Is Investing in the S&P 500 Halal?

The S&P 500 is one of the world’s most followed stock market indexes. Composed of 500 of the largest publicly traded U.S. companies, it represents a wide range of sectors such as technology, healthcare, consumer goods, and industrials. Because of its size and diversity, many investors, including Muslim investors, look to the S&P 500 as a benchmark for broad market exposure and long-term growth.

But for Halal investing, investing that complies with Islamic law, simply tracking or buying the S&P 500 isn’t automatically permissible. In this article, we explain what’s allowed and what’s not, how Islamic scholars approach the issue, and how the S&P 500 performed in 2025.

Understanding Halal Investing and Shariah Compliance

Islamic law encourages Muslims to participate in trade but strictly prohibits earning riba (interest), involvement in prohibited industries, and excessive uncertainty (gharar). When applied to investing, this means Muslim investors should only buy shares of companies that meet Shariah screening standards.

One of the most widely referenced frameworks for this screening is AAOIFI’s Shariah Standard No. 21, which offers a clear criterion for evaluating stocks. It is recognized across global Islamic finance markets and used by many Halal screening tools.

1. Business Activity Screening (Qualitative)

Under AAOIFI, the first step is to look at what a company actually does. If its core business involves haram activities, including interest-based banking, insurance, alcohol, gambling, pork, weapons, or adult entertainment, then its stock is considered non-compliant and excluded. 

This rule ensures that Muslim investors do not profit materially from activities that Islam prohibits. It also protects the investor from supporting businesses that conflict with Islamic values.

2. Financial Ratio Screening (Quantitative)

Even if the core business is permissible, a company might still be non-compliant due to its financial structure. AAOIFI’s quantitative filters focus on debt levels and interest-related income, such as:

• Interest-based debt must remain below 30% of the company’s market value
• Revenue generated from non-permissible (haram) activities should not exceed 5% of total income
• Investments that generate interest or other non-compliant returns should be capped at 30% of market capitalisation

These limits reduce exposure to riba and excessive leverage, supporting sustainable long-term investments aligned with Islamic principles and appropriate risk tolerance.

Together, these qualitative and quantitative screens help Muslim investors make disciplined and informed investment decisions.

Why the Standard S&P 500 Isn’t Fully Halal

The S&P 500 brings together companies from all industries, without checking whether their businesses or finances meet Islamic guidelines. This means the index includes banks, insurance companies, and other businesses that rely heavily on interest or operate in sectors that are not allowed under Shariah. Because of this, investing in a fund that tracks the standard S&P 500 - without any Halal screening - is not considered fully Halal.

However, this doesn’t mean all companies in the index are non-compliant. Some individual stocks can be Halal, but only after they are carefully screened to ensure they meet Shariah standards.

How Muslim Investors Approach the S&P 500

Rather than investing in the unfiltered S&P 500, many Muslim investors choose Shariah-compliant alternatives that apply AAOIFI-based screening criteria. These options exclude companies that do not meet Islamic requirements, such as those involved in interest-based activities or prohibited sectors, and are available through specialized Islamic indexes and Halal-screened ETFs.

Platforms like Tabadulat make it easier to access these Shariah-compliant opportunities by helping investors identify Halal stocks and investment options with clarity and confidence, so you can participate in global markets without compromising your values.

S&P 500 Performance in 2025

For investors considering Halal equity exposure, understanding how the broader market has performed can provide important context.

Year-End 2025 Results

• The S&P 500 delivered a strong annual return of around 16.39% in 2025, marking the third consecutive year of double-digit gains.
• The index closed the year at approximately 6,845.50, reflecting solid performance despite economic headwinds.
• Technology and AI-driven companies were major contributors to gains, pushing up average stock price levels across the index

What This Means for Investors

This performance shows resilient growth in U.S. equities during 2025, even as markets faced inflation concerns, geopolitical tensions, and shifting monetary policy. These gains suggest that long-term equity exposure, including via Halal-screened strategies, can be an effective component of a diversified Islamic investment portfolio. 

Conclusion

Investing in the S&P 500 isn’t an all-or-nothing choice for Muslim investors. While the standard index itself isn’t fully Shariah-compliant, screened alternatives allow investors to benefit from rising share prices, participate in global markets, and build a diversified portfolio aligned with Islamic values.

The strong performance of the S&P 500 in 2025 highlights a key point: Halal investing isn’t about sacrificing returns. It’s about making intentional, disciplined investment decisions that balance faith, ethics, and financial growth over the long term.

Disclaimer & Disclosure

This article is for educational and informational purposes only and does not constitute investment advice. References to markets or public information are based on historical data and publicly available sources. There is no representation of current investment positions or future performance.

Investment in the S&P 500 or Shariah-compliant equities involves risk. The value of investments and the income from them can fall as well as rise, and investors may receive less than the amount originally invested. Past performance is not indicative of future results.

FAQS

Is the S&P 500 good for beginners?

Yes, the S&P 500 is often considered beginner-friendly because it offers broad diversification across 500 large U.S. companies. This reduces reliance on a single stock and makes it suitable for long-term investing, though beginners should still understand market risks.

Can Muslims do stock trading?

Yes, Muslims can trade stocks as long as the companies and trading methods comply with Shariah principles. This includes avoiding interest-based businesses, prohibited industries, excessive speculation, and ensuring stocks pass Islamic screening standards such as AAOIFI guidelines.

How risky is the S&P 500?

The S&P 500 carries market risk, meaning its value can fluctuate due to changes in economic conditions. While it is less risky than investing in individual stocks, it can still experience significant short-term volatility, especially during economic downturns or market crises.

Can you lose your investment in the S&P 500?

Yes. Market declines can affect the value of S&P 500 investments. Performance varies with market conditions, and positive returns are not guaranteed.

Who owns the S&P 500?

The S&P 500 index itself isn’t “owned” like a company; it’s maintained by S&P Dow Jones Indices, a joint venture majority-owned by S&P Global and CME Group. Investors access it through funds tracking the index.

Does the S&P 500 pay dividends?

The S&P 500 index itself does not pay dividends because it’s just a benchmark list. However, many companies in the index do pay dividends, and funds/ETFs tracking the S&P 500 pass those dividends to investors.