Opening a self-directed trading account to invest in a foreign mutual fund

Shalom,

A person is opening a self-directed trading account through an Israeli investment company and wants to invest in a foreign mutual fund that tracks the S&P 500 index. Is this permitted?

Shalom u’vracha,

There are serious halachic issues here, since this involves purchasing shares without any kashrut supervision, and according to many poskim this relates to numerous prohibitions that the owners of the company transgress (such as interest, desecration of Shabbat, and others).

An index-tracking mutual fund is a fund in which the company’s investment managers take investors’ money and invest it on their behalf according to the criteria that guide the fund, in order to achieve the result of “tracking the index.” It is not correct to view this as an interest-bearing loan to the fund managers (who abroad are, in all likelihood, mostly non-Jews), because they do not undertake any specific sum; rather, they undertake to invest (in return for a salary), and whatever amount of money results at the end is what the investors will have, without any obligation on the part of the fund managers. Therefore, all the usual halachic problems of purchasing problematic shares and bonds apply here. The fact that the fund is located abroad does not mean that the products in which it invests are found only abroad; just as it is possible in Israel to buy foreign shares, so too abroad it is possible to buy Israeli shares. The fact that the trading account is opened with an Israeli company has no halachic significance regarding the investment itself and does not require kashrut certification.