Being Muslim investors, many people wonder if their investment profit is halal or not. Some people only think that having halal food is enough for what they do. But no, there is a whole list of halal deeds and halal investment is one of them.
Investment plans for Muslims have always been a major concern lately because of society and its rules. Every Muslim needs to earn through halal ways, so all financing strategies should also be according to Islam. But the main issue is to keep the track of background activities of the investment is hard.
In Investment Strategies for Muslims, the whole world has completely turned into a global village and the payment transfers and investment activities are not confined to a single country. Then how should Muslims be rest assured that their investment strategies are halal in this mixed economy scenario? Let’s ponder some light over that.
Some Shariah limitations Of Investments
Here are the halal investment/Sharia-compliant rules restricted by Islam that help Muslims stay on a straight track:
- Successful involvement in the real economy (production, goods flow, services, selling, purchasing, barter system)
- Prohibition of Riba (Interest)
- Prohibition of Gharar (excessive uncertainty or risk)
- Prohibition of Maisir (gambling, speculation)
- Investment in lawful and legitimate activities
- Adoption of ethical and moral investment traits
- Investment through Musharakah and Mudarabah.
Guidelines to make Islamic Investment Strategies for Muslims
Realize investment purpose
To do a sharia-compliant investment first you have to identify the objective of the investment and profit earning. Whether you want long-term or short-term investment. Here you recognize the profit receiving schedule, and investment sector (stock exchange, banking, real estate, company shares). All these sectors offer different investments, time periods, and profit ratios.
For example, if you invest in real estate, then you will have to wait for the property’s prices to rise. Your cash flow is dependent on the real estate economy. If there is a recession time then it’s in your hands to sell the property for immediate cash or to wait for the prices to get higher.
The liquidity of your investment lets you recognize the period of your investment. How quickly you can convert the investment into cash? Assess your risk tolerance before deciding the time. For example real estate requires you to bring a large amount of cash. It will take a long time to be fruitful if the market business declines. If you are risk tolerant person then you will wait for it to rise and then sell the property. But if you require urgent cash at the time of market crisis then you’ll be left with an asset, which you can sell right at the time of loss or you’ll wait for the market situation to get pleasant.
Maintain risk and assets balance
Risk is the factor that encourages you to play safe and minimize the chances of loss. But due to this your chances of getting high profits also decrease. Now, what will you do? For instance, you have deposited your money in an Islamic savings account and the inflation rate doesn’t let you earn well through it. On the other hand, the real estate industry is rising due to overseas investment. What will you do now?
To avoid such a confusing situation, you should always prefer to diversify your investment. Invest in all investment sectors or at least in two of them. Take an expert opinion through any sector’s professional and start diversifying your investment to maintain a good balance between your risk tolerance and assets.
Halal Investment Strategies in 2023
Here are the best ways of Sharia-Compliant ways of investment; Real estate, stock, entrepreneurship, gold, and cash.
Real estate is an industry that solely involves profit if you work according to Islamic rules. It is one of the most profitable industries. Even in inflation, the prices of properties rise and you can earn without dealing with any interest and markup. All you need is efficient capital, data, knowledge, and experience. You can also take the services of sharia-compliant real estate agencies like Amanah.pk to help you out with getting all your jobs done, find you a profitable property, and halal investment strategy for you.
In real estate, no interest mortgages are allowed and the house owners have to take care of the fact that the tenants are not involved in any forbidden or non-shariah compliant activity. Here you can earn profit through buying and selling property. If you are buying a property in installments then make sure that it is interest-free.
The stocks of different companies are offered in the stock market. The investor can invest in publicly listed company shares. It is the most convenient way of investment not only for others but Muslims can also invest in it as it provides the benefit of higher liquidity and cash flow. But it is a critical task for Muslims to see the Islamic eligibility of market stocks. The main task is to identify the halal stocks and ETFs in the market and it is way more difficult than it looks.
Muslims purchase the shares of different companies to diversify their investment and minimize the risk factor. But it is critical to do the screening of companies’ operations and activities. In 2022 it is a hard thing to do with a mixed economy. But screening the company with full dedication and time not only makes you a stock market champion but also lets you invest according to sharia-compliant rules.
Starting a business is the most traditional investment in Islam. You simply start entrepreneurship with your finance, take an interest-free loan, or start the business on a partnership basis. Here the earnings are enough for you to live a standard life and you get to manage your finances on your terms and in halal ways. Muslim businessmen have to take care that their business operations are not violating any Islamic rules such as you have not taken any interest-based loans, or are not involved in any non-sharia-compliant business activity.
Gold is considered the safest way of investment in Islam. You are not violating any sharia rules by investing. Gold prices occasionally rise, and you can easily invest in and make a profit. There are no such non-sharia-compliant factors involved in gold trading unless you go for exceptionally wrong means of trading like earning interest from mortgage, being involved in fraud, concealment, or theft.
Investment through keeping the cash in Islamic saving accounts is not always the best choice unless you want to earn the minimum amount. It only gives you a liquidity advantage. You have to support your cash investment with any other sort of investment also to earn more.
Muslim investor has to deposit the cash in an Islamic bank’s account. Many banks claim to operate under Islamic laws but that is not always true. You have to do strong research first and then decide where to deposit the amount.
In 2022 it has become so difficult for Muslims to find a halal way of Investment Strategies for Muslims. The main problems arrive when we want to earn halal but we do not have enough knowledge. But here we have discussed all the Islamic conditions and Sharia-compliant ways to invest. All investment sectors are good to invest in unless you do a deep screening and decide according to your time period, profit earning, and liquidity.