Shariah Compliant Mutual Funds

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There are only 2 Shariah compliant mutual fund schemes in India, Tata Ethical Fund and Taurus Ethical Fund

 

What makes them Shariah based

Most primary thing that makes them Shariah based is they follow a Shariah stock index S&P Shariah or CNX Shariah). What this index is and what stocks it contains will be a separate discussion. Some of its characteristic:

  1. Investing in islamically legal business companies.
  2. Debt is not high.
  3. Interest income is very low.
Other characteristic:
  1. Long term investment.
  2. No short-selling or day trading which is same as betting.
  3. No liquid investment in interest bearing components.
  4. No lending of MF assets.
  5. No investment in other mutual funds.
  6. No investment in any derivatives.

Fund Details

These are equity funds but no tax saving. There is no entry load; no exit load if withdrawn after a year; trail commission 1.5 to 2.5%.
Performance is good enough for long term.

Tata Ethical Fund:

This fund invests in stocks based on the CNX Shariah 500 Index. As a result, it suffers from the same problem as that of Tauras Ethical Fund. However, it does one thing important: Purification.
Once the Mutual Fund has earned profit, it calculates any non-legal income from Interest and donates to charity and you only get the actual profit.
Because of this am tempted to say that this could be the only halal MF. Only thing am not sure how they deal with stocks of companies that have taken loans.

Tauras Ethical Fund:

It invest based on stocks as present in S&P BSE 500 Shariah index. If you consider the S&P Shariah index to be 100% halal, then this fund will be fine. However, the index definitely contains stocks of companies that have upto 30% debt or 5% interest income and the fund does nothing about it. All this is clearly mentioned in the Scheme Information Document. And this is the problem with the fund.

Fund Performance:

It is important to also see if your investment is giving your profit or loss. Else you would be better off not investing at all.
Performance of all 3 Funds is below average compared to other Equity Funds.
They are not making loss but the profit is very small about 10-13% over 3 years. This obviously is far less than inflation. But this is the state of most halal investments; the returns are very less.
Perhaps this is the test of Allah, most haram investments will give excellent returns.

Concluding Notes

  • If you are determined to invest in MF then Tata Ethical Fund can be considered.

 

  • Goldman Sachs CNX Nifty Shariah Index Exchange Traded Fund itself truthfully declares that although they follow a Shariah based stock index they are not completely shariah compliant. This can be found in its Scheme Information Document.

 

For more Details visit their official website

Tata Ethical Mutual Fund: http://www.tatamutualfund.com/our-funds/equity/sectoral/tata-ethical-fund

Tauras Ethical Fund:  https://www.taurusmutualfund.com/OurSchemes/taurus_ethical_fund.html

This entry was posted in Islam, Market.

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