Mu' meneen Brothers and Sisters,

As Salaam Aleikum wa Rahmatullahi wa Barakatuh. (May Allah's Peace, Mercy and Blessings be upon all of you)

One of our brothers/sisters has asked this question:

Assalam o Alaikum

I just want to Confirm ,is it Halaal to invest in Mutual funds as they say that these mutual fund companies invest in share market. Please suggest me.

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Answer:

Mutual funds shares stocks

In the name of Allah, We praise Him, seek His help and ask for His forgiveness. Whoever Allah guides none can misguide, and whoever He allows to fall astray, none can guide them aright. We bear witness that there is none worthy of worship but Allah Alone, and we bear witness that Muhammad (saws) is His slave-servant and the seal of His Messengers.

According to the view of most contemporary scholars in Islam, investment in shares and/or the stock market in its essence is permissible in Islam, provided the following guidelines are honored:

The three main factors that make a stock haraam according to the scholars is as follows:

1.      The company should not deal in a product which is declared haraam in its essence in Islam. Eg. alchohol, prostitution, usury, pork, etc.

2.      The company should not deal in a product which is used to harm a muslim country. Eg. Arms manufacturing in a pagan country, etc.

3.      Only the pure buying, holding, and selling of stocks is termed halaal by the scholars. All types of other derivative transactions like shorting the stock, buying calls, selling calls, buying puts, selling puts, straddles, or any other variations and derivatives are not lawful.

A ‘mutual fund’ is merely a product whereby instead of an individual investing directly in the stock market, professional who manage the ‘fund’ invest on their clients behalf in a basked of stocks in the stock markets.

Beloved brother, provided the stocks or shares of the companies which are held by the ‘mutual-fund’ do not indulge in dealing in what has been declared as ‘haraam’ and unlawful by Allah and His Messenger (saws); then there is absolutely no harm if a believer wishes to invest in such lawful ‘mutual funds’.

But if the companies whose stocks are held by a ‘mutual-fund’ deal or transact their business in a commodity which is unlawful in Shariah, then indeed it would be unlawful and haraam for a believer who indeed fears Allah and the Last Day to invest in such unlawful ‘mutual funds’.

Whatever written of Truth and benefit is only due to Allah’s Assistance and Guidance, and whatever of error is of me alone. Allah Alone Knows Best and He is the Only Source of Strength.

Your brother and well wisher in Islam,

Burhan