An exchange-traded fund is a basket of securities, so whether it is halal depends on what is in the basket and how the fund earns its return.
Conventional index funds
A fund that tracks a broad index, such as the S&P 500, holds every company in the index, including conventional banks, insurers and others that fail a Shariah screen. Most scholars therefore do not accept these funds as they are.
Shariah-screened funds
Some funds track an index that removes non-compliant companies first, for example SPUS and HLAL in the US. They apply screening rules similar to AAOIFI's, though each fund's index provider uses its own thresholds. Read the fund's methodology and check whether it has its own Shariah board.
What else to check
- Holdings: open the top holdings and confirm there are no banks, insurers or other excluded companies.
- How it earns: the fund should hold shares directly. Funds that use derivatives, swaps or borrowing to track an index raise additional questions.
- Securities lending and cash: interest earned on lending or cash may be impure income.
- Purification: some halal funds publish a purification amount per share. If yours does, give that amount away.
On Sanad
The ETF pages list the holdings we screen and show the verdict for each fund. As always, this is an automated screen and not a fatwa.