How to invest in Shariah-compliant funds

MUSLIMS looking to invest in the stock market face some challenges. How can they invest without compromising their values? 

Islam has had a long affinity with the financial world. In the 2^nd century, the famous Silk Road ran through the Arabian Peninsula and Northern Africa - where locals developed an economy based on trading¹.  

This merchant capitalism combined an Islamic socialist ruling that branded interest as forbidden because it was seen to create social injustice, as individuals could create wealth without much effort.  

For modern-day Muslims this presents challenges. Cash accounts, credit cards, loans and even investing in the stock market usually involves some form of interest. Some funds and companies may also invest in sectors that are not permissible in Islam, like gambling or alcohol.   

The Muslim community is extensive and there has been great demand for faith-aligned funds.  

Thankfully, fund companies have stepped up to the plate to create ‘Shariah-compliant’ funds to meet the needs of Muslim investors.  

What is a Shariah-compliant fund?

Shariah-compliant funds are governed by the requirements of Shariah law and Islam². They are a type of socially responsible investing.  

The requirements for a fund include the exclusion of investments which derive most of their income from the sale of alcohol, pork products, pornography, gambling, military equipment, or weapons.  

Funds may also include an appointed Shariah board, an annual Shariah audit, and some may ‘purify’ prohibited income like interest, by donating it to a charity. 

How do I invest in a Shariah-compliant fund?

You can browse our range of Shariah-compliant funds on our Sustainable Investment Finder.  

Simply click the ‘faith-based’ filter. You can look at the fund’s yield, its asset class, ongoing charges, and its portfolio breakdown.  

It’s important to note that since Shariah-compliant funds are often actively managed and may include the guidance of different Islamic scholars, the fund’s ongoing charges may be higher compared to a non-compliant fund. 

Can I include Shariah-compliant funds in my pension?

The short answer is that it depends on your pension provider.  

These days, employees are often auto enrolled into a pension which is then automatically invested into a default fund.  

Some pension providers may cater for the needs of Muslim employees by offering Shariah-compliant funds - so it’s worth contacting your provider to see what options are available to you.  

If you find that there are no Shariah-compliant funds available - you may want to consider a Fidelity Self-Invested Personal Pension. This gives you greater control of what you invest in, and you can save from as little as £20 a month. 

A Fidelity Stocks and Shares ISA is another way you can access Shariah-compliant funds. You can save up to £20,000 per tax year.  

Shariah-compliant funds are a great way to invest without compromising on your values. At the end of the day, you can be sure your hard-earned money is in the right place.  

Browse through our funds on the Sustainable Investment Finder.

Source:

¹ Crescent Wealth, 17 January 2021  

² Investopedia, 29 May 2021

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.