to build a financially secure future while staying true to their religious values. In recent years, it has become easier for Muslims to find accessible halal investment options. While it takes serious commitment and diligence, halal investing can be both spiritually and financially empowering in the long term. 

What better way to start your halal investing journey than with Halal Money? Click below to download the app to start now!