Komforta -In recent years, the concept of Shariah Stock Indices -compliant investing has grown significantly in Indonesia, one of the world’s largest Muslim-majority countries. Islamic finance principles guide investors to make ethical decisions, which includes avoiding stocks in companies that engage in prohibited activities such as gambling, alcohol, and other non-halal businesses. To support this ethical investing approach, Indonesia has developed Shariah stock indices, which list stocks that meet these criteria.
If you’re an investor interested in aligning your portfolio with Shariah principles, understanding these stock indices is essential. In this article, we’ll explore the top Shariah stock indices in Indonesia, why they matter, and how they can help you make informed decisions as an Islamic investor.
What Are Shariah Stock Indices?
Shariah stock indices are designed to provide investors with a list of stocks that comply with Islamic law. These indices are constructed based on a set of criteria that filters out companies involved in activities forbidden in Islam (such as alcohol, gambling, and interest-based financial activities). Shariah-compliant stocks are typically companies that operate in areas such as technology, consumer goods, healthcare, and energy—sectors that do not contradict Islamic values.
For Islamic investors, these indices are a valuable tool because they provide a pre-screened list of stocks that adhere to Shariah principles, making it easier to manage investments in line with their faith.
Why Should Islamic Investors Focus on Shariah Stock Indices?
Investing in Shariah-compliant stocks offers numerous benefits for Muslim investors. Here are a few reasons why these indices are crucial:
- Ethical Investing: Shariah-compliant investing ensures that your investments align with Islamic values, which promotes ethical business practices and discourages involvement in industries that are deemed harmful.
- Avoiding Haram (Forbidden) Activities: The indices help investors avoid companies that participate in industries such as alcohol, gambling, interest-based banking, and others that are considered haram (forbidden).
- Social Responsibility: Many Shariah-compliant companies focus on sustainability, social justice, and community welfare, which aligns with the broader goals of ethical and responsible investing.
- Islamic Financial System Compatibility: These indices support investors who prefer to work within the framework of an Islamic financial system, where profit is generated without violating the principles of riba (interest) or gharar (uncertainty).
5 Must-Know Shariah Stock Indices in Indonesia
Indonesia’s stock market offers several key Shariah-compliant indices that can help guide Islamic investors. Here are five of the most important Shariah stock indices in Indonesia:
1. Jakarta Islamic Index (JII)
The Jakarta Islamic Index (JII) is one of the most recognized and widely followed Shariah indices in Indonesia. Launched in 2000 by the Indonesia Stock Exchange (IDX), JII includes a selection of Shariah-compliant stocks from various sectors. This index is considered a benchmark for Islamic investments in the country.
The JII is composed of the top 30 companies that meet the Shariah investment criteria set by the National Shariah Council (DSN-MUI). These stocks must pass a series of financial and operational screenings, which include avoiding interest-bearing debt and activities prohibited by Islamic law.
Key Features of JII:
- Top 30 Shariah-compliant stocks listed on the IDX
- Regularly updated to reflect changes in market conditions
- Suitable for long-term investors seeking diversified exposure to Shariah-compliant stocks
For investors looking to invest in a well-rounded portfolio of Shariah-compliant companies in Indonesia, the JII is an excellent starting point.
2. Shariah Stock Index (ISSI)
The Indonesia Shariah Stock Index (ISSI) is another key index for Islamic investors in Indonesia. It is broader than the JII, consisting of all the stocks listed on the IDX that meet Shariah criteria. The ISSI aims to represent a wide range of Shariah-compliant companies across various sectors, including finance, energy, and consumer goods.
Launched in 2011, the ISSI includes a larger number of stocks compared to the JII, providing investors with more diversification options while still adhering to Islamic investment principles. The ISSI is managed by the IDX, and it serves as an important tool for tracking the performance of Shariah-compliant investments.
Key Features of ISSI:
- Includes all Shariah-compliant stocks on the IDX
- Broader than the JII, offering more diversification
- A great choice for investors looking to invest in a variety of sectors
Because it tracks all eligible Shariah-compliant stocks, the ISSI can be particularly appealing for investors looking for a diversified portfolio while maintaining a commitment to Islamic finance principles.
3. LQ45 Shariah Index
The LQ45 Shariah Index is a sub-index of the LQ45 index, which tracks the 45 most liquid and high-performing stocks on the IDX. The LQ45 Shariah version filters these stocks to include only those that are Shariah-compliant. This means that only the most established and financially stable companies that adhere to Islamic laws are included in the index.
For investors looking for top-tier companies that also meet ethical investing criteria, the LQ45 Shariah is a solid option. It is especially useful for those who want exposure to high-performance companies while adhering to Shariah principles.
Key Features of LQ45 Shariah:
- Tracks the most liquid and stable Shariah-compliant companies
- Includes only the top 45 companies that meet both performance and Shariah standards
- Ideal for investors seeking high-quality, large-cap stocks
This index provides an attractive option for investors interested in both performance and ethical considerations.
4. IDX Shariah 20 (XISI)
The IDX Shariah 20 (XISI) is an index composed of the 20 largest and most liquid Shariah-compliant stocks on the IDX. It is a highly selective index, aiming to represent the best-performing companies that meet Shariah investment criteria. Investors can find strong growth potential in this index while ensuring their investments are aligned with Islamic principles.
This index is suitable for investors who prefer to focus on a smaller group of top-performing stocks rather than a broader selection of Shariah-compliant companies.
Key Features of XISI:
- Includes the top 20 Shariah-compliant stocks on the IDX
- Focuses on large-cap, high-performance companies
- Provides exposure to leading Indonesian firms that adhere to Islamic law
The XISI is ideal for those who seek concentrated exposure to high-quality Shariah-compliant stocks with strong growth potential.
5. Shariah Securities Index (ISSI) Managed Fund
The Shariah Securities Index Fund (ISSI) is a managed investment fund that tracks the performance of the ISSI index. Rather than directly purchasing individual stocks, investors in the ISSI Managed Fund invest in a basket of Shariah-compliant securities that mirror the ISSI index’s composition. This fund is actively managed to ensure that it remains aligned with Shariah principles and provides investors with diversified exposure to the Indonesian stock market.
Key Features of ISSI Managed Fund:
- Invests in a diversified portfolio of Shariah-compliant stocks
- Managed by professional portfolio managers
- Provides an easy way for investors to access a diversified mix of Shariah-compliant stocks without managing individual securities
The ISSI Managed Fund offers a convenient and diversified investment vehicle for those who prefer a hands-off approach to Shariah-compliant investing.
Making Ethical Investment Choices in Indonesia
For Muslim investors in Indonesia, Shariah-compliant stock indices provide a pathway to ethically invest in the country’s growing stock market. Whether you are looking for broad market exposure, top-performing companies, or a managed fund, these indices offer diverse opportunities to align your financial goals with your values.
By understanding and utilizing these indices—such as the Jakarta Islamic Index (JII), Indonesia Shariah Stock Index (ISSI), and others—you can ensure that your investments are both profitable and aligned with your faith.
Shariah stock indices not only help you build a diversified portfolio of ethically sound investments but also allow you to contribute to a more responsible financial ecosystem in Indonesia.
