Best Halal Index Funds: Top Picks for Ethical Investing

I know that aligning your finances with your faith can be challenging. Surprising studies show many unknowingly invest in conventional funds that conflict with Islamic principles.

Today, you face the dilemma of balancing growth with ethical values. In this post, I promise to guide you through the best halal index funds in 2025—a simple solution for those seeking halal investment options.

Keynote: Best Halal Index Funds

Discover the best halal index funds. They align with Islamic principles, exclude interest-based investments, and deliver competitive returns. Experience lower fees, diversification, and ethical growth. Secure your future with funds like Wahed FTSE USA Shariah ETF and SP Funds S&P 500 Sharia ETF. Invest to achieve financial and moral success.

Halal Investing: Faith and Finance Matter

Halal investing means growing your wealth while staying true to Islamic principles. I believe your money should work for you and reflect your values.

The Quran states, “Allah has permitted trade and forbidden usury” (Quran 2:275). This verse reminds us to steer clear of interest-based gains and unethical sectors like alcohol, gambling, and other forbidden industries. Many conventional investment funds do not meet these strict criteria. This creates a real challenge if you wish to avoid non-compliant investments.

Muslims often struggle with the idea of investing in funds that engage in interest, which may lead to capital gains from unethical sources. I have seen many worry about accidentally investing in non-compliant stocks or mutual funds. By focusing on Shariah compliance, you can confidently pursue growth while staying aligned with your faith. Let’s explore how halal index funds offer a clear path forward.

What Are Halal Index Funds?

Halal index funds are a type of index fund that tracks a benchmark index like the S&P 500 or the Dow Jones Islamic Market while filtering out companies that do not adhere to Islamic investment principles.

These funds screen out non-compliant stocks, such as those involved in conventional financial services charging interest, alcohol, gambling, and pork-related industries. This careful selection ensures that every underlying asset and top holding meets Shariah compliance.

Unlike conventional index funds, halal investment options come with strict financial screening. They use criteria like debt-to-asset ratios and non-compliant income thresholds. As the Prophet Muhammad (peace be upon him) said, “The Halal is clear, and the Haram is clear” (Sahih Bukhari, Hadith 2051). Below is a quick comparison table that highlights the differences:

Quick Comparison: Halal vs. Conventional Index Funds

Aspect	Halal Index Funds	Conventional Index Funds
Expense Ratio	Generally lower due to passive management	May be higher with active management
Sectors Included	Excludes non-compliant sectors (e.g., alcohol, gambling)	Includes all industries without filters
Shariah Compliance	Adheres strictly to Islamic principles and ethical values	Lacks specific ethical guidelines

Why Choose Halal Index Funds?

Halal index funds offer ethical growth without sacrificing profitability. When you choose these funds, you enjoy several benefits:

• Alignment with Islamic Values: Your investments support permissible industries, keeping your portfolio in line with Islamic finance and shariah principles.
• Diversification: Exposure spans different asset classes and sectors—from U.S. stock markets to global equity funds and even real estate.
• Lower Fees: Passive management translates to lower management fees and expense ratios.
• Accessibility: Ideal for beginners and seasoned investors alike, these funds provide a simple way to enter the stock exchange without sacrificing your ethical standards.
• Compliance Assurance: Regular reviews ensure that every component, from individual stocks to mutual funds, meets shariah compliance.

I understand you might worry about accidental non-compliance. However, with halal index funds, the risk is minimized. As the Prophet Muhammad (peace be upon him) advised, “The best of earnings is a lawful trade” (Sahih Bukhari, Hadith 2086). This Hadith encourages us to pursue investments that are both ethical and profitable.

How to Identify Halal Index Funds

Finding the right halal index fund means knowing what to look for. Here are some essential criteria to help you identify compliant stocks and investment funds:

• Excluded Industries: Ensure the fund does not invest in companies related to alcohol, gambling, conventional banks that deal in interest, and pork-based products.
• Financial Ratios: Look for funds where companies have debt-to-asset ratios below 30% and non-compliant income less than 5%.
• Shariah Boards and Certification: Check that the fund has been vetted by a recognized Shariah board or certification authority.
• Purification Process: Some funds require investors to donate any non-compliant income to charity. This step keeps your portfolio pure.
• Verification Tools: Use platforms like Zoya or review the fund prospectus for detailed screening criteria. Remember, not all ESG funds are halal even if they follow Islamic principles.

By keeping these factors in mind, you can confidently choose funds that are built on solid Islamic investment principles. This checklist also helps in busting myths, such as assuming that every ethical or ESG fund is automatically Shariah compliant.

Top 5 Halal Index Funds in 2025

Below is a detailed comparison of the top 5 halal index funds in 2025. These funds have been carefully selected based on their performance, expense ratios, accessibility, and adherence to Islamic finance principles.

Fund Comparison: Performance, Fees, and Focus

Fund Name	Expense Ratio	Index Tracked	Accessibility
Wahed FTSE USA Shariah ETF (HLAL)	0.50%	FTSE USA Shariah Index	Widely available on major platforms, especially in the United States
SP Funds S&P 500 Sharia ETF (SPUS)	0.49%	S&P 500 Sharia Industry Exclusions Index	Listed on NYSE; accessible for U.S. investors
Invesco Dow Jones Islamic Global ETF (IGDA)	0.40%	Dow Jones Islamic Market Index	Suitable for global investors; available in multiple countries
HSBC MSCI USA Islamic ESG ETF (HIUS)	0.30%	MSCI USA Islamic ESG Universal Screened Index	Offered through international brokers, available in Europe and the United Kingdom
SP Funds Dow Jones Global Sukuk ETF (SPSK)	0.50%	Dow Jones Sukuk Total Return Index	Listed on NYSE Arca; ideal for fixed-income seekers

Let’s take a closer look at each fund:

Wahed FTSE USA Shariah ETF (HLAL):
This fund focuses on U.S. equities and tracks the FTSE USA Shariah Index. With an expense ratio of 0.50%, it offers exposure to large- and mid-cap companies that follow Islamic law. HLAL is a great option if you are looking for a balanced approach between growth and compliance.

SP Funds S&P 500 Sharia ETF (SPUS):
SPUS targets the U.S. market by tracking the S&P 500 Sharia Industry Exclusions Index. Its expense ratio of 0.49% makes it very cost-effective. This ETF ensures that your investment is free from non-compliant sectors, offering broad market exposure and diversification across various asset classes.

Invesco Dow Jones Islamic Global ETF (IGDA):
IGDA provides global equity exposure by tracking the Dow Jones Islamic Market Index. With a low fee of 0.40%, it caters to investors who want to tap into different segments of the global market. This fund is especially attractive if you are interested in diversifying across international stock exchanges and asset classes.

HSBC MSCI USA Islamic ESG ETF (HIUS):
HIUS combines the principles of Shariah compliance with Environmental, Social, and Governance (ESG) standards. It tracks the MSCI USA Islamic ESG Universal Screened Index at an expense ratio of 0.30%, making it the most cost-effective option. This fund is ideal if you want to focus on halal stocks while also considering ethical investing through ESG criteria.

SP Funds Dow Jones Global Sukuk ETF (SPSK):
SPSK is unique as it focuses on Sukuk bonds, providing a fixed-income alternative. It tracks the Dow Jones Sukuk Total Return Index and offers stability with an expense ratio of 0.50%. This option is perfect if you seek lower volatility while still adhering to Islamic investment guidelines.

Each fund presents a range of options—from investing in the U.S. stock markets and broader global equity funds to accessing fixed-income securities through Sukuk bonds. When you explore these funds, remember that they all follow Islamic finance and shariah principles, ensuring your investment portfolio remains pure.

How to Start Investing (Step-by-Step)

Embarking on your halal investment journey is easier than you think. Here is a straightforward roadmap to get you started:

1. Choose a Brokerage:
   Find a platform that offers access to halal index funds. Consider options like Wahed Invest, Interactive Brokers, or Alpaca. Ensure your brokerage supports transactions in the United States and global stock markets.
2. Research Funds:
   Compare performance, fees, and compliance for each fund. Review fund prospectuses and use tools like Zoya to verify shariah compliance. Look at factors like management expense ratio and track record.
3. Open an Account:
   Complete the required Know Your Customer (KYC) procedures. Provide accurate information to avoid delays. Opening an account is often a simple process with most financial services providers.
4. Buy Shares:
   Decide whether to invest a lump sum or use dollar-cost averaging. Place your orders through your brokerage’s trading platform. You can start with individual stocks or a mutual fund approach to gain broad market exposure.
5. Monitor & Rebalance:
   Regularly review your investment portfolio. Check if your funds still meet your compliance criteria and adjust if necessary. Rebalance your portfolio as market conditions change to maintain proper asset allocation.

Pro Tip: I recommend consulting a Shariah-compliant financial advisor for personalized advice. Their expertise can help you navigate complex areas such as Islamic finance, reit etf options, and the performance of the Dow Jones indices.

Risks and Common Mistakes to Avoid

While halal index funds offer many benefits, it is essential to be aware of the risks and common mistakes:

• Market Volatility:
  The stock market can be unpredictable. Even compliant index funds are not immune to market fluctuations.
• Tracking Errors:
  Sometimes, the fund’s performance may deviate slightly from its benchmark index. This might affect your returns over time.
• Sector Concentration:
  Overexposure to certain segments of the market, such as technology or real estate, can increase risk. Diversification across different asset classes is crucial.
• Hidden Fees:
  Always check the expense ratio and other management fees. These costs can erode capital gains over time.
• Neglecting Purification:
  Do not overlook the need to purify any non-compliant income. This regular step is part of maintaining a truly halal investment strategy.
• Overlooking Compliance Updates:
  The landscape of Islamic investing can change. Stay updated on changes in sharia industry exclusions, new sukuk etf offerings, and modifications to the underlying asset screening process.

I urge you to be cautious and do thorough research. As the Prophet Muhammad (peace be upon him) said, “Guard yourselves against miserliness, for it destroyed those before you” (Sahih Muslim, Hadith 2578). This Hadith highlights the importance of being prudent and proactive in your financial decisions.

Conclusion: Building Wealth With Integrity

I hope you now see that the best halal index funds offer a unique blend of ethical investing and competitive returns. They allow you to invest in halal stocks, mutual funds, and other compliant options without compromising your Islamic values. Remember, these funds provide a range of options—from real estate and global equity funds to sukuk etfs—all aligned with shariah compliance.

Let this be your call to action: start small, stay informed, and continually refine your investment strategy. As the Quran advises, “Let every soul see what it sends ahead for tomorrow” (Quran 59:18). Your journey to ethical wealth building begins today.

Halal Index Funds (FAQS)