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SPUS$52.14+0.83%HLAL$38.72+0.61%SPSK$24.81+0.12%IGDA$4.82+0.44%SPRE$16.34-0.21%SPTE$28.91+1.42%SPWO$21.44+0.38%UMMA$19.87+0.29%MNZL$26.14+0.71%ISDW£3.89+0.38%SPUS$52.14+0.83%HLAL$38.72+0.61%SPSK$24.81+0.12%IGDA$4.82+0.44%SPRE$16.34-0.21%SPTE$28.91+1.42%SPWO$21.44+0.38%UMMA$19.87+0.29%MNZL$26.14+0.71%ISDW£3.89+0.38%
Knowledge Centre›Halal ETFs›What Is a Halal ETF?
Halal ETFs
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What Is a Halal ETF?

A beginner's guide to Shariah-compliant exchange-traded funds — how they differ from conventional ETFs and what makes them halal.

What Is an ETF?

An exchange-traded fund (ETF) is a type of investment fund that holds a basket of assets — typically stocks or bonds — and trades on a stock exchange like an individual share. When you buy one share of an ETF, you gain proportional exposure to all the assets the fund holds.

ETFs are popular because they offer instant diversification, low costs, and the liquidity of being tradeable throughout the trading day.

What Makes an ETF "Halal"?

A halal ETF applies a Shariah-compliant screening process to its underlying holdings. This means:

  • Sector exclusions — Companies operating in prohibited industries (alcohol, conventional banking, pork products, adult entertainment, weapons) are removed entirely.
  • Financial screening — Companies with excessive debt or significant interest-bearing income are excluded, even if their primary business is permissible.
  • Purification — A small portion of returns may derive from incidental non-compliant revenue (e.g., a tech company earning minor interest income on its cash holdings). This is addressed through a purification payment — investors donate a calculated percentage of their returns to charity.
  • Independent oversight — A qualified Shariah supervisory board reviews the methodology and individual inclusion decisions.

    • Are All Halal ETFs the Same?

    No. The key variable is the screening methodology used. The three most common standards are AAOIFI, DJIM, and MSCI Islamic — and they differ in meaningful ways on debt calculation methods and revenue tolerances.

    Nasiha Research evaluates these differences in detail in our [Screening Standards comparison piece](/research/understanding-aaoifi-vs-djim).