Are ETFs halal?
It depends on the ETF. A regular ETF that tracks the whole market holds banks, insurers, alcohol and gambling companies, so most scholars say it is not halal as it stands. A Shariah-screened ETF removes those businesses and companies with too much debt or interest income. Most scholars accept these, with a small part of the income given away (purified).
What an ETF is
An exchange-traded fund (ETF) is a basket of investments that you buy as one share on the stock market. Many hold company shares, and owning a share means owning a small part of that business. Allah has "permitted trading and forbidden interest" (Quran 2:275), so the question is what the basket holds. A standard ETF includes conventional banks and businesses selling forbidden products, which makes it a problem. See Are index funds halal?
Types of ETF to avoid
- Bond ETFs: they hold interest-bearing debt, which is riba.
- Leveraged and inverse ETFs: they use borrowing and derivatives, which scholars generally reject.
- Whole-market ETFs: they include forbidden businesses unless they are screened.
How Shariah screening works
Halal ETFs track an index that has been filtered by a Shariah board using two kinds of test:
- Business screen: excludes companies whose main business is alcohol, pork, gambling, conventional finance and insurance, adult entertainment and similar activities. Lists differ slightly between providers.
- Financial screen: excludes companies with too much debt, or too much cash and interest income, compared to their size. The exact limits are set by each provider and are often around a third.
The Prophet ﷺ said that the halal and the haram are both clear, and between them are doubtful matters, and whoever avoids them protects his religion and honour (Sahih al-Bukhari 52). A screened ETF is a way to stay on the clear side.
Purifying your income
Even screened companies may earn a small amount from interest. Scholars say you should work out that share of your dividends and give it away to charity, without expecting reward. Many providers publish a purification percentage, so you do not have to calculate it yourself. See What is dividend purification?
How to choose a halal ETF
- Check that the index is screened by a recognised Shariah board, not just labelled "ethical".
- Read the holdings and the fund's published purification ratio.
- Compare fees and how widely the fund is spread across companies.
- Avoid leverage, bonds and derivatives.
Property funds have their own rules. See Are REITs halal?
- Regular ETFs usually hold haram or interest-based companies.
- Shariah-screened ETFs filter by business type and by debt and interest.
- Avoid bond, leveraged and inverse ETFs.
- Purify the small impure share of your dividends by giving it away.
People also ask
Is 0% financing halal?
It depends on the contract. True 0% instalments can be halal, but watch penalty interest, deferred interest and hidden fees in the small print.
Read the full answer →Can I open a regular bank account as a Muslim?
Yes, most scholars allow a regular current account out of need, if you avoid interest and overdrafts. An Islamic bank is a good choice if available.
Read the full answer →Is it haram to write essays for other students?
Yes, writing essays for other students to submit is haram: it's cheating, and the income isn't halal. Tutoring and allowed proofreading are fine.
Read the full answer →Is selling lecture notes halal?
Yes, selling your own lecture notes is generally halal, if your university allows it and you never sell slides, exam answers or essays.
Read the full answer →Is it haram to be in debt?
No, being in debt is not haram in itself. Interest-free borrowing is allowed, but riba, not repaying and delaying when you can pay are sins.
Read the full answer →