As a Muslim, if you want to invest in stocks, you must know about halal stock to invest in. Firstly, investing in the stock market is difficult; as a Muslim, this can be more complex.
Listing out the stocks that are allowed and forbidden for investment according to Shari law is a complex hard-working task.
There are various stocks in a stock market to invest in, but all stocks do not comply with sharia law. Muslims need to know about the halal stocks allowed by the Shari to invest.
This post will aid you in finding halal stocks for investment and other related information regarding halal stocks in a stock market.
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How do You Know if a Stock is Shariah-Compliant?
If you want to invest in a halal stock, you need to know how to choose a sharia complainant stock for investing. The below-mentioned methods will help you to select sharia-compliant stocks to invest in.
Business Model of the Company
Investigate the business model of the company you are thinking of investing in. Some businesses are prohibited in Islam to invest in, like pork business, gambling, alcohol promotion or selling, and promoting illegal activities.
There are other financial sectors, such as banks, insurance companies, and stockbrokers, as these businesses run their business on interest (Riba) and can cross sharia guidelines.
Another thing to consider is that the company must be established and operating to be considered halal. Investment plans have been carried out, and equipment and facilities have been acquired at the time of investment.
Shia does not allow it to invest in business ideas that have yet to materialize.
Look for Interest-Bearing Debt of the Company
Interest-bearing debt is a criterion a stock must meet to be considered halal and concerns the percentage of interest-bearing debt compared to the company’s total assets. Total debt with interest must not be more than 33% of total assets.
It should be noted that the 33% metric does not only apply to Halal investments. Many non-Muslim investors use a similar metric when looking at stocks because it is considered a comfortable risk level.
However, it is difficult to determine a company’s interest-bearing debt. For example, when you check multiple accounts, you’ll see that the loan is listed as interest-free.
To overcome interest-bearing debt, it is necessary to check the additional information regarding the account, which describe the loan in more detail and provide details in depth.
Check the Ratio of Liquid Assets to Total Assets
Non-monetary assets, such as real estate, are said to be illiquid. In cases where the company does not have enough funding, entrepreneurs can start selling illiquid assets. In such a case owner often sell the assets for less than market value.
But how does this affect compliance with Sharia law?
If a company has only liquid assets, such as cash in the bank, it can be sold at face value without other assets. The opinion of Mufti Taqi Usmani is that illiquid assets should be at least 20% of the total assets.
Request a balance sheet from the business that includes goodwill, property, equipment, and any other intangible assets the business may have. Add the illiquid asset numbers, divide by the total assets, and multiply by 100 to get the percentage of total assets. It should be 20% or more to invest.
Investigate How the Company is Running?
Many new investors who wanted halal stocks to invest in looking at the company’s offering and thought it was enough to justify the deal. But what if the business involves illegal practices?
A common mistake most new Muslim investors make is investing in interest-generating companies or borrowing money for interest. These investors earn income from non-Sharia-compliant investments.
When it comes to the stocks you are considering to invest, there is a general rule of thumb to check if the investment is still valid. The income that will be obtained from illegal investments must be at most 5% of the company’s gross income.
It would be best if you did some research to find this information. Look at the annual report and compare it to the company’s gross income to see how much revenue comes from illegal investments. If it is more than 5%, two conditions are generally allowed.
The investor must first calculate the amount of illegal income he will receive and offset the same percentage of his income by donating to charity. Second, investors must oppose this haram action in writing or verbally.
Keep an Eye on Other Products for Sharia Compliance
Be aware that indirect trading can have your money invested in illegal companies. Many Muslims unknowingly keep their savings in pensions, IRAs (Individual Retirement Accounts), and bank accounts that violate Sharia investment principles.
As a Muslim, it is challenging to guarantee that all investments are legal, despite whether you are in touch with a traditional financial service provider that promises to maintain a portfolio of halal investments.
It’s hard to know where they’re allocating your funds. It would be best if you chose an Islamic financier to ensure that your investments are in Islamic compliance.
Check Sharia Compliance Stocks with Islamic Finance Apps
You can also check whether a stock is sharia compliance through Islamic finance apps such as Musaffa, Islamicly, or Zoya.
These apps can help you to find the stocks which are halal in sharia. These apps have free as well as premium versions available.
Halal Stocks in India and the US Stock Market
Based on the information, the following appear halal stocks to invest in (sharia-compliant). This site has not verified the Sharia compliance of the below-mentioned stocks. Verify the sharia compliance of these stocks before going ahead.
Halal Stocks in Indian Stock Market
- Keystone Realtors Ltd
- Bright Solar
- Fortune International Ltd.
- Captain Pipes Ltd.
- Ambo Agritec Ltd
- Global Health Ltd
- Milestone Global Ltd.
- Sunrise Efficient Marketing Ltd
- Archean Chemical Industries Ltd
- Precision Metaliks Limited
- Bikaji Foods International Ltd.
- SP Apparels Ltd.
Some Shariah-compliant Stocks in the US Stock Market
- Falah Capital Iman Fund
- Iman Fund
- Wahed FTSE USA Shariah ETF (HLAL)
- S&P 500 Shariah Stocks
- Wahed S&P Shariah Fund
- Halal Dividend Stocks
- FTSE USA Shariah Index
- Shariah Compliant equity stocks
- Shariah Compliant Mutual Funds
- Shariah Compliant ETFs
- Shariah Compliant Indices
- Shariah Compliant Sukuk
People invest in the stock market to make a profit, but investing in stock is not an easy task, and if you are a Muslim, it becomes more complicated because a Muslim wants to invest in halal stocks.
Hundreds of stocks are available in the stock market, but all are not sharia-compliant. Hence, as a Muslim, it is necessary to find sharia-compliant stocks if you want to invest in the stock market.
Investigate the stocks you want to invest in, research the stock deeply, and find if the stock is sharia compliant.
The information in this blog post is only for informational purposes and is not investment advice. Investing in the stock market is risky, and you can lose your invested funds, so consult a stock market expert if you are considering investing in stocks.