Category: Business Matters
Fatwa#: 39353
Asked Country: United States

Answered Date: Apr 29,2018

Title: Various financial questions

Question

Assalamu Alaykum. Can the Darul Ifta please explain to me what is haram in the follwoing things.;

 

- Roth IRA

- Traditional IRA

- 401k

- 403b

- Mutual Funds

- Stocks

- Bonds

- Rule of 72

 

and i have two questions as well... 

- What is the meaning of interest in islam?

- What scenarios and examples do we have from the prophets time that tell us exactly what we can and cannot do? 

Answer

In the Name of Allaah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

To understand the Islamic ruling regarding of permissibility or impermissibility of

- Roth IRA

- Traditional IRA

- 401k

- 403b

The ruling with regards to various voluntary Retirement Plans from an Islamic perspective can be determined by understanding the Shariah ruling regarding the various types of investment tools that may be associated with voluntary Retirement Investment Plans. The different investment portfolios are as follows:

1.Mutual Funds

A mutual fund is an investment vehicle made up of a pool of moneys collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets. Mutual funds are operated by professional money managers, who allocate the fund's investments and attempt to produce capital gains/income for the fund's investors.

Shariah Ruling of Mutual Funds

Investing in Mutual Funds is permissible if one restricts his or herself to investing only in Equity/stock funds whose portfolios consist of lawful companies.

Investing into fixed income/bond funds is impermissible since the returns are derived from interest-bearing securities. [1]

 

2.Money Market Fund

A money market fund is an investment whose objective is to earn interest for shareholders while maintaining a net asset value (NAV) of $1 per share. A money market fund’s portfolio is comprised of short-term, or less than one year, securities representing high-quality, liquid debt and monetary instruments.[1]

Shariah Ruling of Money Market Fund

Investing in Money Market Funds is impermissible since the pool of investments consists of interest-bearing assets.[2]

 

3.Bonds

A bond is a fixed income investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities.

Shariah Ruling of Bonds

Investing in Bonds is also impermissible since they are essentially loans that promise to pay back the principal amount plus interest.[3] [4]

 

4.Certificate of Deposit (CD) 

A certificate of deposit (CD) is a savings certificate with a fixed maturity date, specified fixed interest rate and can be issued in any denomination aside from minimum investment requirements. A CD restricts access to the funds until the maturity date of the investment.

Shariah Ruling of Certificate of Deposit (CD)

Investing in Certificates of Deposition is impermissible because the gains of the investment are earned from interest. [5]

 

5.Stocks/Shares

Shares are units of ownership in a corporation or financial asset that provide for an equal distribution in any profits, if any are declared, in the form of dividends[2].

Shariah Ruling of Stocks/Shares

It is permissible to invest in common stocks as long as the company one is investing is in compliance with the following conditions:

1. The main business of the company is not in violation of Shariah. Therefore, it is not permissible to acquire the shares of the companies providing financial services on interest, like conventional banks, insurance companies, or the companies involved in some other business not approved by the Shariah, such as the companies manufacturing, selling or offering liquors, pork, haram meat, or involved in gambling, night club activities etc.

2. If the main business of the companies is halal, like automobiles, textile, etc. but they deposit there surplus amounts in an interest-bearing account or borrow money on interest, the shareholder must express his disapproval against such dealings, preferably by raising his voice against such activities in the annual general meeting of the company.

3. If some income from interest-bearing accounts is included in the income of the company, the proportion of such income should be given in charity and must not be retained by him. For example, if 4% of the whole income of a company is accrued from interest-bearing deposits, then 4% of the dividend should be given in charity.

4. The shares of a company can be purchased only if the company owns some non-liquid assets. If all the assets of a company are in liquid form, i.e. in the form of money, then that cannot be purchased or sold, except on par value, because in this case the share represents money only and the money cannot be traded in except at par value.[6] [7]

 

 

Ruling:

Based on what we have mentioned above, it will be permissible to invest in a Retirement Plan as long as the fund selected is in compliance with the Shariah.

The problem that arises at this point is that the majority of the funds offered by companies for these types of plans like Roth IRA, Traditional IRA, 401k, 403b do not meet the requirements to be in compliance with the Shariah.

Halal Shariah Alternative:

However, IRA’s and 401k’s can also be set up with a broker [brokerage IRAs] to invest in lawful stocks at one’s own discretion. This could be a noble lawful investment option if the stocks one invests meet the criteria highlighted above.

 

-What is the meaning of interest in islam? What scenarios and examples do we have from the prophets time that tell us exactly what we can and cannot do?

Answer:

The topic is reference is very vast. Kindly, follow the Islamic Finance and Economics Discourses by our beloved Hazrat Mufti Ebrahim Desai Sb for proper understanding of the financial events which took place during the life of Rasulullah Salallahu Alayhi Wasallam on the below link:

http://daruliftaa.net/index.php/resources/downloads/viewcategory/87-discourses-on-kitabul-buyoo

And Allaah Ta’aala Knows Best

Anas Sharieff Qasmi

Student, Darul Iftaa

Hyderabad, India

Checked and Approved by,
Mufti Ebrahim Desai.

----------------------------------------------------------------------------------------------

- Rule of 72

It is a quick method to estimate returns.

The "Rule of 72" is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself[3].

 



[3] www.investopedia.com/ask/answers/what-is-the-rule-72/

بدائع الصنائع في ترتيب الشرائع (5/ 143)][1]

وأصله قوله تعالى {يا أيها الذين آمنوا اتقوا الله وذروا ما بقي من الربا إن كنتم مؤمنين} [البقرة: 278] والأمر بترك ما بقي من الربا هو النهي عن قبضته يؤيده قوله تعالى في آخر الآية الشريفة: {وإن تبتم فلكم رءوس أموالكم لا تظلمون ولا تظلمون} [البقرة: 279

بدائع الصنائع في ترتيب الشرائع (5/ 183)

 لأن الربا حرام بنص الكتاب الكريم قال الله - عز وجل: - {وحرم الربا} [البقرة: 275] .2]

 

[3]السندات التي تسمى "بوند" نوع من الأوراق المالية الرائجة في السوق الرأسمالية.............ولا شك أن هذه معاملات ربوية محرمة شرعا.[فقه البيوع-١ :٣٥٣/٣٥٤]

 

العناية شرح الهداية (7/ 8)[4]

 لأن الربا هو الفضل المستحق لأحد المتعاقدين في المعاوضة الخالي عن عوض شرط فيه

 

الجوهرة النيرة (2/ 298)[5]

 باب الربا ) الربا في اللغة هو الزيادة ، وفي الشرع عبارة عن عقد فاسد بصفة سواء كان هناك زيادة ، أو لا ألا ترى أن بيع الدراهم بالدراهم نسيئة ربا وليس فيه زيادة والربا حرام بالكتاب والسنة ، أما الكتاب فقوله : تعالى { وحرم الربا } ، وأما السنة فقوله : صلى الله عليه وسلم { أكل درهم واحد من الربا أشد من ثلاث وثلاثين زنية يزنيها الرجل ومن نبت لحمه من حرام فالنار أولى به } وقال ابن مسعود { آكل الربا وموكله وكاتبه وشاهده إذا علموا به ملعونون على لسان محمد صلى الله عليه وسلم إلى يوم القيامة } كذا في النهاية  

[6] An introduction to Islamic finance: 207/8

اگر کمپنی کا کاروبار خلاف شرع نہ ہو تو شیئرز خریدنے میں کوئی حرج نہیں [فتاویٰ عثمانی :٣/١٧٧][

 

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