What is Islamic Market investing?

Certain businesses are incompatible with Shari`ah Law. Thus, stocks of companies in these businesses are not considered suitable for Islamic investing. Incompatible lines of business include :
• Alcohol
• Pork-related products
• Conventional financial services (banking, insurance, etc.)
• Entertainment (hotels, casinos/gambling, cinema, pornography, music, etc.)
Shari`ah scholars also do not advise investments in tobacco manufacturers or defense and weapons companies.

I''m not Muslim, so I guess these Islamic investments aren''t for me?

Actually, the Islamic investments have generated a great deal of interest outside of the Islamic community, since by excluding "unethical" industries, they share many similarities with the increasingly popular social indexes.

What types of businesses are excluded from the Islamic investments?

Producers of alcohol and pork-related products, providers of conventional financial services (banking, insurance, etc.) and providers of entertainment services (hotels, casinos/gambling, cinema, pornography, music, etc.). Tobacco manufacturers and defense and weapons companies although not strictly forbidden for investment under Islamic Law are excluded from the indexes as well.

How does Parsoli Islamic Equity (PIE) Index screen out unacceptable companies?

Stocks included in industries that represent lines of business that are incompatible with Shari`ah Law are automatically excluded from the index selection pool. The remaining stocks are then subjected to a series of financial-ratio screens.

What are the financial-ratio screens?

Companies are removed from the selection pool if their total debt divided by their trailing 12-month average market capitalization is greater than or equal to 33%; if the sum of their cash and interest bearing securities divided by their trailing 12-month average market capitalization is greater than or equal to 33%; or if their accounts receivables divided by their total assets is greater than or equal to 45%.

How many indexes are in the World Islamic Market family?

Currently, the Islamic Market family comprises nearly 50 indexes. At the core is the Dow Jones Islamic Market Index, a broad index that covers all of the world''s major regions and leading market sectors. The table below lists the major indexes in the Dow Jones Islamic Market family.

Global Indexes

• Dow Jones Islamic Market World Index
• Dow Jones Islamic Market World Large-Cap Index
• Dow Jones Islamic Market World Mid-Cap Index
• Dow Jones Islamic Market World Small-Cap Index
• Dow Jones Islamic Market World - Ex. U.S. Index
• Dow Jones Islamic Market World Developed Index
• Dow Jones Islamic Market World Developed - Ex. U.S. Index
• Dow Jones Islamic Market World Emerginf Markets Index

Titans (Blue-Chip) Indexes

• Dow Jones Islamic Market Titans 100 Index
• Dow Jones Islamic Market Europe Titans 25 Index
• Dow Jones Islamic Market Asia/Pacific Titans 25 Index
• Dow Jones Islamic Market U.S. Titans 50 Index

Industry Indexes

• Dow Jones Islamic Market Basic Materials Index
• Dow Jones Islamic Market Consumer Goods Index
• Dow Jones Islamic Market Consumer Services Index
• Dow Jones Islamic Market Oil & Gas Index
• Dow Jones Islamic Market Financials Index
• Dow Jones Islamic Market Health Care Index
• Dow Jones Islamic Market Industrials Index
• Dow Jones Islamic Market Technology Index
• Dow Jones Islamic Market Telecommuncations Index
• Dow Jones Islamic Market Utilities Index

U.S. Indexes

• Dow Jones Islamic Market U.S. Index
• Dow Jones Islamic Market Large-Cap Index
• Dow Jones Islamic Market Mid-Cap Index
• Dow Jones Islamic Market Small-Cap Index

Europe and Eurozone Indexes

• Dow Jones Islamic Market Europe Index
• Dow Jones Islamic Market Europe Large-Cap Index
• Dow Jones Islamic Market Europe Mid-Cap Index
• Dow Jones Islamic Market Europe Small-Cap Index
• Dow Jones Islamic Market Euro Index
• Dow Jones Islamic Market Euro Large-Cap Index
• Dow Jones Islamic Market Euro Mid-Cap Index
• Dow Jones Islamic Market Euro Small-Cap Index

Asia/Pacific Indexes

• Dow Jones Islamic Market Asia/Pacific Index
• Dow Jones Islamic Market Asia/Pacific Large-Cap Index
• Dow Jones Islamic Market Asia/Pacific Mid-Cap Index
• Dow Jones Islamic Market Asia/Pacific Small-Cap Index

Other Country Specific

• Dow Jones Islamic Market Canada Index
• Dow Jones Islamic Market U.K. Index
• Dow Jones Islamic Market Japan Index

Is Investment, (buying and selling shares) in stock market is Halal as per Sharia Principles?

• Company’s main business will be halal, if it does not indulge in any haram business, like financial dealing based on interest, gambling, liquor, pork / entertainment, media, casino and conventional and any other impermissible activity.

• If a share of company bought at face value of Rs10 (for e.g), a person can’t sell this share in more than the par value unless the company have some fixed assets like raw material, machinery, land. If a company have no fixed assets then buyer can sell only at its face value price and can’t sell at above par value extra money will be pure interest.

• Normally every company takes some interest bearing loan from banks or other institutions and some time when they have excess money they lend money on interest. In both cases there is a group of Islamic scholars who do not permit to buy or sell the stocks of such companies. Other Ulema and scholars of Sub Continent and also some other Islamic Scholars do permit it with following conditions.

• The debt should not exceed 33% of total average of market cap of the company in full financial year. Dow Jones Islamic index which is decided by famous Islamic scholars follows the same principle.
  » Muftitaqi Usmani Pakistan
  » Shaikh Abdus Sattar Abu Gudda      Syria
  » Shaikh Mohammed A Alghari      S.A
  » Shaikh Yaqub Nizami      Bahrain
  » Shaikh Yusuf Talal      USA
  » Shaik MOhd Dawood Bakr      Malaysia
  » Muftitaqi Usmani Pakistan
  
  

Hazrat Thanvi (RH) And Mufti Shafi Sahab and Mufti taqi Usmani Sahab agreed for investor to make objection before the board of the company and ask them to make company 100% debt free in the annual general meeting

So when we combine these conditions then the outcome is that Muslim can purchase the stocks of company whose debt is not more then 33% of Market Cap and for that he may take objection to make company free from debt.

• Company’s impure income should not exceed more then 10% of the total Gross Income. Its aggregate of account receivables should remain below 45% of total assets.
  
  That impure income which is less then 10% after checking balance sheet of company should make charity to poor Muslims without intention of (Sawab) reward.
  
  After checking the above discussed principles Muslim can buy and sell the selected stocks which we call as sharia complaint stocks and above conditions are the best bench mark for every muslim to follow the same.
  
  » Can person buy and sell stocks on daily basis without taking possession / delivery of the stock
  » Is it possible to sell stocks before taking physical possession.
  » Is margin trading permissible.
  
  

Always there are two types of possession (1) physical possession (2) constructive possession - Share of company represents partnership in the company, equal to proportion of shares. So there is no possibility of physical possession – there is constructive possession when broker buys the stock for his client in his trading account. All benefits and liabilities transfers to the buyer and it is the constructive possession. So my opinion the best is to sell after taking delivery in demat account which takes T + 2 (in India) but it is also safe to sell before that also.

Can a Person trade intraday in his actual buying capacity?

People trade in intraday for two types (1) A person who trades in their actual delivery taking capacity (2) A Person who trades on margin, for eg after deposit of Rs 1. lac ,with broker he trades with an exposure of Rs 5 lac and at the end of day he have to square all extra trades, in other word a person intends to buy stock without having money to pay, which is one type of speculation. So this type of trading is not safe in my opinion.

How share holder will apply the zakat on stocks ?

For long term investors who take dividend, their main intention is not only capital gain.

For eg after deduction of companys fix assets, land, machinery, and furniture they have to figure out exact amount of cash, ready material and row material and pay the zakat on that for eg
• Share price      100
• Fix assets (Building machine)      30
• Raw material      30
• Ready material      20
• Cash      10
• Liability      Rs.20/-
in above case zakat is applicable on Rs.50/- per share.

For medium term and short term investors whom main intention is capital gain they have to pay zakat on their full price of share on day of calculation.

Can a muslim invest in futures contract?

Future trading is not allowed in Sharia Law, because future trading is not to buy and sell. It is only a contract of promise to trade in future date. For eg A says that I will buy a lot of X company after three month in Rs.100 per share and B agrees it, it called future contract. So without buying the actual stock no one can make profit or loses some money.

Is the Mutual Fund Investment Sharia Compliant

It is allowed to invest in mutual funds with following conditions

• Fund should be 100% allocated in equity investment, no investment in debts or government bonds are allowed in sharia

• Funds investment in non permissible stocks should not exceed to ten percent, like banks, financial institutes, media or other prohibited stocks.

• Non Permissible or haram income should be given as charity to poor muslims only.

• The best suggestion is to choose sectorial 100% allocated equity funds in diversified sectors like power , auto , gold fund, real estate etc

Is it allowed to short sell in Sharia?

Short selling are three types :

• An Investor sells X company’s shares @Rs 100 . And at end of the day he bought the same, assuming that he had that share already.

• An Investor sells X company’s which he doesn’t own that share but some was ready to give him that share as a loan to deliver to the buyer.

• An Investor sells X company’s share without owning that share,and assumes that price will come down at the end of the day and he will buy at the end which will square the trade. This third one is actually the short selling in sharia and it is not permissible. This trade involves a gharar and is one type of gambling.