This is a question regarding company 401k plans. So, when I invest in a 401k plan, I can control the investments to the point that I can allocate the money between stock index funds and treasury bonds. So I can prevent investments in treasury bonds which are based on riba. However, the stock index funds are made up of over 2000 companies, most of which I cannot see. I can only see the industry allocation of the top 8 industries contained within the index fund. Is it permissible for me to invest in such index funds? It is impossible for me to see what percentage of dividends, if any, come from stocks of companies which are involved in impermissible areas. Also, is it permissible for me to invest in my own company's stocks? The company is a manufacturing company but also has a financial services arm. As a result, part of its profits inevitably come from loans.
As a general rule, you should make every effort to invest only in those companies that do not engage in any sort of forbidden activities. A good way of ensuring that is by choosing an Islamic investment firm such as Amana or another one. If this is not possible then you may only invest in those indexes that are beyond the possibility of any involvement of forbidden activities such as energy sector or telecommunications sector etc...
And Allah knows best.
Mufti Ikram ul Haq
Fatwa Center of America