Stocks or equity are similar to partnerships. Stocks help you to participate and profit from the success of a business with solid growth potentials. Shariah law promotes equity based activities to conduct businesses more than any other modes such as debt. Hence, investing in equity markets is recognized as a Shariah compliant business activity by renowned Islamic scholars, worldwide.
In fact, currently, equity related investment products such as stocks, Mutual funds, ETFs etc. are the major shariah compliant investment vehicles available for the Islamic investors in the Indian financial sector. India offers a large economic opportunity for Islamic investors with approximately 20% of the listed companies qualifying as Shariah compliant.
Is investing in stocks a prudent strategy, given the widely fluctuating volatility of the global markets owing to the unpredictable ups and downs?
The volatility factor affects in the short term is more compared to the long term which is one reason why Wealthcity advocates long term investing. It has been proven by various studies that an investment in stocks has always been beneficial with respect to other investment options over a long term.
A look at the so-called “safe” investment options
Take for instance the “safer” investment options such as the money market funds or bonds, denominated in a given currency. The U.S dollar has fallen a staggering 86% from 1965 eroding the purchasing power of such investors; coupled with inflation and taxes, the real income would be next to nothing even though such investments pay periodical interest.
So, it is only a matter of simple judgment to evaluate the safety of such “safe” investment options. The foreign exchange rates are becoming even more volatile and unpredictable which will only aggravate the issue. After all, it is money printed on worthless paper based on nothing but the ink in the printing machines. A wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: “Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.”
The other safer investment option is Gold. But, as said by Warren buffet, Gold is unproductive. It is used for decorative and minimal industrial purposes. Hence, its demand will be incapable of soaking up new production. Moreover, if you own one ounce of gold today and hold it for eternity, you will still end up owning only that one ounce and nothing more. What attracts investors to gold is only the fear of ending up with unreliable investable options.
So, Where should i invest?
Investments should primarily be into productive assets such as businesses or real estate. Investment in the most profitable companies like ONGC or Reliance Industries would have made an investor much wealthier than any other ‘safer’ investments. For instance, an investment in Reliance industries in Aug 2002 would have given a 245% (approx.) return, adjusted for stock splits and dividends, as of April 2012. A few more profitable gems like these in your portfolio can make you richer by leaps and bounds. Stocks will remain the only investment option that will make you richer depending upon your investment style over the long term.
The BSE TASIS Shariah 50 Index has shown a dependable and stable performance relatively to the various conventional Indices in the long run. Click here to know more.
How can Wealthcity help me?
Our primary goal is to help you increase your ownership in shariah compliant and profitable productive assets in the form of equity. Wealthcity provides a platform to trade in Shariah compliant stocks on BSE and NSE. We advise our clients on the following: