Article

Sharia Compliant Stocks
February 07 , 2013

The Islamic law or sharia forbids investment in companies that engage in activities that are banned by sharia. Activities such as gambling, taking/giving interest, trading products such as alcohol, tobacco, etc are considered unethical and Islamists are prohibited from buying shares of companies involved in any of these activities since shareholders are partial owners of the company.

Trading in shares (as against investing for long term) is forbidden as that amounts to gambling. In a secular country like India it would be difficult to isolate firms that do not receive at least part of their earnings by way of interest. As concession, investment is permitted in companies whose non-halal (prohibited) activities do not exceed a certain allowed limit. Similarly the part of profits that comes as interest earnings can be deducted and given away as charity.

There are over 4000 companies listed on the BSE that are sharia-compliant companies. Majority of them belong to the IT, pharmaceutical and drugs sectors. The NSE and BSE both have indices comprising sharia compliant stocks.

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