Many investment vehicles are off-limits to Muslim investors who wish to stay compliant with Sharia law. Fortunately, Halal investing makes it possible for Muslims to save and profit from investing while respecting their religion. Let’s take a closer look at Halal investing in Canada and what types of investments are Halal.
What Are Halal Investments?
Halal investments are those that do not contradict Islamic principles of investing or Sharia law. Many traditional investment products do not comply with Sharia law, leaving would-be investors without many options to invest. Halal investing, instead, offers options that allow Muslims to stay compliant with their ethical and religious beliefs while investing.
Features Of Halal Investments
More specifically, Halal investing adheres to the following requirements under Sharia law:
- Cannot Gain Interest. Islamic principles state that no interest can be received from fixed-income investments. Further, no investment can be made in companies that profit predominantly from interest, such as banks.
- Cannot Invest In Speculative Stocks. Any investments that may fall under the umbrella of gambling due to their highly speculative nature — such as highly leveraged stocks, options, futures, or short selling — are not permitted.
- Profit And Loss Sharing. Lending money to a business as a form of investing is not allowed. Further, investors must be part-owners of the business they invest in, in order to share the risk as they would the profit.
- Cannot Invest In Certain Companies – Investors cannot receive profits from companies whose core business includes alcohol, tobacco, pork, gambling, weapons, and pornography. Sharia law prohibits these activities, including investing in them.
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Halal Investments vs. Mainstream Investments
How do Halal investments differ from conventional investments? The following chart offers a comparison between the two:
|Halal Investments||Mainstream Investments|
|Interest Earned||– Investors cannot earn interest from fixed-income investments.|
– Investors cannot earn interest from companies that engage in activities prohibited by Shaira law.
|– There are no restrictions on the type of stocks you can earn interest in.|
|Exposure||– Investors share company risk- Investors receive their share of profits |
– Investors accept a share of losses incurred
|– Investors can choose how much risk they want to be exposed to. They can choose investments with low volatility or high volatility.|
|Compliance||– All Halal investments must comply with Shaira law to be considered Halal.||– Investors can invest in anything without restrictions or requiring an investment to meet Shaira law.|
Who Offers Halal Investing?
Halal investors who are looking for profitable investment portfolios and want to stay true to their religious beliefs have a few options to choose from:
Wealthsimple is a popular investment platform. More specifically, it’s a robo-advisor that uses algorithms to make trading decisions for investors.
The investment platform offers a Halal investment portfolio that is not only optimized for performance, but for investments that are in compliance with Islamic law. All investments are carefully reviewed by unbiased Shariah scholars and are not involved in any restricted categories, like gambling or pork production, nor do they earn significant income from loan interest.
Wealthsimple’s Halal investing makes it easy for investors to quickly obtain a diversified investment portfolio of stocks that have already been screened for compliance with Sharia law. Investments can also be held inside a TFSA or RRSP.
Fees for Wealthsimple Halal investing include 0.5% for the first $100,000 invested, and 0.4% for investments exceeding $100,000.
Manzil is a Toronto-based investment advisor that offers Halal portfolios managed by CI Direct Investing, which is registered to advise on securities. All portfolios at Manzil comply with Shariah requirements under Shariah standards issued by the Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI).
Investors can choose almost any investment vehicle including RRSPs, TFSAs, RESPs, RRIFs and other personal investment accounts. Manzil offers investors four different portfolios, depending on risk tolerance:
- Income – For very low-risk investors
- Conservative – For low-risk investors
- Balanced – For moderate-risk investors
- Growth – For high-risk investors
Investing in Mazil’s Halal portfolios through CI Direct Investing will cost between 0.35% to 0.60% of your asset value per year.
Pros And Cons Of Halal Investments
There are a few perks and drawbacks of Halal investing for investors to consider.
Pros Of Halal Investments
- Avoids high-risk investments. Sharia law forbids investing in speculative stocks, which may be considered a form of gambling. Halal investing is naturally void of such high-risk investments.
- Many blue-chip companies are available. Conservative investors have several blue-chip stocks to choose from, which are considered relatively safe investments with a proven track record.
- Socially-responsible investing. Investors who prefer to focus their investments on companies that match their ethical and social values can find what they’re looking for with Halal investing, since such investments do not include industries like gambling, weapons, alcohol, and tobacco.
Cons Of Halal Investments
- Good fixed-income investments are difficult to find. As noted earlier, Islamic principles stipulate that investors cannot earn interest from fixed-income investments, but such investments are tough to come by.
- Difficult investing in real estate. Halal investing does not allow investing in debt, which makes traditional investment vehicles, like real estate, difficult for those who wish to follow Sharia principles.
- Canadian stock exchanges are low in solid blue-chip companies. The top blue-chip stocks are often found on the TSX. But because they’re heavily interest-based, they’re off-limits to Halal investors.
- Not environmentally conscious. Halal investing permits investing in companies that are involved in energy considered potentially harmful to the environment, such as fossil fuels.
Halal Investing FAQs
Is Halal investing only for Muslims?
Is crypto trading Halal?
What type of investments are not Halal?
With Halal investing, investors who wish to avoid breaking Sharia law have several investment options available to them that are both profitable and compliant.