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Topic #36: Is investing in share market allowed in Islam? Investing in mutual funds?

Is investing in share market allowed in Islam? Is investing in mutual funds allowed in Islam? [share market halal or haram; stock market business is halal or haram; stock market halal or haram; is stock market halal islam q&a]

According to the view of most contemporary scholars in Islam, investment in shares, mutual funds and/or the stock market in its essence is permissible in Islam, provided the following guidelines are honored.

The three main factors that make an investment haram (illegal according to Islamic ruling) are:

  1. The company should not deal in a product which is declared haram in its essence in Islam. Eg. alcohol, prostitution, usury, pork, etc.

  2. The company should not deal in a product which is used to harm a Muslim country. Eg. Arms manufacturing in a pagan country, etc.

  3. Only the pure buying, holding, and selling of stocks, shares & mutual funds is termed halal (legal according to Islamic ruling) by the scholars. All types of other derivative transactions like shorting the stock, buying calls, selling calls, buying puts, selling puts, straddles, or any other variations and derivatives are not lawful.

A mutual fund is merely a product whereby instead of an individual investing directly in the stock market, professional who manage the fund invest on their clients behalf in a basked of stocks in the stock markets.

Provided the stocks or shares of the companies which are held by the mutual fund do not indulge in dealing in what has been declared as haram and unlawful by Allah and His Messenger (peace be upon him); then there is absolutely no harm if a believer wishes to invest in such lawful mutual funds.

But if the companies whose stocks are held by a mutual fund deal or transact their business in a commodity which is unlawful in Sharia (Islamic ruling), then indeed it would be unlawful and haram for a believer who indeed fears Allah to invest in such unlawful mutual funds.

And Allah knows best!

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