Investments
What are shares, funds and ETFs?
The basics behind shares, funds and ETFs, explained with ownership, diversification and what to look for.
The short answer
A share is an ownership interest in one company. A fund pools many investors' money into a portfolio. An ETF is a fund that trades on an exchange. If your first goal is diversification rather than backing one company, compare a broad Shariah-screened ETF with single shares: one ETF can hold many companies, while one share leaves you exposed to one business.
One company versus a portfolio
Buying a single share means you are exposed to one company's business and risks. A fund spreads your money across many holdings according to its stated policy.
An ETF is a fund that usually tracks an index and trades during market hours. Read its holdings, objectives, charges and how it replicates the index.
Shariah-compliance considerations
For shares, check the business activity and the financial screen under your chosen method. For funds and ETFs, inspect the holdings, index, cash policy, use of derivatives and review process.
The wrapper does not decide Shariah status. A Stocks and Shares ISA can contain screened shares, a Shariah fund, or a conventional fund that may not meet your requirements.
What this means in practice
- 1Decide whether you want one-company exposure or a diversified portfolio; for a first diversified holding, compare a broad Shariah-screened ETF with single shares.
- 2Read the factsheet, prospectus and fee schedule for any fund or ETF.
- 3Check the ETF's index, holdings, screening method, cash policy and rebalance date before investing.
- 4Use a clear Shariah method to assess the holding or fund structure.