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Some of you might know how a mutual fund company make investment decisions. Every fund has a special objective behind its investment. Some funds focus on growth companies, while some focus on value companies. Also, some mutual funds focus on environmentally and socially compliant companies. And there is also a mutual fund that priorities the company's balance sheet, not the business product.  Like Tobacco, liquor companies.  In today's era of vasudhaiva kutumbakam, investors follow moral, religious, and social rules to make investment decisions.  In the Islamic region, Shariah Law has set some criteria for Muslims to follow in life. They have certain criteria for making investment decisions. In today's blog, we will the detailed information on Shariah Compliant mutual Fund. 

What Is a Shariah Compliant Mutual  Fund? 

A Shariah-compliant mutual Fund is a special type of investment vehicle that complies with the rules of Islamic law. According to this law, investing in certain industries is considered prohibited, and ethics are given the highest place in financial transactions. The objective of these funds is to invest in companies that are financially sound and adhere to Shariah rules.

What are the rules of Shariah law in investing?

• Concerning investment, shariah is not only a religious law, it provides clear guidance on financial transactions, investments, earnings and expenses. According to Sharia law, riba i.e. taking or giving interest, is completely prohibited. Therefore, investing in banking, finance, NBFCS, and other interest-based institutions is out of the question.

2.  Also, investment in gambling, alcohol, tobacco products, pornography, cinema, arms industry, and entertainment is prohibited. Along with this, companies that engage in socially controversial or immoral transactions through products/services are also considered.

3. Some financial criteria are used while selecting companies according to Sharia – such as, the company's total debt should not exceed 25% of its total assets, the company's interest-based income should not exceed 5% of total income, and other such analyzes that measure the company's financial soundness.

What are the major Sharia-compliant mutual funds in India?

There are currently a few Sharia-compliant mutual funds operating in India. The major ones are:

Tata Ethical Fund: This is an actively managed equity fund that invests in Indian companies. This fund has given good returns in long-term investments.

Taurus Ethical Fund: This is also an equity fund that invests in Sharia-compliant companies. This fund is monitored by the Sharia Board, and the companies are carefully selected.

Nippon India ETF Shariah BeES: This is an Exchange Traded Fund (ETF) that tracks the Nifty50 Shariah Index. By investing in this fund, investors indirectly take part in Nifty Shariah-compliant companies.

All these funds are SEBI-approved, and their regulations are similar to those of conventional mutual funds. They offer all the facilities like NAV, SIP, and Redemption.

What is the difference from other mutual funds?

The main difference between Shariah-compliant funds and Conventional mutual funds is in their investment philosophy. Conventional funds only look at returns and market opportunities, while Shariah-compliant funds invest in selected industries. Therefore, the work of the fund manager in this is more responsible and requires careful planning.

This fund has a Shariah Advisory Board, which implements religious rules. If a company's income is against Shariah, then that profit is donated to social welfare through the fund. This method is called “Purification of Income”.

Who should invest in a Shariah mutual fund?

Although Sharia-compliant mutual funds are designed primarily for Muslim investors.  But there is no rule to prohibit the other religions.  This fund can also be used by investors of other religions. These funds are a good option for people who do not want to invest in unethical businesses, who want to invest in environmentally and socially responsible companies.

Therefore, investors with an ethical investing, ESG (Environmental, Social, Governance) focus, as well as investors with a long-term perspective can pay attention to these funds.

How to invest Shariah mutual Fund? 

1. Download the Finshak from the following link. 

https://play.google.com/store/apps/details?id=com.finshakapp.app&pli=1

2. Sign up with your mobile number 

3. Complete your KYC. 

4.  Go to the fund section. 

5. Select your mutual fund and start your investing journey.

Conclusion:

Shariah-compliant mutual fund is best for socially sensitive investors. Of course, It has a religious flavour, but over time it has given good returns.  Also, it is known as one of the safest mutual funds.  But for this fund, investment opportunities are very less as compared to other funds. It ultimately limited your losses and profit.