Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
"Halal" is an Arabic word that means lawful or permitted. While halal often refers to food, it can also describe which investments are allowed within the Islamic faith.
Halal investing definition
Halal investing is a religious form of investing that complies with Islamic law or Shariah. Islamic scholars help shape halal investing guidelines around topics such as interest, debt, risk and social responsibility.
"Halal investing is a specialized form of socially responsible investing," says Fatima Iqbal, a certified financial planner and financial advisor with Azzad Asset Management in Falls Church, Virginia. "A lot of the criteria that is applicable to socially responsible investing, for example, avoiding companies that have revenue coming from areas like alcohol, gambling, tobacco, that's part of it. But in addition to that, it's also making sure that we're not investing in companies that have significant debt or interest income."
How halal investing can help build wealth
In Arabic, "Shariah" (also spelled "Sharia" in English) means "the path to water." This path acts as a code of living that applies to many facets of Islamic life, including donating to charity, praying, observing particular religious rituals and investing.
Halal investing allows Muslims to build wealth without worrying whether their investment choices are Shariah-compliant because many traditional investment vehicles are not.
Many retirement plans, such as 401(k)s, don't offer halal options, Iqbal says, leaving Muslim employees who would prefer to invest in that manner with a tough choice.
"It is detrimental to somebody's financial future if they can't participate in their retirement plan, and they're simply not able to because their employer has not offered them any halal investments," Iqbal says. "That happens to a lot of people, unfortunately. Or they're forced to compromise. They're forced to say, 'OK, is it my financial future, or is it going to be my religious values or my principles?' That's a really hard position to put somebody in."
Halal investing allows Muslims who want to ensure they follow Islamic law to participate in their retirement plans. And according to Malak Kudaimi, a certified financial coach and founder of Prosperous Financial Solutions based in Irvine, California, it may help more Muslims feel comfortable with investing.
"In general, I would say Muslims get a lot of comfort when you tie Islamic values in," says Kudaimi. "You can tie it into a religious context and make them realize that money management and investing is a form of, especially for women, a form of self-love. And it's also a form of worshiping God and being thankful. I think it really helps when you put it in that context."
Halal investing tenets
There are many different interpretations of what specific investments are allowed for halal investing. Still, certain investment practices are generally accepted by most observant Muslim investors.
Paying or charging interest
Paying and charging interest, such as the kind you'd pay on a debt or loan, is prohibited by Islamic law. Adherents consider interest exploitative and invest in things that do not profit from it. One crucial distinction is between the interest a bank would charge on a loan and the kind of compound interest that can accumulate on a stock purchase.
"'Riba' is commonly translated to 'interest' in English; however that word in Arabic is very specific to profiting off of debt or loans. So that type of interest is not permissible," says Kudaimi. "But the word 'interest' in English is more expansive than the word 'riba' in Arabic."
According to Kudaimi, the permissible "compound interest" gets conflated with the type of "interest" that comes from a loan because of this linguistic difference.
"There's a lot of Muslims who don't know the distinction. And then they're like, 'Oh, well, I can't invest in anything.' But that's not true. So that's usually something I have to clarify with my clients," Kudaimi says.
Investing in stocks and other equity investments that accrue interest with time can be halal — as long as the investment is.
Investing in prohibited industries
Investments in specific industries are prohibited by Islamic law. These include alcohol, adult entertainment, gambling, weapons manufacturing, traditional finance and pork products. Many Islamic scholars also advise against investing in the tobacco industry.
Investments in some of these industries, such as alcohol and tobacco, are often known as sin stocks. Therefore, socially responsible investors, as well as Muslim investors, may prefer to avoid them.
Giving to charity
"Investing is also a means to uphold Islamic values such as taking the once-in-a-lifetime hajj journey that is an obligation for Muslims and giving to charity (zakat), which is obligatory," Lisa Hashem, co-host of the "Muslim Women and Finance" podcast, said in an email interview. "The more money one attains, the more one can give back to their communities and the societies they live in."
Because avoiding industries that aren't halal can get tricky, some financial advisory firms opt for another solution.
"When you talk about investing, it also relates to charity. So when we talk about investing when we're screening companies, they can't have more than 5% revenue coming from these impermissible areas," says Iqbal.
"That doesn't mean that less than 5% is OK; it's an insignificant amount that we don't intend to benefit from. So what our firm does is we calculate what's called a purification. That's a calculation we do every year to understand how much revenue may have come into the portfolio. Even though it may be an insignificant amount, it was never intended to benefit the investor, and as a way to rectify that, that money is then given by the investor back to charity. The idea is that it's going back into society to potentially fix any harm that could have been caused."
Taking on excessive risk, speculation and debt
Investing in highly risky investments is discouraged by Shariah. Short-selling and uncertain investments, such as options, may be prohibited depending on your interpretation. Because Islamic law prohibits gambling, any form of investing dependent on luck or uncertain events in the future is not allowed.
Halal investing also discourages investments with significant debt.
"Let's say we're looking at industries that are not necessarily in those red-light industrial spaces, we still have to go a step further and look at the financial ratios," says Aliredha Walji, a registered investment advisor and CEO of ShariaPortfolio in Lake Mary, Florida. "The biggest thing comes down to debt because a lot of companies are highly leveraged out there. And because of the Islamic prohibition on earning interest, there is a big emphasis that is placed on screening for how much debt a company has."
per trade for online U.S. stocks and ETFs
per share; as low as $0.0005 with volume discounts
when you open a new, eligible Fidelity account with $50 or more. Use code FIDELITY100. Limited time offer. Terms apply.
US resident opens a new IBKR Pro individual or joint account receives 0.25% rate reduction on margin loans. Tiers apply.
Get up to $600 or more
when you open and fund an E*TRADE account
Types of halal investments
Halal investments may take some work to find, but resources such as halal stock and mutual fund screeners make it easier.
As long as the stock is halal, it is acceptable to invest. However, companies that deal in prohibited industries or are considered excessively risky should be looked at with extra caution or excluded depending on your interpretation.
"Compound interest is permissible as long as the underlying asset is permissible. So if your stock is permissible, and you're earning compound interest on it, then that is permissible because you're not profiting off of debt or loans," Kudaimi says.
Islamicly is a website and app that can help you screen for halal stocks with in-depth stock analysis.
Equity mutual funds, exchange-traded funds and index funds follow similar rules as stocks to be halal. The only thing to be extra careful of is that funds are composed of many stocks, so there are more companies to investigate than when you're buying an individual stock.
Zoya is an app that shows the Shariah-compliant status of over 2,500 ETFs and mutual funds. Zoya can also help you calculate any zakat or charity that you owe.
» Learn more about how to invest in mutual funds
Sukuks are similar to bonds, but they are not debt-based. While bonds are essentially loans, and the investor profits on interest from that loan (and thus not halal), sukuk investors profit from the investment income, according to Saturna Capital, a company that offers halal investing.
"Let's say a government wants to build a freeway, and they don't have the funds, so they need to raise $2 million to build this freeway," says Kudaimi. "Typically, a government can issue bonds to help raise those funds. And they'll tell investors, 'OK, if you give us $100, we'll give you $110 in six months.' With sukuks, it's like, hey, give us the $100. We're not guaranteed to give it back to you because it all depends on whether the project is profitable or not. So if it is profitable, you're getting a little bit of the profit in a certain timeframe. If it isn't profitable, then you're not getting anything back."
But Kudaimi notes that sukuks often revolve around projects with a high likelihood of profitability, such as a newly built freeway with an added toll.
4. Gold and other precious metals
Gold and other metals are typically viewed as halal as they appreciate over time but pose no other halal-related risks.
» Learn how to invest in gold
5. Real estate
Investing in real estate is usually considered halal. One thing to be cautious about with real estate is that all mortgages need to be halal so as not to incur any interest from a loan.
Investors curious about REITs, or real estate investment trusts, must also ensure that their REITs are halal. REITs that are mortgage-based are typically not allowed. REITs that profit from a property's rent are more likely to be halal.
Cryptocurrency is a volatile investment, but that doesn't necessarily mean it's not Shariah-compliant.
"On the crypto side, there is a differing of opinions. Some scholars will outright call it non-halal because there is speculation. The other group of scholars will call it permissible," says Walji.
If you're interested in cryptocurrency or any other asset and are unsure if it's halal, it may be best to consult a financial advisor who specializes in halal investing.
» Explore cryptocurrency
Halal investing resources
Azzad Asset Management. Holistic, halal financial planning services and investment management.
Malak Financial Coach. A certified financial coach working with Muslim women to manage their money in a halal way.
"Muslim Women and Finance" podcast. Discusses financial topics concerning Muslim women.
Saturna Capital. A financial advisory firm that offers halal investing.
ShariaPortfolio. Halal wealth management firm.