Understanding Sharia-Compliant Mutual Funds In India

By Irshad Mushtaq

A Sharia-compliant mutual fund adheres to the principles of Islamic finance, allowing Muslim investors to engage without compromising their religious beliefs. These funds invest in companies that comply with Sharia law, avoiding sectors such as alcohol, gambling, pork, and interest-based financial services. In India, there are currently two mutual funds and one exchange-traded fund (ETF), known as Nippon Shariah Bees, that are considered halal investments. These investments, also referred to as Shariah-compliant, ethical, or halal mutual funds, draw their benefits from the avoidance of social harm and exploitative practices, such as lending money at high interest rates. Interest, known as Riba, is considered haram in Islam because it is seen as exploitative and unethical, often benefiting the lender at the borrower’s expense, regardless of the borrower’s outcome. Islamic finance, therefore, seeks to eliminate Riba in favor of more equitable financial practices. Historically, a monthly investment in a Sharia-compliant mutual fund has proven beneficial. For example, since 1996, a monthly savings plan of ₹1,0000 in Tata Ethical Mutual Fund would have grown to ₹5.66 crores over 28 years, with an annual return (CAGR) of 17.25%. This means an investment of ₹32.6 lakhs would grow to ₹5.66 crores. Since its inception in 2009, Tata Ethical Fund has seen a CAGR of 17.94%. The portfolio of Tata Ethical Fund includes sectors such as IT, petroleum, pharmaceuticals, construction, gas, agriculture, chemicals, and oil. Importantly, there is no exit load after one year, allowing investors flexibility in management. Regarding ETFs, Nippon Shariah Bees has shown impressive performance. Since its start at ₹75 in 2009, it has grown to ₹544, marking a 620% growth. In the past five years alone, investments have appreciated by 114%. In essence, Sharia-compliant mutual funds offer a viable investment route for those seeking to reconcile financial goals with religious convictions, providing historical returns that underscore their potential viability in diversified portfolios.

Learn from the insights of @Irshad Mushtaq, Writer, Investor, Entrepreneur & Founder of M I Securities! Connect for valuable financial advice at [email protected]

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