What are Shariah Compliant Mutual Funds?
Before diving into the details of Shariah-compliant mutual funds, also known as halal mutual funds, it’s essential to understand what Shariah is and the principles of Shariah Law.
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Shariah Law, also known as Islamic Law, is a religious law that forms part of Islamic tradition. It is derived from the Quran and the hadith, which are the religious precepts of Islam. In Arabic, Shariah refers to God’s divine law.
Investing According to Shariah Law
Shariah Law imposes certain restrictions on the types of businesses in which individuals can invest. Some of these restrictions include:
- Avoiding High Risk: Islamic law considers gambling a sin, so individuals following Islamic principles are restricted from investing in high-risk ventures, as it is viewed as equivalent to gambling.
- Ban on Interest Payments: Paying or receiving interest on loans is considered unlawful under Shariah Law, as it is deemed morally unjust. Instead, businesses often rely on partnerships, sharing profits (and losses) rather than borrowing or lending with interest.
- Restricted Businesses: Investments in businesses involved in activities such as gambling, alcohol, tobacco, and drugs are considered immoral and are therefore restricted.
Shariah Compliant Mutual Funds in India
Here are some Shariah-compliant mutual funds available in India:
- Tata Ethical Fund: This fund invests around 57% in large-cap companies and 42% in mid and small-cap companies. It has provided a return of 11.61% over the last 5 years as of January 27, 2021.
- Taurus Ethical Fund: This fund allocates half of its assets to large-cap companies and the remaining to small and mid-cap companies. It has given a return of 13.03% over the last 5 years as of January 27, 2021.
- Nippon India ETF Shariah Bees: This scheme invests at least 90% of its assets in equity securities that are constituents of the CNX Nifty Shariah index. It has provided a return of 15.76% over the last 5 years as of January 27, 2021.
These funds invest in equities across various categories while adhering to the restrictions of Shariah Law.
Performance of Shariah-Compliant Mutual Funds
| Fund Name | 1 Year Return (%) | 3 Years Returns (%) | 5 Years Returns (%) |
|---|---|---|---|
| Tata Ethical Fund | 64.13% | 17.12% | 14.55% |
| Taurus Ethical Fund | 54.25% | 16.61% | 13.28% |
| Nippon India ETF Shariah BeEs | 65.22% | 18.52% | 17.42% |
Features of Shariah-Compliant Mutual Funds
Shariah-compliant mutual funds adhere to Islamic principles, which include:
- Ethical Investing: Investments should not harm people or the environment. Businesses involved in selling harmful products like cigarettes, alcohol, or weapons are avoided.
- Interest-Free: Muslims are advised to avoid Riba (unjust money-making practices), so they cannot invest in companies that engage in such activities. Instead, any profits are often directed to charity.
- Debt Restrictions: These funds avoid companies with high debt levels to minimize risk.
Who Can Invest in Halal Shariah-Compliant Mutual Funds?
Although these investments follow Shariah Law, anyone—including individuals, NRIs, companies, or HUFs—can invest in these funds.
Taxation of Shariah-Compliant Mutual Funds
There are no special tax benefits for investing in Shariah-compliant or halal mutual funds. These funds are taxed as per the standard rules for equity-oriented funds:
- Short-Term Capital Gains (STCG): Gains on holdings of less than one year are taxed at 15%.
- Long-Term Capital Gains (LTCG): Gains on holdings of one year or more are taxed at 10%, with an exemption on gains up to Rs. 1,00,000 per financial year.
Minimum Investment in Shariah-Compliant Mutual Funds
- Lumpsum Investment: Minimum investment starts at Rs. 500.
- SIP (Systematic Investment Plan): You can start with as little as Rs. 100.
Benchmark Indices
Some benchmark indices for Shariah-compliant funds include:
- S&P BSE 500 Shariah Index
- Nifty 500 Shariah Index
- Nifty 50 Shariah Index
Frequently Asked Questions (FAQs)
Q. What is a Shariah-compliant mutual fund?
A. Shariah-compliant mutual funds allocate their assets in securities following Shariah Law.
Q. Who can invest in Shariah mutual funds?
A. Anyone interested in following Shariah principles can invest in these mutual funds.
Q. Are there any tax benefits for investing in Shariah mutual funds?
A. No, these funds do not offer special tax benefits and are taxed like any other equity-oriented mutual funds.
Q. What is the minimum amount required to invest?
A. The minimum investment varies but typically starts at Rs. 500 for lumpsum investments and Rs. 100 for SIPs.
If you want invest in Mutual fund via SIP or Lumpsum you can do here is the links : AssestPlus or Zfund or Wealthy