NoorVest Khulasah (1-Min Summary):

✅ The S&P 500 includes both halal and non-halal companies, which makes it impermissible to invest in.

✅ Shariah-compliant alternatives (custom indexing) allow ethical investing while maintaining market exposure.

✅ Muslim investors investing in individual stocks must follow specific criteria to ensure their investments align with Islamic principles.

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Quick Summary on S&P 500 Index.

The S&P 500 (Standard & Poor’s 500) is one of the most well-known stock market indices, tracking the 500 largest publicly traded U.S. companies. It is widely used as a benchmark for the overall performance of the stock market and a common choice for passive investors.

Why is the S&P 500 Popular?

Many investors favor the S&P 500 because it offers:

• Diversification: Exposure to multiple industries, reducing risk.
• Stability: The index historically delivers long-term growth. (Disclosure: past performance is not indicative of future results​) 
• Market Representation: It reflects the health of the overall economy.

However, for Muslims who follow Shariah-compliant investing, the question arises:
Is investing in the S&P 500 halal or haram?

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Shariah-Compliant Investment Criteria

Islamic scholars and Shariah financial boards have established clear guidelines to determine whether an investment is halal. At NoorVest, we refer to the standards published by AAOFI. Please refer to Halal Stocks Guidelines to learn more.

1. Business Activity Screening

A company is haram if it earns money from:

• Interest-based financial services (banks, mortgage lenders, insurance companies).
• Alcohol, tobacco, and gambling.
• Weapons and defense industries.
• Adult entertainment and other unethical services.

Allowed industries include:

• Technology, renewable energy, real estate, healthcare, and halal food.

2. Financial Ratio Screening

A company must also meet specific financial requirements:

📌 Debt-to-Asset Ratio:

• The company’s total interest-based debt should be less than 30% of its total assets.

📌 Interest-Based Revenue:

• Less than 5% of a company's revenue should come from interest-based sources.

3. Ethical and Social Considerations

• The company’s business model must align with fairness, social justice, and transparency.
• Any form of exploitation, unfair trade, or unethical labor practices should be avoided.

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Evaluating the Halal Compliance of the S&P 500

The standard S&P 500 is NOT shariah compliant/ halal because it includes companies that earn money through interest and haram industries.

Here’s why:

1. ‍Financial Institutions:
   Banks, credit card companies, mortgage lenders, and insurance providers earn through interest-based transactions, making them non-compliant.‍
2. Alcohol, Gambling & Tobacco:
   Companies such as Anheuser-Busch, MGM Resorts, and Philip Morris are involved in alcohol and gambling.‍
3. Weapons & Defense Contractors:
   Major defense contractors like Lockheed Martin and Raytheon manufacture weapons.‍
4. Debt Levels in Some Companies:
   Some companies in the S&P 500 have high-interest-based debt, exceeding the 30% debt-to-assets ratio, which violates Shariah-compliant investing rules.

Thus, investing directly in the S&P 500 is not permissible for a Muslim investor.

However, there are Shariah-compliant alternatives that provide similar benefits while filtering out non-halal companies.

Top Shariah-Compliant Investment Options

If you want to invest in the S&P 500 while staying halal, consider these Shariah-compliant alternatives:

1. S&P 500 Shariah Index

✅ This version of the S&P 500 excludes interest-based and haram companies.
✅ It retains broad market exposure while following Islamic finance principles.
✅ Managed by S&P Global, ensuring transparency and credibility.

2. Dow Jones Islamic Market Index (DJIMI)

✅ Covers Shariah-compliant stocks from the U.S. and worldwide.
✅ Includes big tech names like Apple and Microsoft (if compliant at the time).
✅ Used by Islamic mutual funds and ETFs.

3. FTSE Shariah USA Index

✅ Focuses only on Shariah-compliant U.S. stocks.
✅ Available via the Wahed FTSE USA Shariah ETF (HLAL).
✅ A great long-term investment option for passive investors.

4. Halal ETFs (Exchange-Traded Funds)

ETFs are investment funds traded on stock exchanges, providing diversification and ease of access.

• SPUS (S&P 500 Shariah ETF) – Invests only in Shariah-compliant companies from the S&P 500.
• HLAL (Wahed FTSE USA Shariah ETF) – A well-diversified halal investment fund.

‍5. Individual Stock Selection

Manually pick stocks using Shariah screening tools like:

📌NoorVest
📌 Zoya
📌 Wahed Invest

This method allows more control but requires extensive research.

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Halal Investment Options for Businesses and Institutions

For corporations, businesses, and Islamic institutions, halal investment options include:

• Islamic Corporate Bonds (Sukuk) – The Shariah-compliant alternative to bonds.
• Halal Venture Capital – Investing in startups that follow Islamic finance.
• Islamic REITs (Real Estate Investment Trusts) – Real estate funds that exclude haram activities.

These options provide Shariah-compliant solutions for institutional investors.

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Challenges and Considerations in Halal Investing

While halal investing is growing, it comes with challenges:

1. Limited Investment Choices

Many mainstream index funds include haram companies, making Shariah-compliant stock selection difficult.

2. Complexity in Financial Screening

Islamic finance screening criteria require careful monitoring of debt ratios and interest earnings.

3. Market Volatility & Constraints

• Traditional investors can hedge risks with bonds, but halal investors cannot invest in conventional bonds.
• Fewer options may result in lower diversification

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Conclusion and Key Takeaways

📌 The Standard S&P 500 Is NOT Halal – It includes haram industries and interest-based companies.
📌 Shariah-compliant alternatives Exist – The S&P 500 Shariah Index, DJIMI, and FTSE Shariah USA.
📌 Halal Investing Ensures Ethical Growth – Financial success while maintaining Islamic principles.
📌 Multiple Options for Investors – ETFs, mutual funds, individual stock screening, sukuk.
📌 Regular Monitoring Is Essential – Use Islamic stock screeners for ongoing compliance.

If you’re looking to invest ethically while growing your wealth, consider Shariah-compliant funds or stock screeners for a faith-aligned investment portfolio.

🚀 Start your halal investment journey today.