Shariah-compliant mutual funds are probably not the best performers in a bullish market of current times, where the rally is primarily driven by banking stocks. But in a slightly bearish market these funds give decent returns.
In India, this type of funds is yet to become popular among the masses. As a result, currently, the number of this kind of mutual funds is just a handful.
But we may see more fund houses coming up with such funds in the time to come. Currently, Taurus Mutual Fund has Taurus Ethical Fund, Benchmark Mutual Fund has Shariah Benchmark Exchange Traded Scheme and Tata Mutual Fund has the Tata Select Equity Fund. If you are planning to invest in these funds, then below are a few points that may help you to understand them.
What are Shariah-compliant funds?
Shariah-compliant funds are investment vehicles governed by Islamic laws and fully compliant with the principles of Islam.
What is meant by compliance to the principles of Islam?
Shariah-compliant funds are prohibited from making investments in industries categorised as morally deficient, such as those related to gambling or alcohol. This is because Islam does not allow any form of exploitation. Any kind of investment in conventional banking is outlawed. With the concept of debt also contrary to the principles of Islam, investment in highly-leveraged companies is also not permitted for Shariah-compliant funds. These funds do not invest in sectors such as liquor, tobacco, consumer goods, finance and banking and in interest bearing securities.
What are their current assets under management?
The three funds mentioned above currently manage assets worth Rs170 crore.
Are the investors in these funds only from the Islamic community?
According to a couple of fund managers, majority of the investors in these funds are from non-Islamic community.
In which markets do these funds perform well?
According to fund managers these funds perform well in a bearish market and not in bullish market of recent times. That is because the current rally in the market is led by stocks in the banking sector and Shariah-compliant funds do not invest in banking stocks.