Ruling on investing in stocks
As the economies of Muslim countries continue to grow globally today, the appetite for legitimate investment and obtaining legitimate and Sharia-compliant investment returns is also increasing. Choosing a halal and correct investment requires knowledge of the ruling on investing in stocks. Then the investor can evaluate whether the stock is in line with the principles of Islamic finance or not. Sharia is keen to ensure that all sources of income for a Muslim are halal. Therefore, investors attach great importance to knowing the ruling on investing in stocks and other assets.
Let us now learn more about the ruling on investing in stocks.
Ruling on investing in stocks
Historically, the focus on Halal and Haram has been more prominent when it came to food, but the concept of Halal and Haram should also be applied to all other things similar to food including lifestyle, finance, investments, and business.
The ruling on investing in stocks according to Sharia requires Muslim investors to differentiate between three main types of investments:
Halal shares: These are shares whose business and commercial activities are all permissible and do not contradict the Sharia definition of what is halal. In addition to this, the companies issuing halal shares do not have any usurious debts and do not earn revenue from any suspicious source. The ruling on investing in these shares is permissibility.
Permissible shares: These are the shares issued by companies that conduct permissible businesses that do not conflict with Sharia, but they may have debts and may generate revenues on the side from an illegal activity. The ruling on investing in these shares is permissibility, provided that non-permissive debts and revenues do not exceed a certain percentage specified by Sharia.
Illegal Shares: Illegal or non-Halal shares are shares that are based on actions that are not halal and do not comply with Islamic Sharia and its provisions. Therefore, the ruling on investing in these shares is prohibition.
Halal equity investment refers to investments that can generate returns in accordance with the principles of Islamic finance. Sharia finance law is centered on concepts of social justice, morality, and the use of financial resources to help build societies. For any Muslim considering halal investment strategies, the focus should be on partnerships that are financially beneficial for both parties.
Sharia law lays down principles and regulations that Muslim investors must comply with if they want to invest in halal products. According to the rules of Islamic law, adhering to the principles of Islamic finance leads to a more ethical and fair society. While Islamic finance does not prohibit making money, it does focus on morality and justice, so that balance is achieved between religion and family, life and intellect and property.
Halal stock investment should not be rejected by those who want to generate income. Islamic finance does not restrict, it simply suggests ethical practices and mutual benefit. Halal investments encourage Muslims to invest responsibly and always ethically. It is still very possible to make money ethically with the right investments. Investing in sharia-compliant products can reduce risks for investors, and this is among the reasons why Islamic banks were able to withstand the economic crash of 2008.
Ruling on some forms of investment other than stocks
The Principles of Islamic Finance provides financial principles for Muslim investors to act upon in order to ensure that financing and investment activities comply with the provisions of Islamic Sharia. While the main principles of Islamic finance have been around for centuries. As the number of Muslims in the world continues to grow, so does the level of demand for Islamic finance products and banking services. The size of the Islamic finance sector is increasing every year, with Islamic finance institutions overseeing more than $2 trillion.
The basic difference between conventional investment and Islamic investment is that the principles of Islamic finance dictate which investments are considered halal, permissible, or forbidden. Islamic finance needs to comply strictly with the provisions of Islamic law. Here are some of the forms of investments that are considered impermissible in Islamic law:
Ruling on investing in stocks and bonds
Stocks and bonds are the most common publicly traded investments. Stocks are basically ownership stakes in companies that are publicly traded. A stock is a share of the profits and assets of companies, and owning one share is equivalent to owning part of the company. If the value of the company increases, the value of the stock increases at the same rate. Likewise, if the market value of a company decreases, the value of the shares owned will decrease. Muslim investors who buy shares will want to know how the company operates so they can be sure that any income generated from their shares is Sharia-compliant. So, you should take care to remember the three categories of Sharia-rated shares.
Bonds on the other hand are equity shares of debt and usually carry interest. This means that the bond effectively acts as a loan to the company. Bonds are not a Sharia-compliant investment because they are rooted in interest payments. Sukuk is the most accepted form of Islamic finance bond.
Ruling on investing in gold
Gold is a safe and traditional investment vehicle that is compliant with Islamic Sharia. Gold is often valued, easy to obtain and invest in.
Ruling on investing in sukuk
Sukuk are the legitimate alternative to conventional bonds as they do not carry any interest. Often referred to as Islamic bonds, they are usually asset-based. Bonds are considered conservative investments on the basis that they form part of the “fixed income” market.
Ruling on investing in real estate
Investing in real estate can be a great way to grow money for Muslims. The only caveat is that if a mortgage is taken it is considered a halal mortgage without any element of riba.
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