What Makes Shariah Compliant Mutual Funds Unique?

Shariah Compliant Mutual Funds

offer a unique form of socially responsible investing by adhering to Islamic Shariah law. These funds provide a distinct investment choice for those who prioritize ethical and religious considerations in their financial decisions.

Key Features of Shariah Compliant Funds:

• Investments exclude sectors heavily involved in alcohol, tobacco, pork, weapons, gambling, and adult entertainment.
• The concept of Riba (interest) is entirely avoided, and any non-compliant income is usually donated to charity.
• These funds steer clear of high-risk companies, particularly those involved with derivatives and significant debt.
• There is an exclusion of fixed income securities.
• While based on Islamic principles, these funds are open to investors from all backgrounds.

Compliance Considerations:

• Total Debt to Asset Ratio: Investments are confined to companies where the debt does not exceed 25% of assets.
• Interest-Free Companies: Investments are allowed in firms where interest income is below 3%.
• Business Prohibitions: Sectors such as financial services, liquor, pork, tobacco, gambling, and adult entertainment are restricted.

In 2010, S&P launched India's pioneering Shariah indices: the S&P CNX 500 Shariah and the S&P CNX Nifty Shariah.

Prominent Shariah Compliant Mutual Funds in India:

• Tata Ethical Fund: Focuses on diversified equity investments excluding banking, suitable for long-term capital appreciation.
• Taurus Ethical Fund: Offers Shariah-compliant equity investment opportunities for those seeking long-term growth adhering to Islamic ethics.
• Nippon India ETF Shariah BeEs: Replicates the performance of the Nifty50 Shariah Index, emphasizing securities aligned with this index.

Investment Considerations:

Potential investors should thoroughly evaluate the potential advantages and specific sector restrictions of Shariah Compliant Mutual Funds to align with their socially responsible investment goals.