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.

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