UPDATE 2: A top gold ETF has received Islamic financing accreditation, allowing it to access new markets. 15 FEBRUARY (Reuters) – The world’s largest physically-backed gold fund announced on Wednesday that it has been certified as sharia compliant, the latest push to boost bullion demand from investors in majority-Muslim countries.
Can Muslims invest in ETFs?
Polonius, Shakespeare’s character, continues to thrill viewers of Hamlet. He provides his kid some sound counsel in the opening act of the play. The younger gentleman is preparing to pursue his studies in Paris. “Neither a borrowing nor a lender be,” Polonius states at one point. Muslims can understand. Polonius’ statements, after all, echo Shariah law.
When Muslims invest, they are not supposed to make interest-bearing loans. Bonds are ruled out. Such interest is forbidden by Shariah law, according to the Koran.
Other faith-based investment practices are also followed by Muslims. They are not permitted to invest in financial institutions or businesses that manufacture or sell alcoholic beverages. They should avoid investing in businesses that deal with gambling, WMDs, pornography, or cloning.
That eliminates a lot of potential investments. Muslims, on the other hand, can still make money on the stock market. They can enjoy significant gains while adhering to faith-based principles if they invest in low-cost, Shariah-compliant stock market funds.
Shariah-compliant funds have been developed by a slew of financial institutions. However, their fees are quite exorbitant. The lower the fees, as with traditional mutual funds or unit trusts, the more money you will make.
That is why Shariah-compliant ETFs should be considered by Muslims. They only invest in industries that are compatible with their faith. Furthermore, their fees are lower than those charged by actively managed funds. As a result, they have a considerably better chance of making a profit.
On the London Stock Exchange, three instances are traded. The iShares MSCI World Islamic ETF is one of them (ISWD). There are 525 stocks in it from a variety of developed market countries. Because the United States is the world’s largest stock market, about half of the fund’s holdings are American stocks. The remaining shares are distributed among European, Asian, Canadian, and Australian companies.
On the London Stock Exchange, the iShares MSCI USA Islamic ETF (ISUS) is another Shariah-compliant vehicle. New investors may want to compare this fund’s returns to those of the World Islamic ETF…and then choose the US fund. They may be impressed by the fact that the American Shariah-compliant fund gained 99.84 percent in the ten years ended June 30, 2018.
The Shariah-compliant world stock index, on the other hand, has a ten-year total return of 58.11 percent. However, concentrating on the US fund could be a mistake.
After all, it excludes equities from Europe, Asia, Australia, and Canada. As a result, it has a much narrower range of products.
Furthermore, US stocks are currently overvalued. U.S. stocks are likely to underperform worldwide markets in the coming decade, according to the most widely used predictor of long-term returns (the CAPE ratio). A world stock index gives you exposure to U.S. stocks without going crazy.
Muslims should include the iShares MSCI Emerging Markets Islamic ETF to their portfolio (ISDE). It includes 260 equities from a variety of emerging markets. Emerging market shares have a lot of room to increase. They can, however, be volatile, and they can fall hard at times. As a result, investors should not invest more than 10% of their portfolio in emerging market companies.
What exactly is an Islamic ETF?
An Islamic ETF exclusively tracks an Islamic benchmark index that includes Shariah-compliant corporations as index constituents. An Islamic ETF must also employ a Shariah adviser/committee to give knowledge and guidance to ensure that its structure, investments, and governance are all compliant with Islamic law.
What is a halal portfolio, exactly?
Halal investment portfolios are made up of enterprises that invest according to Islamic laws and values. To put it another way, these businesses don’t benefit from things like alcohol, gambling, tobacco, pork, interest, and so on.
What methods do Muslims use to invest in gold?
Gold ETFs (Exchange Traded Funds) are a means to invest in gold while holding it electronically and with the convenience of the stock market. They are financial products that are solely invested in physical gold. Demat account holders can purchase and sell them just like any other stock on the exchange.