Fatwa: Are Exchange Traded Funds (ETFs) Haram or Halal? What About Gold ETFs?

This is iA the most comprehensive resource for this question on the internet.

We present views from Islamweb and SeekersGuidance, and then our resident expert Mufti Faraz Adam presents his views, and finally IFG present a commercial perspective on the matter.

View One: Islamweb

What applies to the shares of this company is exactly what applies to other shares of other companies as clarified in Fataawa 90770 and 85042.

Therefore, if the shares of this company are free from Sharee’ah prohibitions, then it is permissible to buy it and invest in it, and pay the registration fees when participating in it. But if its activity includes a forbidden matter, like if its money (gold) is deposited in banks that deal with Riba (interest and/or usury) and then it takes the interest on the deposited money and invests it or distributes it among the shareholders, then it is not permissible to invest in it in order to avoid what is forbidden and all means that leads to it.

However, some scholars may Allaah have mercy upon them are of the view that it is permissible to participate in this company if the percentage of what is forbidden is a small percentage provided that the shareholder abides by purifying his profit from that forbidden percentage. Nonetheless, it is better to look for a permissible way of investing money and to avoid what includes a prohibition or what is suspected to be prohibited.

Also, in selling gold and silver at the stock exchange or anywhere else, it is a condition that there is a real hand to hand exchange or what serves as the hand to hand exchange; the buyer takes the gold and the seller takes the money at the time of carrying out the transaction, and this is what is called taking possession in the session of sale contract. So, if the gold is sold for a currency, then it is enough to exchange hand in hand, but if it is sold in return for gold [gold for gold], then it is a condition to exchange it hand to hand and it is also a condition to be of the same amount. However, a bank account [transferring the money from one bank account to another] or a bank cheque can serve as the real hand to hand exchange.

Source: here

View Two: SeekersGuidance

I pray this finds you in the best of health and states.

Investing in gold/silver ETFs that are not sharia-compliant is most likely impermissible.

According to Islamic law, a condition for monetary exchange (sarf) is immediate transfer. [Maydani, Lubab]

This would not seem to be fulfilled with the allocation of gold/silver in conventional ETFs, where one’s investment is not directly related to specific bars of precious metal.

Also, conventional ETFs often transact in speculative derivatives market (futures, options, etc) to hedge against price fluctuations, and they have money parked in debt instruments. These are deemed unlawful.

One could instead seek sharia-compliant alternatives, in which one’s investment is backed by physical, allocated gold held in safe-keeping.

And Allah knows best.

Checked & Approved by Faraz Rabbani

Source: here

Mufti Faraz Adam View

To follow.

IFG View

ETFs are just a vehicle through which one can invest in underlying assets. So in their essence they are unproblematic.

However there are a few wrinkles to iron out:

  1. Some ETFs do not buy the assets (e.g. the stocks or the commodity) themselves and rather they use derivatives to create the same effect of having held the assets. This is not permissible in Islam as standardly Islamic law does not allow trading in derivatives.

  2. Those ETFs that invest in assets - one needs to make sure that the assets themselves are permissible - just like one would for any fund. We have a list of the halal stocks in the FTSE 100 accessible here. As you will see, only a subset of such an index is halal - so buying the whole index ETF would be problematic.

  3. Lets say you have accidentally bought such an ETF. How do you purify your wealth? Here is a free course that teaches you how.

  4. ETFs that allow one to hold commodities such as gold, silver, metals etc. are in our view permissible, in line with the reasoning in the Islamweb fatwa above. In our modern context a bank transfer and a ledger entry of ownership is sufficient - one does not need to actually take delivery of the relevant gold bullion in one’s house or go in to buy such bullion. Accordingly, a number of halal investment roboadvisors (such as those listed on our halal investment page) use gold/silver ETFs as part of their sharia-compliant portfolio mix.

For people interested in investing generally, do check out out course: Halal Investing for Busy Professionals. It may be beneficial.

salam mufti

Is trading the index permissable within islam

Wa alaykum salaam,

Trading indices usually takes place through ETF or tracker fund. You must ensure that the underlying investment is Shariah compliant when investing in an index.

Allah knows best

1 Like

What about sp500 ? Its not shariah compliant can I invest in it and then donate some of the profit ? Or its totally haram to invest in it

Wa alaykum salaam

It depends on what you are investing in to track the index.

Peace be upon you
I want to invest a stock market using INDEX S&P 500,
if has 30% haram 70% halal companies.

Is investment and profits are halal?
Should I get ride of profits if the investment is halal?
Is it haram to invest in this foreign indicators?

God bless you

Asalamu alaikum.
Follow up regarding precious metals ETFs.
I understand a ledger entry of ownership suffices instead of actual delivery… however, typically these ETFs will not even allow you to redeem the physical asset if you wanted to, except $OUNZ allows you to redeem the gold but with a fee. Is there any sharia issue with that?