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Saturday, 18 April 2009

Shariah-compliant funds gain momentum in India

Mumbai: No investing in a company whose debt is at least one-fourth its assets. No investing in a company that makes or sells alcohol, pork or tobacco. No investing in a company that charges interest on the financial services it offers. No investing in a company whose interest income exceeds 3% of its total revenues.

These are a few of the tenets that a Shariah-compliant mutual fund follows. The Shariah is a code of Islamic law that regulates the conduct of human beings in their individual and collective lives, and Shariah-compliant mutual funds are fast gaining acceptance in India.

Rising demand for such funds has fund houses and even insurance companies lining up for a piece of the action. Case in point: Taurus Asset Management Co. Ltd, Benchmark Mutual Fund and Tata AIG Life Insurance Co. Ltd. Taurus Ethical Fund, which complies with the Shariah, collected at least Rs5 crore during its new fund offer period.

These funds are open to anyone who stands by the philosophy behind the Shariah, and follow the tenets of Islamic economic law. They don’t invest in companies involved in gambling and nightclub activities either.

More are joining the fray. Reliance Money Ltd has launched a Shariah-compliant portfolio management service. Standard and Poor’s has also launched two major indices in the Indian market—S&P CNX 500 Shariah and S&P CNX Nifty Shariah.

Experts say investors who are keen on investing based on their personal beliefs or want to make socially responsible investments are opting for these funds, especially because returns on investment don’t seem to be compromised despite the restrictions the Shariah imposes.

Mohit Mirchandani, equities head of Taurus, says: “We looked at how the Shariah index in India has done from February 2006 to December 2008. The broader indices lost about 35%, and the Shariah indices also lost about 35%. So these indices are moving together.”

The global size of this market is estimated at $1 trillion (around Rs50 trillion), and this segment is expected to grow at 10-15% annually. Experts are specially optimistic about the scope of this segment in the country, and expect more fund houses to develop their own Shariah-compliant funds over the short and medium terms.


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