What are index funds?

Basically put, index funds are financial pooled vehicles that allow investors to invest in a pool of stocks or bonds that mirrors a specific market index. When you’re investing in an index fund, you’re actually investing in all the companies / sectors in the index this funds tracks. Which means – in the case of stock market index funds – you own a small share of each of the companies.

In this article will focus on stock market index funds, as they’re the only index funds that are eligible of being considered Halal, in contrast of bonds which are basically a loan with interest (i.e. totally haram).

Stock market index funds

We now understand that stock market index funds are investment pools that are based on specific stock market indexes.

But what are exactly these stock market indexes?

-> Stock market indexes

Stock market indexes – or any market indexes for this matter- are just mathematical calculations that act as an index representation the state on a specific economy, market or sector.

For example the S&P 500 index, is an index that represents the average of 500 of the US’ most powerful companies, thus this index is capable – generally – of reflecting and conveying the current economical state of the USA.

Here is a list of stock market indexes worth knowing :

• S&P 500 index : Average of the 500 most powerful US companies.
• Nasdaq : Contains 3k stocks (companies), more biased towards the Tech sector.
• Dow jones : Contains 30 of the most powerful US companies, thus better reflects the US economy exclusively.
• MSCI : All major stocks across 23 developed countries.
• MSCI Emerging market index : Stocks in countries like Brazil, China, India..
• S&P GSCI commodity index : For asset classes ( Corn, cattle, gold..)
• Dow jones real estate index
• Dollar index
• VIX : The fear index, determines level of fear in the stock market by tracking options( Financial instruments that act as insurance against disasters).
• Total Market Index : All the companies in the US.