The Indian mutual fund industry has yet again proved its diversity and spirit of inclusion by promoting Shariah-compliant mutual funds. Now there are two equity-oriented funds and one gold fund or exchange-traded fund (ETF) that comply with Shariah laws of banking and finance.
India’s Muslim population is close to 17.2 crores and the industry has to cater to the investment requirements of the country’s second largest faith-believers.
Equity-oriented scheme
Tata Ethical Fund and Taurus Ethical Fund are the two equity-oriented schemes. The former is the oldest and certified by Muslim scholars, while the latter is confirmed by SEBI as Shariah-compliant. The last 5-year return of both are 11.77% and 12.39% respectively. This is a good track record for a fund in accordance with Shariah.
Muslim investors also have the option to invest directly in stocks (direct equity). However, the company itself needs to be Shariah-compliant that don’t do margin trading.
Gold fund or ETF
As a general rule, every gold mutual fund scheme tends to adhere to Sharia laws the money usually is invested in either cash or gold. However, some companies may lend physical gold to a bank to earn additional interest. This can make such gold funds non-compliant.
Returns on Gold ETFs and Gold Funds (like Gold Sovereign Bonds) are comparatively quite low. But it is important for conservative Muslim investors as they do not have a lot of investment choices (unless you count big-ticket investments like real estate).
Current Scenario
The collective Assets Under Management (AUM) under the above equity schemes is below Rs 1000 crore and the number of Muslim investors is around 20,000. For Fund Managers, these are not meaty options owing to fewer members in the current schemes. There is a call for more options as well as investment awareness in this segment.
