Shariah Compliant Funds

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Shariah-compliant funds 




ABOUT 

Shariah-compliant funds are investment funds governed by the requirements of Shariah law and the principles of the Islamic religion. Shariah-compliant funds are considered to be a type of socially responsible investing. 

WHY TO INVEST? 

Shariah-compliant funds are one of many categories found in socially responsible investing. Similar to other socially responsible funds within the environmental, social and governance (ESG) universe, the funds screen potential portfolio investments for specific requirements desired by followers of the Islamic religion.

WHO TO INVEST? 

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.

PROS 

  • Transparency: Investors in Islamic equity funds expect a high level of transparency. After all, if one of a fund’s key objectives is to comply with sharia, the fund managers must be quite open about which industries and companies they invest in.

  • Liquidity: For the Islamic investor, a benefit of investing in a fund versus putting money into a fixed-term investment is liquidity. When situations change and the investor wants or needs to cash out, doing so is much easier when the investment is in a fund. Keep in mind, however, that overall, Islamic investments, including Islamic funds, tend to be less liquid than their conventional counterparts.

CONS 

  • The main drawback to investing in Islamic equities is the limited options. Whereas investors in conventional equities have so many choices that they can tailor a portfolio to meet any investment objective, investors in Islamic funds have significantly fewer funds to choose from.
  • Comparatively low returns to that of compared to equity funds. 

HOW TO INVEST? 

Some of the Shariah-compliant mutual funds available in India are as follows:

  • Tata Ethical Fund- Currently, this fund has around 57% of its investment in large-cap companies and 42% in mid and small-cap companies. It has given a return of 11.61% over the previous 5-year period as of 27 January 2021.

  • Taurus Ethical Fund- Currently, this fund has half of its assets invested in large-cap companies and the rest of its assets in small-cap and mid-cap companies. It has given a return of 13.03% over the previous 5-year period as of 27 January 2021.
  • Nippon India ETF Shariah Bees- This scheme invests at least 90% of its assets in equity securities which are the constituents of the CNX Nifty Shariah index and have the same allocation of assets as the index. It has given a return of 15.76%  over the previous 5-year period as of 27 January 2021.

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