Halal Mutual Fund Options

I did not know what to do with my company's 401k contribution when I first entered the workforce.I mean, how do I go about investing in a Halal way? So, I asked one of my muslim colleagues and he shrugged off and said he was not into 401k stuff. So, I gave up because all other muslims seem to be going with the flow. That is, investing in target date funds, which will have a mixture of bonds, Haraam stocks and Halaal stocks as well.

A few years later, another colleague of mine then introduced me to few Halal mutual funds and how to invest in them. Assuming you are using Fidelity for your 401k, you can invest in mutual funds using their 'brokeragelink' option. Call them for more details. Instead, I am gonna write here about various Halal mutual funds.

Which mutual fund to choose?

The most popular are Amana Mutual Funds. They have 4 different types: Growth, Income, Developing World and Participation. Their tickers are AMAGX, AMANX, AMDWX and AMAPX respectively. Each has a specific goal, like AMAGX invest in growth companies, AMANX invests in dividend yielding/income generating companies, AMDWX invests in developing/emerging markets. AMAPX tries to emulate bonds. Also each of them have different minimum investment amount requirement, early redemption fee depending on which brokerage you use. Each of them also have different track records due to the difference in their underlying assets. For example, AMAGX has seen very good returns since US bull market has been strong for the past 8-9 years. Where as AMDWX performed poorly partly because it is impacted by USD exchange rate, unrest in the emerging markets etc. Your age and risk appetite would be major factors to decide what proportion of the above four mutual funds you should buy. If you are young, you can go aggressive and put majority of your funds in AMAGX/AMANX. If you want to play safe, you can just invest in AMAPX which should be less risky but less rewarding as well. AMDWX is recommended for those who want to diversify their portfolio and reduce the overall risk. For example, if USD collapses all of a sudden, assuming you are earning/saving in USD, you will be better off with holdings in emerging market mutual funds since they would have gained substantially.

Then there is Iman mutual fund with ticker IMANX. I see that this has performed better than Amana funds in the recent past, especially when compared to AMANX. But again, nothing is certain (except for taxes) in the investment world. Past or current performance does not necessarily reflect future performance. You need to check out individual stock holdings of these funds and see which companies you are most comfortable with. Some mutual funds concentrate on large companies, some on small companies. Some concentrate on stable companies, some on growing companies with considerable risk. You can check individual stock holdings on marketwatch.com or on mutual fund company website.

Finally, there is Azzad funds with tickers WISEX and ADJEX. WISEX is like bonds fund, similar to AMAPX. ADJEX is equity fund similar to IMANX and AMAGX. Azzad funds also have REIT (Real Estate Investment Trust) choices through their Wrap program. Their Wrap program requires $100K minimum investment last I checked and higher fees compared to most mutual funds.

You can find more details on Halal mutual funds here

One important point I would like to mention here is that although there are various halal mutual funds, each mutual fund company has a slightly different definition of 'halal'. For example, I think Amana Mutual Funds do not invest in CVS/Walgreens drugstores because they sell alcohol. Although alcohol revenue might not be much, Amana wanted to be on the safe side. But, there is another view that says if the alcohol revenue is less than 5% of the total revenue, it's permissible to invest. Hence, some halal mutual funds do invest in CVS/Walgreens

Let us know if you are aware of any other Halal mutual funds.

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