How Should You Invest R10 Million According to Shari’ah Principles?

Shari’ah-compliant investing follows a rules-based approach: no interest (riba), no excessive uncertainty in contracts (gharar), and no businesses whose primary activity conflicts with Islamic principles. If you’re asking how to invest R10 million in a halal way, here’s the practical answer: you allocate across screened equities, sukuk, direct or listed property, and permissible cash instruments, held in the most tax-efficient structures available to you, with a meaningful slice invested offshore through Islamic index ETFs or actively managed Shari’ah funds. The exact split depends on your income needs, time horizon, tax position and risk tolerance. The building blocks are well established, and South African investors have significantly more options today than they did a decade ago.

One thing worth clarifying upfront: Shari’ah compliance, ethical investing and ESG (environmental, social and governance) investing are not the same thing. They share some overlapping exclusions, but their frameworks are fundamentally different. An ESG fund may still hold conventional banks. A Shari’ah-screened fund cannot, regardless of how well they score on governance metrics. Treating these as interchangeable can leave your portfolio non-compliant in ways you won’t expect.

For a broader view of how Shari’ah principles apply across your full financial plan, the guide to Shari’ah-compliant financial planning in South Africa is a useful starting point.

What Are the Rules for Shari’ah-Compliant Investing?

The core rules are clear: no interest (riba), no excessive uncertainty in contracts (gharar), no prohibited industries, and no speculative instruments such as conventional derivatives or short-selling.

In practice, this means your portfolio cannot include conventional bank shares, insurance companies that operate on interest-based models, alcohol or tobacco producers, conventional bonds or interest-bearing cash deposits, or companies with debt-to-asset ratios above certain thresholds set by your Shari’ah board.

Riba is the prohibition of interest in any form, whether you earn it or pay it. A fixed deposit at a conventional bank earns interest, so it doesn’t qualify. A profit-sharing account structured around actual trade returns does.

Gharar refers to contracts with excessive ambiguity or uncertainty. Standard derivatives and highly leveraged instruments fall into this category. The concern is not risk itself; all investment involves risk. The concern is speculative risk that’s structurally embedded in the contract itself.

Industry exclusions are straightforward: alcohol, tobacco, weapons, pork-related products, conventional financial services and adult entertainment. If a company’s primary business sits in these sectors, it’s excluded, period.

Here’s the key distinction: Shari’ah compliance is not the same as ESG investing, and it’s not the same as “ethical” investing in the general sense. An ESG fund might include conventional banks because they score well on governance metrics. A Shari’ah-screened fund cannot include them at all, regardless of governance score. The decision frameworks are different. ESG is largely investor-preference driven; Shari’ah compliance follows a fiqh (Islamic jurisprudence) framework applied by a qualified Shari’ah supervisory board.

The honest trade-off: these rules reduce your investable universe. Financials make up a significant share of most indices. Excluding conventional banks and insurers means your equity portfolio will look different from the JSE All Share, and you need to be comfortable with that tracking difference.

What Investment Options Are Available That Comply with Shari’ah Principles?

South African investors with R10 million have access to a meaningful range of Shari’ah-compliant asset classes: screened equities (local and offshore), sukuk, direct property, listed property with screening, Islamic money market instruments, and Shari’ah-screened unit trusts and ETFs.

Screened Equities

Equities are assessed using a two-part test. The first part is a qualitative screen: the company’s primary business must not fall into a prohibited industry. The second part is a quantitative screen: the company’s financial ratios must stay within limits set by your Shari’ah board. Typically, total debt must be below 33% of total assets, and interest income must be below a set threshold of total revenue.

Companies that pass both screens qualify. If a portion of their income still comes from permissible but interest-related sources (say, interest earned on a cash balance), you calculate a purification ratio and donate that small proportion of your dividend to charity. This keeps the investment permissible.

Sukuk

Sukuk are often described as “Islamic bonds,” but that description misleads. A sukuk is an ownership certificate in an underlying asset or pool of assets, not a debt instrument. Your return comes from the income or profit generated by that asset, not from interest. The distinction matters practically: sukuk holders share in the risk and return of the underlying asset, not merely in the return of principal plus interest.

Property

Direct property is permissible, provided it is financed through an Islamic home loan structure (such as a diminishing musharakah) rather than a conventional mortgage. Listed property (REITs) requires the same two-part screen applied to equities.

Cash and Money Market

Islamic profit-sharing accounts offered by several South African banks serve as the permissible substitute for a conventional fixed deposit or money market fund. Your return is based on actual returns earned by the bank on its assets, not on a predetermined interest rate.

Understanding how each of these instruments works in a portfolio context is worth exploring further. The guides to how ETFs work in South Africa and property investment strategies in South Africa cover the mechanics in more detail.

How Do You Invest in S&P 500-Style Indices That Comply with Shari’ah Principles?

You cannot invest in a standard S&P 500 ETF on a Shari’ah-compliant basis, because the index includes conventional banks and financial companies that fail the qualitative screen. The solution is an Islamic index: the S&P 500 Shari’ah Index or the MSCI World Islamic Index, which apply the two-part screen to the parent index and exclude non-compliant constituents.

Several ETFs track these Islamic indices and are accessible to South African investors through the foreign investment allowance. The most widely referenced are listed on major exchanges including the London Stock Exchange and US exchanges. You access them either through a rand-hedge feeder fund registered in South Africa, or by externalising capital under the annual allowances and buying the ETF directly through a foreign broker or offshore platform.

Here’s how it works. South African residents over 18 may transfer up to R1 million per year under the discretionary allowance without SARS approval. Transfers above R1 million and up to R10 million per year require a tax clearance (the foreign investment allowance). With R10 million to invest, this allowance is relevant immediately.

The purification ratio applies here too. Because even an Islamic index may hold companies with minor incidental interest income, your fund manager or Shari’ah board will publish a purification ratio each year. You donate that percentage of your distributions to charity, and the investment remains compliant.

This is not a second-best compromise. Islamic global equity ETFs offer broad offshore diversification across technology, healthcare, industrials and consumer sectors, simply with conventional financials removed. For guidance on the mechanics of moving money offshore, the articles on offshore investing for South African investors and offshore investing for South African retirees explain the process and the structures available.

How Much Should You Hold Offshore, and In Which Structures?

For a South African investor with R10 million, a meaningful offshore allocation makes sense, typically somewhere between 25% and 45% of the total portfolio, depending on your income needs in rand, your existing offshore exposure and your overall risk profile.

The regulatory framework gives you two routes. The discretionary allowance permits R1 million per year without SARS documentation. The foreign investment allowance permits up to R10 million per year after obtaining a tax compliance status (TCS) pin from SARS. If you’re investing R10 million in total, the foreign investment allowance covers a full offshore deployment in a single year if you choose.

Regulation 28 is the rule that governs retirement funds (retirement annuities, pension and provident funds, and preservation funds). It limits offshore exposure within those structures to 45% of the portfolio. This cap does not apply to money held in your own name or inside an endowment.

In practice, this means your retirement fund money can hold up to 45% in offshore Shari’ah-compliant equities and sukuk, while your own-name investment account can hold a higher proportion if your overall strategy calls for it. Shari’ah-compliant offshore funds exist in both ETF format and actively managed format across major asset management groups.

Currency diversification is part of the reason to hold offshore assets, not only return seeking. Rand depreciation over time has historically made offshore rand-hedge assets an important component of a South African portfolio. For more on this, the articles on why currency diversification matters and currency diversification ETFs are worth reading alongside this one.

Which Structures Should Hold Your Shari’ah-Compliant Investments?

The structure your investment sits in determines how it is taxed, how it can be accessed, and what happens to it when you die. The good news is that all four main South African investment structures can hold Shari’ah-screened funds.

Retirement Annuity (RA)

Contributions to an RA are deductible against your taxable income, up to 27.5% of your remuneration or taxable income, capped at R350,000 per tax year. Growth inside the RA is not taxed. On retirement, you can take up to one-third as a lump sum (taxed according to the retirement lump sum table) and must use the remainder to purchase an annuity. Shari’ah-compliant fund options are available within RAs from several South African providers.

Endowment

An endowment is taxed at 30% on income and 12% on capital gains inside the wrapper, which makes it attractive if your personal income tax rate is higher than 30%. Access is restricted for the first five years. It is a useful structure for surplus capital outside the RA.

Own-Name Investments (Unit Trusts and ETFs)

Flexibility is the main advantage here. No contribution limits, full access to your capital, and the ability to hold local or offshore Shari’ah-compliant funds directly. Income is taxed at your marginal rate; capital gains are subject to inclusion at 40% and taxed at your marginal rate, with an annual exclusion.

Tax-Free Savings Account (TFSA)

You can contribute R36,000 per year, up to a lifetime limit of R500,000. All growth and income inside the TFSA is tax-free. Use this for long-term equity exposure, whether Shari’ah-screened local equities or a qualifying unit trust.

For detail on how unit trusts work within these structures, see how unit trusts work in South Africa. If you are deciding between a retirement annuity and a provident fund, the comparison in retirement annuity versus provident fund explains the key differences.

A Shari’ah-Compliant Portfolio Structure for R10 Million: At a Glance

A well-constructed Shari’ah-compliant portfolio for R10 million draws on multiple asset classes and spreads across structures to manage tax, access and risk. The table below shows one illustrative approach. These allocations are not prescriptive; your actual split should reflect your income needs, tax position, time horizon and risk tolerance.

A note on risk: this split concentrates meaningful weight in equities and property together. If equity and property markets move together in a downturn (which they sometimes do), the portfolio can experience correlated losses. Spreading across multiple geographies and asset managers reduces this but does not eliminate it. Understanding risk concentration and how to manage it is an important companion topic to this portfolio construction exercise.

How Can You Invest in Real Estate While Maintaining Shari’ah Compliance?

Direct property is fully permissible under Shari’ah, provided the financing method is compliant. If you purchase property outright with your own capital, there is no riba concern at all. If you need financing, an Islamic home loan structure (diminishing musharakah, where you and the bank jointly own the property and you gradually buy out the bank’s share) is the correct instrument. A conventional mortgage is not permissible.

Listed property, such as JSE-listed REITs, requires the same two-part screen applied to equities. Many REITs pass the qualitative screen (retail, industrial, residential property are permissible sectors), but some may fail the quantitative screen if their gearing ratios are too high. You will need to confirm compliance with your Shari’ah board or use a fund that applies the screen for you.

The concentration and liquidity trade-off is worth understanding clearly. Direct property is illiquid: you cannot access a portion of it in a hurry. With R10 million, allocating too much to a single property also creates concentration risk in one asset and one location. Listed property through a screened REIT fund gives you liquidity and diversification, at the cost of more volatility. For a fuller discussion of how property fits into a broader investment strategy, see property investment strategies in South Africa.

Frequently Asked Questions

How do you invest in S&P 500 indexes that comply with Shari’ah principles?

You use an Islamic index ETF that tracks the S&P 500 Shari’ah Index rather than the standard S&P 500. The Islamic index removes conventional financial companies and other non-compliant constituents. South African investors access these ETFs through rand-feeder funds or by externalising capital under the foreign investment allowance.

What are the rules for Shari’ah-compliant investing?

The three core rules are: no riba (no earning or paying interest), no gharar (no contracts built on excessive uncertainty), and no prohibited industries (alcohol, tobacco, weapons, conventional finance, pork-related products, adult entertainment). Equities also face a quantitative screen on debt and interest-income ratios.

How can you invest in real estate while maintaining Shari’ah compliance?

You can purchase direct property outright, or through an Islamic financing structure such as diminishing musharakah instead of a conventional mortgage. Listed property (REITs) requires a two-part screen: qualitative (sector) and quantitative (gearing ratios). High-gearing REITs may fail the quantitative test.

What investment options are available that comply with Shari’ah principles?

In South Africa, you have access to screened equities (local and offshore), sukuk, direct and listed property, Islamic money market accounts, and Shari’ah-compliant unit trusts. Several local asset managers offer dedicated Shari’ah-screened funds across these categories.

Which investments in South Africa meet Shari’ah compliance standards?

Several JSE-listed equities pass the dual screen. A number of South African asset managers offer Shari’ah-screened equity and balanced unit trusts. Islamic money market accounts are available at major banks. Local sukuk issuances are available, though the market is smaller than offshore. Confirmation of compliance should always come from a qualified Shari’ah supervisory board.

How do you invest money in ways considered halal?

Halal investing means placing money in assets that generate returns from real economic activity (trade, ownership, profit-sharing) rather than from interest or prohibited sectors. You do this by using screened unit trusts, sukuk, direct property with Islamic financing, and profit-sharing cash accounts, held in structures such as a retirement annuity, endowment or own-name account.

What does investing without riba involve?

Investing without riba means avoiding any arrangement where money earns money purely through the passage of time, regardless of whether any real economic activity occurs. In practical terms, this means no conventional bonds, no standard fixed deposits, and no conventional mortgage debt in your portfolio. Returns must come from trade, ownership or profit-sharing in a real underlying asset.

The Next Step

Knowing how to invest R10 million in a Shari’ah-compliant way is straightforward in principle: use the right screening framework, choose the right asset classes, and hold everything in the most tax-efficient structure available. Executing it well, across retirement funds, own-name accounts and offshore structures, with the right drawdown order and beneficiary nominations, is where the detail matters.

The Shari’ah-compliant financial planning guide covers how these principles extend across the full retirement and investment plan.

If you would like to review your own portfolio or structure a new one on a Shari’ah-compliant basis, you are welcome to get in touch through the contact page.

This article is general information and does not constitute personal financial advice. Your individual circumstances, tax position and income needs should inform any investment decision.