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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.



