Are you interested in upping your investments? Perhaps you’re a beginner Muslim investor who’s looking to diversify their portfolio with some wise assets.
But have you considered that the very stocks, bonds, and industries you’re investing in can be regarded as haram? It is essential to ensure that all your investment and wealth creation opportunities are compliant with shariah law.
While it can be daunting to consider all your investments and ensure they are socially responsible, ethical, and Islamic law compliant, do not despair.
In this article, we share the principles of halal investment and important questions every halal investor should ask themselves. In addition, we will be outlining the seven best halal investment options for the 2021-2022 financial year.
Keep reading for the ultimate guide on halal investing.
Understanding Halal Investing
Recently, there has been a growth within the financial landscape for shariah-compliant products and services. This has lead to the exciting niche that is halal investing.
Before we dive into Islamic investment options, let’s look at a few basics on investing following shariah.
What Is Halal?
The word ‘halal’ stems from Arabic origins and can be defined as permissible or lawful. Its opposite is ‘haram,’ or that which is prohibited or unlawful.
Both terms are critical under shariah law, which governs traditions and customs in Islam.
Another key term is ‘riba,’ which refers to fraudulent returns under Sharia. Some forms of investing can be considered riba (thus best avoided). Hence, it is important to understand what kinds of investing is halal so you can avoid accidentally contributing to riba.
Would Investing Be Considered Halal?
Investing is considered halal, but this does come with caveats.
You will need to consider carefully what the nature of your investments is. Another critical point to check is if the halal opportunities align with your financial goals.
Remember, the key to halal investing is ensuring that your transactions comply with shariah. Specific industries, investments, institutions, and companies may not be considered shariah.
Therefore, in addition to maximizing your returns, you will need to ensure that the nature of your investments is socially responsible. Investing in industries even associated with haram practices such as pornography or alcohol can be detrimental to your religious tradition.
The good news is that halal investment options are growing every day in Australia! There are trading, insurance, and stock market options – all of which are halal.
The Golden Rules of Halal Investing
The shariah law asks its followers to protect five critical areas of life. These are religion, family, intellect, property, and life. Halal investing must respect these tenets to live a socially responsible life.
Thus, the three golden rules of halal investing are:
Transactions must not involve riba: The concept of interest is strictly forbidden within Sharia. Therefore, we suggest avoiding investments where you could potentially accrue interest. Some kinds of loans, interests, and bonds must be avoided.
Transactions must not be haram: Shariah laws prohibit investing in any industries or haram areas, even by association. Some of these areas include:
- Pork, alcohol, or meat options that are not slaughtered in an Islamic way
- Interest or speculation
- Production of weapons that can harm others
Avoiding these industries will help ensure that your finances are in line with Islamic law.
Transactions must not be related to gharar (uncertainty) or maysir (gambling): Avoiding investments related to these activities will ensure a balanced ecosystem between individuals and society.
Essential Questions Every Halal Investor Should Ask Themselves
Before you get to investing, we recommend doing some foundation work to maximize your success. Ask yourself the following questions so that you’re clear on the intended outcome as well as sharia rules.
Why Are You Investing?
The reason you’re investing will determine the strategy you take. It will also assess the level of risk you’re willing to undertake.
The level of risk you take corresponds directly to the number of returns you receive. Risky investments can also open investors up to riba, which must be avoided at all costs under shariah.
Decide if you’re investing to save up for a life expense like a child’s education or a car. Perhaps you’re setting aside money for a sizeable nest egg. Either way, getting clear about the reason will help you in the long run.
How Long Are You Investing For?
Another vital point to gain clarity on is how long you’re investing for. Both short-term and long-term investments are halal.
But your time frame will help you decide on your strategy. Will you be holding long-term even with fluctuations, or selling assets when there is any uncertainty?
How Much Are You Willing to Allocate?
Sharia law praises moderation. We suggest avoiding the ‘all in’ tendency, where investors give in all their savings to one asset. This is particularly true for the stock market.
However, some people choose to go all-in on a savings account. A low risk, low return option will always be prudent.
To protect your investment, it is better to think about how much of your funds you’re willing to allocate to each asset type. This will save you from financial troubles in the future.
Halal Investment Options
If you’re looking to invest halal, focus on options that support the community, the environment, and innovation and advancement. Some industries or areas of investment to consider include:
- Sustainable technology
- Research and development on life sciences
- Energy-efficient practices
- Locally based businesses
Thus, every halal investor can focus on areas such as innovative technology, renewable energy, and healthcare. There are many investment ideas that fall into these broad areas.
Halal Investments for FY2021-FY2022
Our main investing advice for Islamic investing is to do your due diligence. Double-check your investments to ensure that they are shariah-compliant.
You will also want to ensure that the type of asset you’re investing in has great potential for growth in Australia.
Following are halal investing options in Australia for beginners.
Property is one of the most reliable investments out there. Not only does it come with financial benefits, but it also supports shariah principles. It is perfect for those that want a low-risk, high-reward investment option.
Unlike putting your money in a savings account, property investment will give you a solid income and a physical asset to your name.
The appreciating of market prices always puts property investors in an advantageous position. Renting out your property to tenants can give you returns from anywhere between 6-10% per annum.
Another benefit with property is that you can take out an Islamic mortgage. This will allow you to put down 25% cash and then use your rental income to pay the mortgage each month.
The Australian government is also greatly prioritizing development in property and infrastructure. Over $50 billion has been committed towards investment in public and private infrastructure. Thus, it is the best time to invest in property as you may even receive grants or incentives for your investment.
If you’re confused about where to start, begin by looking up the current market information. Housing market analyses, property market statistics and more will aid you in making an informed decision.
2. Stock Market
One of the best long term investments out there lies in the stock market. There are two main kinds of stock market investments you could opt for:
- Invest in shares: Choose the companies you wish to invest in and buy the shares yourself
- Invest in funds: Managers of funds will invest in a group of companies for you
The key takeaway when investing in stocks is to ensure that the company is certified shariah-compliant. Fund managers will ensure to look for halal investments, or you could do your research and find halal companies as well.
Some publicly traded blue-chip companies that are halal include Johnson & Johnson, Adobe Inc., Salesforce, Pfizer, Intel Corp, Canon, and more.
Let us now take a look at the various halal industries that you can buy shares in.
This industry is enormous in Australia. You can opt for companies that manufacture beverages, motor engines, food etc. However, watch out for organizations associated with alcohol or cigarette manufacturing.
Australia is also renowned for its clean, green, and safe manufacturing, particularly in the food industry. As sustainability and eco-efficient practices are socially responsible, this will be a great industry to invest it safely.
Considering the manufacturing industry accounts for over 48% of exports, you’ll be sure to get great returns in this sector!
Investing in the telecommunications industry is ideal for an Islamic investor. You will get great returns as the telecom sector has substantial returns. In addition, it is a halal and shariah-compliant industry.
The medical industry is undoubtedly halal! Whether you choose to invest in hospitals, pharmaceuticals, or health insurance companies, they are likely to engage in helping humanity.
Specifically, the health-related digital technology industry is booming in Australia. Investing in companies that pioneer products that mix health and technology will be the ultimate successful investment.
An evergreen investment, gold is an excellent option for low-risk investors. It has been a go-to investment for centuries because its prices never fluctuate, and it is a physical entity.
Many trading platforms allow you to trade in gold ETFs. Check out Wahid Invest or Wealthsimple for halal investment options in gold and other metals.
4. Super Fund
The Australian government implemented the Super Fund to provide Australians with an income stream after retirement. This fund has tax benefits and can be withdrawn only when one of the conditions of release has been met.
However, can you invest in a halal Super Fund? Sticking to Islamic religious beliefs and tenets is essential for so many Muslim Australians. Luckily, Crescent Wealth offers Australia’s only Islamic superannuation alternative.
This is the ideal solution for those who wish to align their ethical and Islamic principles with long-term performance. You’ll be able to contribute to the community and humanity in general while getting long term fiscal benefits.
The technology industry is fast-growing and accounts for over $122 billion of the Australian market! It is, therefore, a wise investment, in addition to being halal.
Choose from investing in raw materials, finished products, digital technologies, hardware, software, and more. The returns and risks in the tech industry do tend to fluctuate, so be sure to do your research before making any decisions.
6. Halal Cash
Investing in Islamic banking is a great way to ensure that all practices are fully shariah-compliant. Unlike traditional financial institutions, Islamic banking will ensure that all the tents of the community are upheld.
It is important to note that halal cash investments won’t get you a fixed rate of return. Assets are processed according to shariah principles, which can lead to your returns varying.
Your readiness to deal with this fluctuation of profit and loss is considered halal in itself. To comply with shariah law, cash held in an account must not accrue interest.
7. Startups and Small Businesses
Startups are the ultimate high-risk, high-reward investment solution. Many investors have success stories of investing in startups like Uber or Tesla.
However, if your investment fails, then you can make potentially heavy losses. Do your due diligence and find small businesses or startups near you. Investing in what you’re truly passionate about is an excellent place to start.
We advise beginner investors to invest in this option only if they have big pockets.
Halal Investing Is the Key to Your Financial Success
It is truly amazing to see the number of halal investment options out there! The wide range of possibilities allows Muslim investors to build a diversified portfolio with great returns and ethical principles.
Now that you know the best halal investment options for the 2021-2022 financial year, which one are you going to choose?
If you’re looking for more information on the ideal halal investment, check out Crescent Wealth. We follow the globally recognized Islamic investment framework so that you can rest assured knowing that your assets are socially responsible.
Want to get started with Australias first Islamically compliant Super Fund? Click here to register at Crescent Wealth today!
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Islamic Money Expert
Fatma currently leads Crescent Wealth’s Operations, including strategic business planning, project management of major projects and management of key stakeholders.