Are bonds, index funds and ETFs halal?
A bond is a loan to a government or a company, repaid with interest: riba, whether held directly or through a fund. An equity fund is only as halal as what it holds. A standard index includes banks, insurers and companies deep in interest-bearing debt. Screened versions of the same indexes exist and are the halal route.
The guidance
I want to invest through a bond, a fund or an ETF. What does it hold?
- A bond or bond fund that pays me interestHaram · Riba · Qur’an 2:275A bond is a loan to a government or company, repaid with interest. Held directly or through a fund, the return is riba. Bonds bought below face value are the same: the gain is interest paid at the end.Sukuk that give real ownership of assets, such as leased property, are the halal alternative.
- A Shariah-screened index fund or ETF with its own scholar boardHalal · Equity · AAOIFI 21The fund owns only shares that pass halal screens and sells any that stop passing. It should purify impure income or tell you how much to give away. Check that it does not lend out its shares for interest.
- An ordinary index fund or ETF that holds every company in the marketHaram · Riba · Haram holdingsA standard index includes banks, insurers and companies deep in interest-bearing debt, so buying it makes you part-owner of all of them. Choose a screened version of the same index instead.
People also ask
Are government bonds or savings bonds halal?
No. The return is interest on a loan to the state. Bonds bought below face value are the same: the gain is interest paid at the end.
Are sukuk halal?
Sukuk that give real ownership of assets, such as leased property, with returns from those assets, are the halal alternative to bonds. Sukuk that guarantee your capital back through a purchase undertaking work like bonds and drew sharp criticism from Mufti Taqi Usmani.
Is an S&P 500 or MSCI World ETF halal?
The ordinary versions are not, because they hold banks and unscreened companies. Shariah-screened versions of both indexes exist.
Is a pension fund halal?
A default pension fund usually holds bonds and unscreened shares. Many schemes offer a Shariah-screened fund; choose it, or ask your provider for one.
Are prize bonds or premium bonds halal?
No. The holder lends money to the issuer, and the prizes are a benefit paid to the lenders and handed out by lot. That is riba with an element of gambling, whether a company or the state issues them. Profit-sharing accounts and screened investments are the halal alternatives.
Related questions
All questionsThe four schools on riba
This guidance follows the Hanafi school as applied today by Mufti Taqi Usmani and the AAOIFI standards. Notes mark where the Maliki, Shafi’i or Hanbali schools differ. The four schools on riba →