Halal Index Funds
Index funds that passively track shariah-compliant stock market indices. Halal index funds offer Muslim investors a simple, low-cost way to build diversified portfolios that adhere to Islamic finance principles. Below are 7 major shariah-compliant indices with ETFs available on the London Stock Exchange and US exchanges.
Major Shariah-Compliant Indices
S&P 500 Shariah Index
USThe shariah-compliant version of the S&P 500. Screens the 500 largest US companies using AAOIFI-based methodology, removing non-compliant businesses and those exceeding financial ratio thresholds. Typically holds around 230-280 constituents.
FTSE USA Shariah Index
USFTSE Russell's shariah-screened US equity index. Uses an independent Shariah Advisory Board for screening. Covers large and mid-cap US stocks that pass both business activity and financial ratio screens.
MSCI World Islamic Index
Global DevelopedGlobal developed-market index screened for shariah compliance using MSCI's Islamic Index methodology. Covers 23 developed countries including the US, UK, Europe, and Japan. One of the most widely tracked halal indices globally.
MSCI Emerging Markets Islamic Index
Emerging MarketsShariah-compliant version of the MSCI Emerging Markets Index. Provides exposure to large and mid-cap companies across 24 emerging market countries including China, India, Brazil, and South Korea.
MSCI USA Islamic Index
USShariah-compliant version of the MSCI USA Index. Screens large and mid-cap US equities using MSCI's Islamic index methodology. Available to UK investors through a LSE-listed UCITS ETF, providing US equity exposure without needing a US brokerage account.
Dow Jones Islamic Market Developed Markets Index
Global DevelopedBroad shariah-compliant index covering developed market equities worldwide. Tracked by the Invesco UCITS ETF on the London Stock Exchange with over $1bn in assets, making it one of the most accessible halal indices for UK investors.
Dow Jones Islamic Market International Titans 100
International ex-USTracks the 100 largest shariah-compliant companies outside the United States. Uses the Dow Jones Islamic Market screening methodology, providing international diversification for Muslim investors.
How Halal Index Funds Work
A conventional index fund tracks a market index like the S&P 500 or FTSE 100 by holding all (or a representative sample of) the stocks in that index. A halal index fund does the same thing, but tracks a shariah-screened version of the index.
The screening process works in two stages:
- Business activity screening — excludes companies in haram sectors (alcohol, gambling, tobacco, pork, weapons, conventional finance)
- Financial ratio screening — excludes companies with debt, interest income, or cash holdings exceeding shariah thresholds (typically 33% of market cap for debt, 5% for interest income)
The result is a "filtered" version of the original index that only contains shariah-compliant stocks. For example, the S&P 500 has 500 stocks, while the S&P 500 Shariah Index typically has 230-280 stocks.
Index Funds vs ETFs
| Feature | Index Fund | ETF |
|---|---|---|
| Trading | End-of-day NAV | Intraday like stocks |
| Management | Always passive | Passive or active |
| Minimum | Often £500+ | 1 share (often £20-60) |
| Fees | Very low | Very low |
| Halal options | Limited | Growing selection |
Most halal index funds are available in ETF form, meaning they trade on stock exchanges. This makes them more accessible than traditional mutual fund index funds, which may have higher minimums and less flexibility.
Shariah Screening Methodologies
AAOIFI Standards
Accounting and Auditing Organization for Islamic Financial Institutions
The most widely referenced shariah screening standard globally. Sets clear quantitative thresholds: debt-to-market-cap ≤33%, interest income ≤5% of revenue, and cash/interest-bearing securities ≤33% of market cap.
Used by: S&P Shariah Indices
MSCI Islamic Methodology
MSCI / Shariah Advisory Committee
MSCI's proprietary methodology applies both business activity screens (excluding alcohol, tobacco, gambling, conventional finance, pork, weapons) and financial ratio screens with similar thresholds to AAOIFI.
Used by: MSCI World Islamic, MSCI EM Islamic
FTSE Shariah Methodology
FTSE Russell / Yasaar Ltd
FTSE Russell partners with Yasaar Ltd (an independent Shariah advisory firm) for screening. Applies both sector-based and financial ratio screens. Known for conservative interpretation of shariah principles.
Used by: FTSE USA Shariah, FTSE All-World Shariah
Dow Jones Islamic Market
S&P Dow Jones / Shariah Supervisory Board
One of the earliest Islamic index methodologies, established in 1999. Screens for both business activity (sector-level) and financial ratios. Uses a dedicated Shariah Supervisory Board for oversight.
Used by: Dow Jones Islamic Market Titans indices
Frequently Asked Questions
What is a halal index fund?
A halal index fund is a passively managed investment fund that tracks a shariah-compliant stock market index. These indices filter out companies involved in haram activities and those with excessive debt, interest income, or cash holdings.
How do halal index funds differ from conventional index funds?
Halal index funds track shariah-screened versions of conventional indices. Instead of tracking the full S&P 500, a halal index fund tracks the S&P 500 Shariah Index which excludes non-compliant companies — typically holding 230-280 stocks instead of 500.
Are halal index funds available in the UK?
Yes. UK investors can access halal index funds through ETFs listed on the London Stock Exchange, such as iShares MSCI World Islamic UCITS ETF (ISWD.L) and iShares MSCI Emerging Markets Islamic UCITS ETF (ISDE.L).
Do halal index funds perform well?
Historically, shariah-compliant indices have performed comparably to conventional counterparts. The exclusion of heavily leveraged financial companies has sometimes been beneficial, particularly during financial crises.
Explore Halal ETFs
View detailed information on individual halal ETFs with live pricing data.