Tips for Shariah-compliant Investing

As a Muslim, we should consciously seek for halal and Shariah-compliant ways to earn and grow your wealth.

By pursuing the righteous way, not only can we be free from riba but also that our wealth brings barakah. It may multiply and further improve your means to support the ummah. Afterall, in Islam, wealth is merely a means, not an end in itself. We should not be distracted by it. Our intention and purpose remains steadfast.

“The example of those who spend their wealth in the way of God is like a seed [of grain] which grows seven spikes; in each spike is a hundred grains. And God multiplies [His reward] for whom He wills. And God is all-Encompassing and Knowing.”

Surah Al-Baqarah - Ayat 261

Having said that, one should not take the skills of gaining wealth for granted. As part of the ‘Iḥsān’ (spiritual excellence), one should strive for the highest standards and quality when investing in a Shariah-compliant way.

Here we’d like to highlight the 3 key factors to consider when investing the halal way:

Understanding different standards of Shariah compliance

The Islamic finance industry has been around for at least 30 years, with more than one governing body that helps set standards for Shariah compliance. For example, Wahed adheres to the standards set by scholars from the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

These standards are deemed to be the strictest — and therefore highest — in the industry, ensuring full Shariah compliance in both investment offerings and company operations. Even so, don’t take our word for it. It’s important to take the extra step to check whether the people we engage with are true to their word.

Some investments, especially in Malaysia, claim to be Shariah-compliant and they are widely and socially accepted, such as banks. Ask yourself: are Islamic banks really riba-free?‍

You don’t have to pay a premium just because a product is Shariah Compliant

When searching for Shariah-compliant investment products, it’s important you pay attention to the fees and costs associated with investing. This comes in the form of sales charges, management fees (typically charged by unit trusts) or brokerage fees if you are trading securities on the exchange.

These costs will compound over time and eat into your returns. In Malaysia, the most common form to invest in shariah compliant investments are through unit trusts and they typically charge up to 5.5% on your fund before it even gets invested.
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Investing through Robo advisors like Wahed — the only fully Shariah-compliant digital investment manager in Malaysia — offers a low-cost investing within the 1% range charged annually and your investment is managed automatically. Alternatively, you can consider investing directly in Shariah-compliant Exchange Traded Funds (ETFs) for a much more cost-efficient investment option.

Shariah-compliant investments can offer competitive returns, if not better‍

One would expect good returns from an investment (obviously). The Islamic finance industry has come a long way — at the beginning, it couldn’t compete with its conventional counterpart, simply because the universe of shariah investing is small and limited. Now, it can offer competitive returns with some investments outperforming conventional ones.Based on a performance analysis we conduct on 126 Shariah-compliant unit trusts available in Malaysia, the average returns of these funds at the very least match those of conventional products. Wahed’s diversified portfolios with global exposure have provided returns above the industry average.*

_{Source : Bloomberg, performance as of 31st May 2024.*Please note that this may not be an exact apple-to-apple comparison, as fund asset allocations and geographical exposures can differ from one another. However, it is intended to provide a broad comparison based on the risk profiles of the asset classes.}

Conclusion‍

In conclusion, whether you're new to investing or looking to refine your strategy, considering these key factors can help you make informed decisions. Investing with a clear goal, being mindful of costs, and exploring ethical investment options can set you on the path to achieving your financial objectives. 

By taking the time to understand your investment options and aligning them with your personal values and financial goals, you can build a portfolio that not only grows your wealth but also contributes to a better world.

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Risk Warning: Equity investments are not readily realisable and involve risks, including loss of capital, illiquidity, lack of dividends and dilution, and it should be done only as part of a diversified portfolio. Investments of this type are only for investors who understand these risks. You will only be able to invest in the company once you have met our conditions for becoming a registered member.

Please visit www.wahed.com/uk/ventures/risk for our full risk warning.

‍Risk Warning: As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.

Please visit www.wahed.com for our full terms and conditions

Maydan Capital Limited, trading as WahedX, is registered in England and Wales (Company No. 13451691), registered office: 87-89 Baker Street, London, W1U 6RJ, UK. Maydan Capital Ltd (FRN: 963613) is an appointed representative of Wahed Invest Ltd (FRN: 833225), an authorised and regulated firm by the Financial Conduct Authority.Wahed Invest Ltd. is registered in England and Wales (Company No. 10829012), registered office: 87-89 Baker Street, London, W1U 6RJ, UK and is authorised and regulated by the Financial Conduct Authority: FRN 833225.

As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.

Wahed Invest LLC (Wahed) is a US Securities and Exchange Commission (SEC) registered investment advisor. Wahed Invest provides brokerage services to its clients through its brokerage partner Apex Clearing Corporation, a member of NYSE - FINRA - SIPC and regulated by the SEC and the Commodity Futures Trading Commission. Registration does not imply a certain level of skill or training. Wahed does not intend to offer or solicit anyone to buy or sell securities in jurisdictions where Wahed is not registered or a region where an investment practice like this would be contrary to the laws or regulations. Any returns generated in the past do not guarantee future returns. All securities involve some risk and may result in loss. Any performance displayed in the advertisements or graphics on this site are for illustrative performances only.

Disclaimer: Wahed Technologies Sdn Bhd ("Wahed") is a Digital Investment Manager (DIM) licensee issued by Securities Commission Malaysia (eCMSL/ A0359/2019). It is part of Wahed Inc. Wahed is authorized to conduct a fund management business that incorporates innovative technologies into automated portfolio management services offered to clients under a license issued pursuant to Schedule 2 of the Capital Markets Services Act 2007. All investments involve risks, including the possibility of losing the money you invest, and the track record does not guarantee future performance. The history of returns, expected returns, and probability projections is provided for informational and illustrative purposes, and may not reflect actual future performance. Wahed is not responsible for liability for your trading and investment decisions. It should not be assumed that the methods, techniques, or indicators presented in this product will be profitable, or will not result in losses. The previous results of any trading system published by Wahed, through the Website or otherwise, do not indicate future returns by that system, and do not indicate future returns that will be realized by you.

Wahed Invest Limited is regulated by ADGM’s Financial Services Regulatory Authority (“FSRA”) as an Islamic Financial Business with Financial Services Permission for Shari’a Compliant Regulated Activities of Managing Assets and Arranging Custody [Financial Permission No. 220065]. Our ADGM Registered No. is 000004971. Wahed Invest Limited utilises Abu Dhabi Commercial Bank as its banking partner/custodian

Wahed assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. Any strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. Furthermore, the information presented may not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance.

There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services and should seek advice from an independent advisor before acting on any information presented. Any links to third-party websites are provided strictly as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites nor do we endorse the content and information contained on those sites. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the third-party websites.