Is It Permissible to Keep, Use, or Donate Profits from a Shariah-Screened Investment ETF?
Question
Salaam alaikum warahmatullah wabarakaatu.
I invested some money into an investment that claims to be halal and that it “complies with Shariah law and excludes companies deriving more than 5% of their income from alcohol, tobacco, pork-related products, weapons, conventional banking or insurance companies, and adult entertainment. The ETF also excludes companies with excessive leverage.”
I would like to know:
- Can I spend the profits that I made on it?
- Can I take out my capital at least?
- If not, is it permissible for me to give it in charity to my sisters who are in financial difficulties?
- Or must I give it to outsiders in charity?
Answer
Alhamdulillah, wassalatu wassalamu ala rasulillah, wa ala alihi wa sahbihi ajmain.
1. The Shar‘i Context
Investments like Shariah-screened ETFs are built on ijtihadi screening standards used by many contemporary scholars. These standards aim to reduce exposure to haram activities while recognizing the realities of modern markets.
The 5% threshold is not an allowance of haram itself, but a tolerance level adopted by scholars who hold that complete isolation from all indirect haram income is nearly impossible in public equities today.
This position is relied upon by many fatwa councils and Shariah boards, though it is not without scholarly disagreement.
2. Ruling on the Capital (Original Investment)
Your original capital is halal without doubt.
Why?
- You invested with the intention of halal compliance,
- You relied on recognized Shariah screening standards,
- There was no deliberate entry into riba or haram contracts.
Therefore:
- You may withdraw your capital fully,
- You are not sinful for having invested based on this screening.
3. Ruling on the Profits
The profits are treated as follows:
Because the ETF allows a very small percentage of impure income, scholars who permit this type of investment require purification (tathir) of profits.
This means:
- You may keep and use the profits,
- After removing the estimated impure portion.
The impure portion is typically calculated as the percentage of non-compliant income attributed to your share and must be given away without reward intention.
If you do not have an exact figure, many scholars allow reasonable estimation.
4. Can the Purified Amount Be Given to Poor Relatives?
Yes.
If your sisters are genuinely financially eligible (poor or struggling):
- You may give the purification amount to them,
- This is permissible,
- But you do not count it as zakah,
- And you do not intend reward, since it is disposal of impure income.
This is allowed because the goal is to remove haram traces from your wealth, not to perform charity.
5. Can the Entire Profit Be Given Away?
Yes, if you wish to be extra cautious.
If you are uncomfortable keeping any profit:
- You may give all profits away,
- To poor relatives or others,
- Without zakah intention.
This is permissible and praiseworthy as personal caution, though not strictly required under the permissive scholarly view.
6. Relevant Usul Principles
الأصل في المعاملات الإباحة
The default ruling in transactions is permissibility.
الحرام إذا خالط الحلال ولم يتميز عفي عنه مع التطهير
When a small amount of haram mixes with halal and cannot be fully separated, it is excused with purification.
These principles are what contemporary scholars rely upon when allowing such investments with conditions.
Final Ruling
- Your capital is halal, and you may withdraw and use it freely.
- The profits are permissible after purifying the small impure portion.
- The purification amount may be given to your financially struggling sisters or to others.
- You may also choose to give away all profits out of caution, though this is not obligatory.
And Allah knows best.