The Guide to Halal Investing for Beginners in Singapore

This was originally posted on Planner Bee.

In recent years, the global financial landscape has seen a growing interest in ethical and Sharia-compliant investment options. Singapore, as a prominent financial hub, has witnessed a surge in demand for Halal investments. Halal investing adheres to Islamic principles, ensuring that investments are ethically sound and in compliance with Islamic law.

In this guide, we provide a comprehensive overview of Halal investing in Singapore, offering insights into the principles, options, and considerations for Muslim investors.

What is Halal investing?

Halal investing is rooted in Islamic finance principles. It prohibits investments in businesses involved in activities such as gambling, alcohol, pork, and interest-bearing transactions (Riba).

Additionally, investments in companies with excessive debt levels are discouraged. The primary goal of Halal investing is to generate returns while adhering to the ethical guidelines according to Islamic law.

How is Halal investing different from mainstream investing?

Halal investing differs from mainstream investing primarily in its adherence to Islamic principles. In Halal investing, the avoidance of interest (Riba) is paramount, leading to the exclusion of interest-bearing instruments.

Additionally, Halal investors steer clear of businesses involved in activities deemed haram (forbidden), such as gambling, alcohol, and pork. The prohibition of excessive debt and the incorporation of ethical screening processes further distinguish Halal investing. Structures like Sukuk, which are Sharia-compliant bonds, are embraced, while consultation with Islamic scholars is common for ensuring compliance with Islamic principles.

Mainstream investing, on the other hand, is generally guided by financial considerations without specific ethical or religious restrictions, allowing for a broader range of investment options that may include interest-bearing instruments and businesses with differing ethical profiles.

Key principles of Halal investing

Halal investing extends beyond the physical currency in your wallet. It is a faith-driven approach grounded in Islamic law or Shariah, and places emphasis on personal values.

Avoidance of Riba (Usury or Interest): As mentioned earlier, Islamic finance strictly prohibits earning or paying interest. Therefore, Halal investments steer clear of interest-bearing instruments, such as conventional bonds and savings accounts.

Avoidance of Haram (Forbidden) Activities: Investments in businesses related to activities such as gambling, alcohol, pork, and other forbidden industries are prohibited.

Debt Avoidance: Excessive debt is discouraged in Islamic finance. Halal investments focus on companies with sound financial structures and manageable debt levels.

Responsible and Ethical Investing: More than just avoiding what is deemed negative, Halal investing also seeks to actively support positive initiatives. It advocates for businesses that make positive societal contributions, whether through sustainable practices, uplifting the community, or the promotion of human rights.

Moral, Low-Risk Investments: While every investment carries inherent risks, Halal investing tilts towards options that refrain from benefiting or financing illicit industries or products.

Halal investment options in Singapore

Under the leadership of institutions such as Majlis Ugama Islam Singapore (MUIS) and Monetary Authority of Singapore (MAS), Singapore’s Halal investing landscape is not only flourishing but also operating within a clearly defined and adaptable regulatory framework.

Islamic mutual funds

Singapore offers a variety of Islamic mutual funds that comply with Sharia principles. These funds invest in a diversified portfolio of Sharia-compliant assets, providing an avenue for investors to access the equity markets while maintaining ethical standards. Some notable examples include the HSBC Insurance Ethical Global Sukuk Fund and NTUC Income Takaful Fund.

Islamic Exchange-Traded Funds (ETFs)

ETFs are gaining popularity among Halal investors in Singapore. These funds track a specific index of Sharia-compliant stocks, offering diversification and liquidity similar to conventional ETFs.

To begin, consider exploring the FTSE SGX Shariah Index Series, which compiles indices featuring qualifying stocks in the Asia Pacific region, including Singapore. You can also explore indices that track Shariah-compliant stocks in various global markets. After identifying your preferred index, you have the option to invest directly in the listed companies by purchasing their shares. Otherwise, you could also invest in the indices themselves through an ETF like the Wahed FTSE USA Shariah ETF.

Real estate investment

Real estate is a favoured investment option in Islamic finance. Singapore provides opportunities for Halal real estate investments, either through direct property ownership or Real Estate Investment Trusts (REITs) compliant with Sharia principles. An example of such a platform is Ethis.co, a Malaysia-based organisation with offices in Indonesia and Oman. Closer to Singapore, Warees.sg provides investment opportunities for real estate projects.

Sukuk (Islamic bonds)

Sukuk are debt instruments that comply with Islamic finance principles. Investors can consider Sukuk issued by governments or corporations as a fixed-income option that aligns with Halal investment guidelines. A notable mention is the Sime Darby Plantation Sukuk and Khazanah Nasional Sukuk.

Considerations for Halal investors in Singapore

Research and due diligence

Conduct thorough research on potential investments to ensure they align with Islamic principles. Review financial statements, business activities, and debt levels before making investment decisions.

Consultation with Islamic scholars

Seek guidance from Islamic scholars or financial advisors with expertise in Sharia-compliant investments. Their insights can assist in navigating the complexities of Halal investing.

Diversification

Diversify your Halal investment portfolio to spread risk. Consider a mix of asset classes, such as equities, real estate, and fixed income, to achieve a balanced and resilient portfolio.

Regular portfolio review

Periodically review your Halal investment portfolio to ensure ongoing compliance with Islamic principles and to make adjustments based on changing market conditions.

Grow your wealth morally with this faith-based approach

Halal investing in Singapore provides Muslim investors with an opportunity to grow their wealth while adhering to Islamic principles. With a range of Halal investment options available, investors can build diversified portfolios that align with their ethical beliefs. By conducting thorough research, seeking guidance from experts, and staying vigilant in portfolio management, Halal investors can navigate the financial markets in Singapore with confidence and integrity.

Read more: All You Need To Know About Investing with Syfe REIT+