Fatwa: # 42524
Category: Business Matters
Country:
Date: 11th February 2020

Title

Is it permissible to invest in Total Stock Market Index Fund?

Question

Please advise if it is permissible to invest in Total Stock Market Index Fund (similar to VSMPX) 100% stock; 0% Bonds. 

Answer

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

A total stock market index fund is a mutual fund that invests in a variety of stocks of differenct companies. The same laws that apply to trading in the stock market will apply to investing in a total stock market index fund.

The following laws will apply:

It is permissible to invest in the stock market with the following conditions.

 

  • The main business of the company does not violate the rules of Shari’ah; therefore, it is not permissible to acquire the shares of companies providing financial services on interest like conventional banks. This also involves companies involved in gambling, pornography, prostitution, the selling of pork, alcohol beverages, tobacco, illegal drugs, etc.

 

  • If the main business of the company is halal, but they deposit their surplus amounts in an interest-bearing account or borrow money on interest, the shareholder must express his disapproval against such dealings preferably during the annual general meeting of the company.

 

  • If some income from the interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend must be given in charity without the intention of reward.

 

  • The company must own a considerable proportion of illiquid assets.

If any one of the above-mentioned conditions is violated, the investment will be impermissible.

 

You will need to enquire from the relevant brokers if they fulfil these conditions.[1]

And Allah Ta’āla Knows Best

Abu ‘Umar Muhammad bin Zayn Patel

Student Darul Iftaa
South Africa

Checked and Approved by,
Mufti Ebrahim Desai.

 

 

 

 

 


[1]  An Introduction To Islamic Finance – Maktaba Ma’ariful Quran Pg: 207

 

 

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