Local vs Offshore Shari’ah Investments: How Should You Split Your Portfolio?

Offshore Shari’ah investing gives you both currency diversification and compliance with Islamic financial principles. If you’re wondering how to split your portfolio between local and global Shari’ah funds, a reasonable starting point for most investors is 30 to 45 percent offshore, adjusted for your fund type, age, income needs, and estate position.

This article works through the mechanics: what qualifies as Shari’ah-compliant in practice, how to move money offshore legally, how Regulation 28 limits your offshore exposure inside a retirement fund, and a practical comparison of local versus global Shari’ah funds. I’ll also cover living annuities, the two-pot system, and a worked framework with rand examples.

This is general information and not personal financial advice. Your own split will depend on your full picture, which is worth working through with a qualified adviser. For a broader view, read the Shari’ah-compliant financial planning in South Africa pillar guide first.

What Investment Options Comply with Shari’ah Principles in South Africa?

A Shari’ah-compliant investment is one screened to exclude prohibited industries and financial structures: notably interest-bearing instruments, excessive uncertainty, and sectors like alcohol, tobacco, conventional banking, and weapons. In South Africa, the terms Shari’ah-compliant, halaal, and Islamic are used interchangeably and mean the same thing.

South African investors have access to several asset classes that meet this standard:

Equities. JSE-listed shares can be Shari’ah-screened using international standards, typically those set by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) or the Dow Jones Islamic Market screening methodology. Funds invest only in companies that pass both a business activity filter and a financial ratio test.

Unit trusts. Several South African asset managers offer Shari’ah-compliant unit trust portfolios investing in local and global equities. You can read more about how these work in the Shari’ah-screened unit trusts guide.

Exchange-traded funds (ETFs). There are Shari’ah ETFs listed on the JSE that track Shari’ah-screened indices. These are cost-efficient and accessible through most investment platforms.

Sukuk. Where available in South Africa, sukuk (Islamic bonds) provide a fixed-income alternative without interest. The local sukuk market remains small, so many investors use equity-heavy Shari’ah portfolios as a substitute.

Shari’ah money market funds. These hold commodity-backed or murabaha structures rather than conventional interest-bearing deposits. They are the appropriate short-term cash alternative.

A mistake I see often: placing idle cash in a conventional bank savings account and assuming that because it is not “invested”, it is permissible. Interest accrued on a bank deposit is not Shari’ah-compliant, regardless of intention.

How Can You Invest Money Offshore from South Africa?

South African residents can move money offshore through two SARS-administered allowances: the Single Discretionary Allowance (SDA) of R1 million per calendar year, which requires no tax clearance, and the Foreign Investment Allowance (FIA) of R10 million per calendar year, which requires a tax compliance status pin from SARS. Both are per natural person, per year, and can be used together.

The feeder fund route

The most accessible method for most investors is a rand-denominated feeder fund. You invest rands with a South African-registered fund that in turn buys units in an offshore Shari’ah fund. Your money sits in the offshore portfolio, exposed to global currencies, without you personally converting rands or opening a foreign account. Feeder funds are available through unit trust platforms and retirement fund administrators, and they count as offshore exposure for Regulation 28 purposes.

Direct offshore accounts

If you want to hold hard currency assets directly, you convert rands through an authorised dealer (your bank or a registered forex intermediary) and invest the proceeds via a foreign investment platform. The converted amount counts against your SDA or FIA for that year. You can buy offshore Shari’ah-screened shares, global ETFs, or international unit trusts this way.

Idle offshore cash held in a foreign bank account earning interest is not Shari’ah-permissible. Once the money is offshore, invest it in a Shari’ah-screened vehicle, not in a conventional savings account.

Platform types

Three types of platforms facilitate offshore Shari’ah investing for South African residents. Linked investment service providers (LISPs) offer a wrap account where you select from a menu of local and offshore funds. Offshore investment platforms allow direct access to global Shari’ah funds once you have converted and transferred your rands. Retirement fund administrators manage the offshore exposure within retirement annuities, preservation funds, and living annuities, within the limits that Regulation 28 permits. No single platform suits every situation; the right choice depends on your tax position, fund types, and estate structure.

For the full mechanics, see offshore investing for South African retirees. The guide on why currency diversification matters is also worth reading before you commit to a split.

How Does Regulation 28 Affect Shari’ah Investing Inside a Retirement Fund?

Regulation 28 is the rule that limits how much of a retirement fund (retirement annuity, preservation fund, or pension/provident fund) can sit in each asset class, to keep retirement savings diversified. For offshore Shari’ah investors, the most important limit is the offshore allocation cap. As at the time of writing, the effective offshore limit for most retirement funds is 45 percent of the portfolio. You should verify the current figure with your administrator or check the latest FSCA guidance, as these limits have been adjusted before and may change again.

What this means in practice

If you have R5 million in a retirement annuity and you want maximum offshore Shari’ah exposure, the arithmetic is straightforward:

• R5,000,000 × 45% = R2,250,000 in global Shari’ah equity funds (the maximum under the current limit)
• The remaining R2,750,000 must sit in local or Africa-domiciled assets

Within the local portion, you can hold JSE-listed Shari’ah-screened equities, local Shari’ah money market funds, and sukuk where available. You cannot simply allocate the entire retirement portfolio offshore, even if your risk profile and values would support it.

The two-pot system

The two-pot retirement system, introduced in September 2024, split retirement fund accumulations into a savings component (one-third, accessible before retirement) and a retirement component (two-thirds, preserved until retirement). For Shari’ah investors, both pots remain subject to Regulation 28 limits. The two-pot change does not alter your offshore allocation ceiling; it changes when and how you can access the money, not where it can be invested.

You may also want to read about how a preservation fund works in South Africa if you are consolidating old employer fund benefits.

Local vs Offshore Shari’ah Funds: A Side-by-Side Comparison

Choosing between local and global Shari’ah funds is not a question of which is better; it is a question of what each does for your portfolio. Local funds give you rand-denominated returns and JSE exposure. Global funds give you hard-currency growth and a far larger investment universe. Most investors need both. Here is a structured comparison.

Sequencing risk and JSE concentration

The JSE is a relatively concentrated market. Resources and financials dominate, and a Shari’ah screen removes conventional banks, which narrows the local universe further. Holding only local Shari’ah funds means your retirement savings move closely with South African economic conditions, rand strength, and a handful of large-cap sectors.

Global Shari’ah funds include US technology, healthcare, and consumer companies that have no meaningful JSE equivalent. This is not a performance argument; it is a diversification argument. A period of rand strength will make offshore returns look poor in rand terms, but the underlying hard-currency growth is still there.

The local-global combination is a long-term structural decision, not a short-term performance trade. For investors concerned about currency diversification and rand risk, the case for holding a meaningful offshore allocation rarely weakens over time.

How Much Should You Allocate Offshore? A Practical Framework

There is no universal right answer, but a structured framework beats guesswork. Four drivers determine your appropriate offshore allocation: your fund type and Regulation 28 constraints, your income currency needs in retirement, your estate position, and your risk tolerance toward currency volatility.

The four allocation drivers

Fund type. Inside a retirement fund, you are capped by Regulation 28. Outside a retirement fund (investments in your own name, endowments, or discretionary savings), there is no regulatory cap; you can go 100 percent offshore if your situation supports it.

Income needs. If you will spend your retirement income in rands, excessive offshore exposure creates practical friction: you need to convert hard currency back to rands each time you draw income. A split that leaves sufficient rand-income-generating assets locally avoids this.

Estate position. Offshore assets held in your own name form part of your South African estate for estate duty purposes. The interaction between offshore holdings and estate duty liquidity is a question for the estate planning specialists at GMI, not something to structure without professional input.

Currency volatility tolerance. Offshore returns in rand terms swing sharply when the rand moves. Investors who would panic-sell after a period of rand strength are better served with a more moderate offshore weighting.

Three worked examples

Example 1: R5 million retirement annuity only. At the 45% offshore cap: R2.25m offshore, R2.75m local. This is a reasonable target if you are 10 or more years from retirement and want maximum allowable global exposure.

Example 2: R5m retirement annuity plus R5m in own name. Total portfolio: R10m. The retirement annuity remains capped at R2.25m offshore. The R5m in your own name carries no cap. If your income and estate position support it, you could hold R3m to R4m of the discretionary savings in global Shari’ah funds, giving you a blended offshore allocation of R5.25m to R6.25m on a R10m total portfolio (52% to 62%).

Example 3: R10 million in own name only (post-business sale). No Regulation 28 constraints. The appropriate offshore split depends entirely on income currency needs, estate liquidity, and your tolerance for rand volatility. A 40% to 60% offshore allocation is common for investors with this profile, but the right figure is personal.

Chasing top-performing funds matters less than getting the structural split right. A well-allocated Shari’ah portfolio across local and global assets will serve you better than concentrating in last year’s best-performing fund. For more on the offshore mechanics, see offshore investing considerations for South African retirees. For the Shari’ah planning context, the Shari’ah-compliant financial planning guide covers the full picture.

Can a Living Annuity Hold Offshore Shari’ah Funds?

Yes. A living annuity is a retirement income product where you stay invested and draw an income you choose within set limits; the remaining balance can pass to your beneficiaries. The drawdown rate is the percentage of your retirement capital you take as income each year, and SARS requires it to stay between 2.5% and 17.5% annually. A living annuity is fully Regulation 28-compliant and can hold offshore Shari’ah funds up to the applicable offshore limit.

In practice, a living annuity funded with R5 million can hold up to R2.25m in global Shari’ah equity funds at the current 45% cap. Your income drawdowns come from whatever funds the portfolio holds, converted to rands where necessary.

Beneficiary nominations

A living annuity does not form part of your estate. On death, the remaining capital passes directly to your nominated beneficiaries, outside the will and outside the estate. This is an important estate interaction, but structuring beneficiary nominations for tax efficiency is a question for the estate planning specialists at GMI. What you control is ensuring that your nominations are documented, current, and reflect your actual intentions.

For more on how Shari’ah principles apply across your retirement structure, see Shari’ah-compliant investing in retirement.

Frequently Asked Questions

What investment options comply with Shari’ah principles in South Africa?

Shari’ah-compliant investment options in South Africa include Shari’ah-screened unit trusts, JSE-listed Shari’ah ETFs, sukuk (where available), Shari’ah money market funds, and global Shari’ah equity funds accessed via feeder funds or directly offshore. The terms Shari’ah-compliant, halaal, and Islamic are interchangeable in South African investment practice; all refer to investments screened to exclude interest, prohibited industries, and excessive uncertainty.

How can someone invest money offshore from South Africa?

South African residents can invest offshore using the Single Discretionary Allowance (R1 million per year, no tax clearance needed) or the Foreign Investment Allowance (R10 million per year, requires a SARS tax compliance status pin). The simplest route is a rand-denominated feeder fund, which invests your rands into an offshore Shari’ah portfolio without requiring you to convert currency yourself.

How do you purchase offshore shares as a South African resident?

You can access offshore Shari’ah-screened shares through rand-denominated feeder funds that hold international equities, or by funding a foreign brokerage account directly using your SDA or FIA allowance. The feeder fund route requires no foreign account; the direct route gives you more control and hard-currency ownership of the underlying shares.

What offshore unit trust options are available to South Africans?

South African residents can access offshore Shari’ah unit trusts through local LISPs (linked investment service providers) that include global funds on their platforms, or by investing directly in foreign-domiciled funds (often SICAVs) once money has been transferred offshore. The range of Shari’ah-screened global unit trusts has grown substantially, with options covering global equities, US equities, and emerging markets.

What investment vehicles in South Africa generate monthly income?

Shari’ah money market funds and income-distributing unit trusts can provide regular income without interest. In retirement, a living annuity set at a regular drawdown frequency (monthly, quarterly, or annually) distributes income from whatever Shari’ah-compliant funds are held inside it.

Which platforms allow South Africans to invest offshore?

Three types of platform facilitate offshore Shari’ah investing: linked investment service providers (LISPs) offering local and offshore fund menus, offshore investment platforms accessed once rands have been converted and transferred, and retirement fund administrators managing offshore exposure within Regulation 28 limits. No endorsement of specific providers is made here; the appropriate platform depends on your tax position, fund type, and estate structure.

How does offshore banking work for South African residents?

South African residents can hold foreign bank accounts funded through their SDA or FIA allowances. However, idle cash in a conventional offshore bank account earning interest is not Shari’ah-compliant. Funds should be moved promptly into a Shari’ah-screened investment, not held as an interest-bearing deposit.

What long-term investment strategies suit South African investors?

A combination of local Shari’ah-screened equities and global Shari’ah funds, structured across retirement funds (within Regulation 28 limits) and discretionary savings, provides both rand-income stability and hard-currency growth over the long term. The structural split between local and offshore matters more than fund selection; get the allocation right first, then choose your funds within each sleeve.

Bringing It Together: Getting Your Local-Offshore Split Right

The right local-offshore split for a Shari’ah-compliant portfolio comes down to three decisions: how much you can legally hold offshore given your fund type and Regulation 28 constraints, how much offshore exposure your income needs and estate position can support, and whether your temperament can absorb the rand volatility that comes with a large offshore allocation.

Inside a retirement fund, the current offshore cap limits you to 45% regardless of your preferences. Outside a retirement fund, you have full flexibility, and the case for meaningful global Shari’ah exposure is strong: a larger investment universe, hard-currency growth, and genuine rand-hedge protection over time.

Most investors with portfolios across both retirement funds and discretionary savings will land somewhere between 35% and 55% offshore in aggregate, with the retirement fund portion constrained by regulation and the discretionary portion calibrated to income needs and estate liquidity.

This article is general information and not personal financial advice. Every portfolio is different, and the interaction between your retirement funds, living annuity, discretionary savings, and estate position requires a full review before committing to a split.

Start with the Shari’ah-compliant financial planning guide for the broader context, then book a private consultation at /contact to work through your specific numbers.