Why Traditional Index Funds Aren't Halal
The S&P 500 and total market index funds include banks, financial companies (which earn interest), entertainment companies (Disney, Netflix), tobacco companies, alcohol producers, and weapons manufacturers. Buying an S&P 500 index fund means owning all of these simultaneously.
What Is a Halal Index Fund?
A halal index fund (or Sharia-screened ETF) tracks an index that has been filtered using Islamic screening criteria — removing companies that fail business activity tests or financial ratio tests. The result is a smaller, cleaner index of permissible companies.
Best Halal Index ETFs
SPUS — SP Funds S&P 500 Sharia ETF
The most popular halal index ETF. Tracks an S&P 500 index with non-compliant companies removed. Top holdings include Microsoft, Apple, NVIDIA, and Amazon. Expense ratio 0.45%. Available at all major brokerages.
HLAL — Wahed FTSE USA Shariah ETF
Tracks the FTSE USA Shariah Index. Broader coverage than SPUS but smaller companies. Expense ratio 0.50%. Managed by Wahed Invest, a Sharia-supervised financial services company.
UMMA — Wahed Dow Jones Islamic World ETF
Global exposure to Sharia-compliant equities worldwide. Expense ratio 0.65%. For investors wanting international diversification in a halal wrapper.
AMANX/AMAGX — Amana Growth/Income Funds
Actively managed mutual funds with long track records. Amana Income fund for dividend income, Growth fund for capital appreciation. Slightly higher fees but strong performance history.
How Halal Index Funds Perform
Halal index funds have historically performed comparably to their conventional counterparts. Removing banks and financial companies actually helped performance in years like 2022 (bank stress) and 2008-2009 (financial crisis). The absence of highly leveraged companies can reduce portfolio volatility.
Getting Started
Open a brokerage account at any major broker (Fidelity, Schwab, Vanguard, etc.) and search for SPUS or HLAL. You can start with as little as $1 at most brokers since these are ETFs that trade in real-time.
Bottom Line
Halal index fund investing is accessible, low-cost, and growing. SPUS and HLAL are the starting points for most Muslim index investors. They provide Vanguard-like simplicity with full Sharia compliance.