Shariah-Compliant Mutual Funds
Shariah Compliant mutual fund works in a similar manner as a conventional fund except that the Islamic mutual fund only deploys funds in Shariah-Compliant investments. Shariah-compliant investments are those which follow the principles of Islam, i.e. they are free of Riba (interest) and Gharar (speculation).
Shariah compliant mutual funds are one such socially responsible investment that is based on the Shariah or Shariat law of the Muslim religion. These mutual funds follow the Shariah law, which is considered a moral code in Islam.
The universe of Shariah compliant diversified equity mutual funds in India is very limited. There are only 2 Shariah compliant mutual fund schemes in India, Tata Ethical Fund and Taurus Ethical Fund.
- Tata Ethical Fund- Currently, this fund has around 49.11% of its investment in large-cap companies and 27.48% in mid and, 14.01% small-cap companiesand other6.23%, Net Receivables3.17%. It has given a return of 12.60%over the previous 5-year period as of 1st November, 2022.
- Taurus Ethical Fund– Currently, this fund has around 37.42%of its investment in large-cap companies and 30.14%in mid and, 19.29% small-cap companies and other 10.85%, Net Receivables2.30%It has given a return of 13.22%over the previous 5-year period as of 1st November, 2022.
Indian financial markets introduced the concept of Shariah based mutual funds in 2010. The S&P launched two Shariah indices in India in 2010.
S&P CNX 500 Shariah : S&P CNX Shariah is a joint venture between Standard & Poor’s and India Index Services & Products. The S&P BSE 500 Shariah is the complete benchmark for the Indian market.
S&P CNX Nifty Shariah : The S&P CNX Nifty Shariah constituted the largest and most liquid companies listed on the NSE.
FAQ’s
2) Who can invest in Shariah – Compliant Mutual Funds?
Ans. Even though the investments done by a Shariah-compliant mutual fund are as per the Shariah law, any individual, NRI, company or HUF is permitted to invest in these funds.
3) What is the minimum investment in a Shariah-compliant Mutual Fund?
Ans. In the case of a lump sum investment, the minimum investment is Rs. 500. However, in the case of SIPs one may start with an investment of only Rs. 100, payable periodically.
4) Do Shariah mutual funds give any tax benefits ?
Ans. No, Shariah mutual funds do not give any tax benefits. These mutual funds are not considered as a tax-saving instrument as per the Income Tax Act,1961.
5) Are Shariah – Compliant mutual funds safer than stocks ?
Ans. Mutual funds may be safer than stocks for new investors who are unfamiliar with market behaviors and patterns. Individual stock investment also limits the exposure to a single company/sector as compared to a mutual fund, which allows a wider exposure across different stocks.