Ethical or socially responsible investing is a well developed concept in most of the developed countries. Funds following this concept avoid investing in companies engaged in tobacco, liquor, ecologically sensitive sectors like mining to even companies who have allegations of corruption against them.
The market for ethical investment products are expanding at a much encouraging pace and with the right guidance will embark on an exponential growth in the coming years. One of the avenue for ethical investment is investment in shares of companies. Here the need arises for large pool of companies who adhere to the principles of halal business and respect the sentiments of ethical investors. The increasing awareness among the Islamic community and rising disposable income will definitely drive towards a robust market for ethical financial products. However transparency and the need uniform halal standard is the need of the hour.
In the Indian context ethical investing has mainly been dedicated to ethical investing as per Shariah principles. Some of the shariah mutual funds in India have received handsome fan following from other religious communities which adhere to similar ethical values.
Sharia Compliant Mutual Funds in India
In India we have only three funds which are sharia compliant. The first among them to be open was Tata Ethical Fund ,launched way back in 1996 with a current fund size of ₹ 438 CR. The other two are Taurus Ethical Fund and R*Shares Shariah BeES.
| Scheme Name | Launch Year | Fund Size(AUM) | Management | Expense ratio | Entry Load | Exit load | Minimum Investment | Benchmark |
| Tata Ethical Fund | 1996 | ₹ 438 CR | Active | 1.74% (Direct) 2.73%(Regular) |
Nil | 1%< 365 days | ₹5000 & in multiples of ₹1/- thereafter | Nifty 500 Shariah TRI |
| Taurus Ethical Fund | 2009 | 24.9 CR | Active | 2.9% | Nil | 0.5%< 180 days | 5000 & in multiples of ₹1/- thereafter | BSE S&P 500 Shariah |
| R*Shares Shariah BeES | 2009 | 3 CR | Passive* | 1% | Nil | 10,000 & minimum 1000 thereafter | Nifty50 Shariah Index |
* R*Shares Shariah BeEs is basically an exchange traded fund, essentially tracks the Nifty50 Shariah Index.
Performance of Shariah Compliant Mutual Funds in India
| Fund | 1 Year Return | 3 Year Return | 5 Year Return |
| Reliance ETF Shariah BeES | 9.74 | 9.48 | 14.87 |
| Tata Ethical Fund – G-Regular Plan | 10.52 | 7.20 | 12.35 |
| Taurus Ethical Fund- G- Regular Plan | 14.11 | 7.21 | 17.95 |
Key aspects to keep in mind- when you are investing in Sharia Mutual Funds
The key point to be kept in mind is, if you are highly profit oriented then, these funds may not be the best available choice. Sharia compliant mutual funds are required to perform within the framework and constraints set by Islamic values. Many a profitable investing opportunities and sectors maybe taboo for sharia compliant funds.
For example if you consider year 2016 the big drivers of the market were from banking and metal sector (high debt driven). Many of the companies in these sector, if not all may not qualify as sharia compliant. These scenarios might drastically impact the performance of sharia compliant funds compared to their general peers.
Tata Ethical Fund
The first Sharia compliant fund to launch in India has the largest asset under management. An actively managed diversified equity fund. Purification of any non halal earnings (purging) is performed on yearly basis by this fund, which is commendable. The fund has 10-year return of 12.35% and against benchmark’s 10-year return of 10.44%. The 5-year returns of 16.69% trails behind its benchmark’s 5-year return of 17.96%.
Performance comparison with bench mark index
| YTD | 1 month | 3 month | 1 year | 3 year | 5 year | 10 year | |
| Tata Ethical Fund | -5.54 | -0.90 | 1.29 | 10.52 | 7.20 | 16.69 | 12.35> |
| Nifty Shariah 500 | -7.33 | -0.36 | 1.13 | 10.10 | 11.37 | 17.96 | 10.44 |
Taurus Ethical Fund
Taurus Ethical Fund investment from the stock universe available from S&P BSE 500 Shariah Index. The fund’s top 3 holdings are in Infosys Ltd, TCS Ltd and NIIT Technologies Ltd.
Performance comparison with bench mark index
| Since inception | 1 month | 3 month | 1 year | 3 year | 5 year | 10 year | |
| Taurus Ethical Fund | 18.98 | 0.83 | 3.80 | 14.11 | 7.21 | 17.95 | – |
| BSE S&P 500 Shariah | 16.92 | 1.19 | 4.47 | 15.29 | 9.85 | 18.51 | – |
Reliance ETF Shariah BeES
The Reliance ETF Shariah BeES is basically an exchange traded fund , essentially tracks the Nifty-50 Shariah index. The scheme qualifies under Rajiv Gandhi Equity Savings Scheme (RGESS)
Performance comparison with bench mark index
| Since inception | 1 month | 3 month | 1 year | 3 year | 5 year | 10 year | |
| Reliance ETF Shariah BeES | 15.50 | 0.15 | 2.40 | 9.74 | 9.48 | 14.87 | – |
| Nifty-50 Shariah index | 8.07 | 0.22 | 2.88 | 9.41 | 9.31 | 14.63 | – |
Most people are not aware of investment opportunity available in Sharia compliant investment in mutual funds. But there are some grey areas regarding the investment patterns which need a further detailed study. In upcoming articles will look deeper into the invest pattern oh sharia compliant mutual funds, but for the moment request your individual efforts to have detailed understanding before going ahead with your investment.
