Which are Shariah Compliant Mutual Funds in India (2023)?

Do you know which are the Shariah Compliant Mutual Funds in India?

Shariah-compliant mutual funds are mutual funds in India that adhere to a socially responsible form of investing and abide by the Shariah law of Islam. Shariah Mutual Funds are based on the idea of faith-based investments.

If you don’t know about Shariah, then please understand that Shariah is the moral code of conduct for Muslims and followers of Islam (read this Wikipedia entry here). Within its rules, this Islamic law or Shariah law also has certain restrictions and hence, as per the rules, the investors of the Muslim community cannot invest in all types of investment options. There is a restriction about investing in Shariah prohibited companies (that are into the production of alcohol, weapons, tobacco, gambling, etc.). Also, the law doesn’t allow income generation from interest (Or Riba).

The Shariah-compliant funds are expected to invest in companies that are socially responsible, among other things. Many of the factors considered are related to the ESG factors that are common to ESG mutual funds in India too.

A Shariah-compliant mutual fund is a scheme that meets all the requirements of the Shariah law and the principles articulated for Islamic Finance. Shariah-compliant mutual funds are created specifically for the Muslim investor and in line with the Shariah law to make them Halal mutual funds. Since other mutual fund schemes are not as per the Shariah law, hence many of the other equity funds are termed as haram.

Now you may ask…

Which Shariah Compliant Mutual Funds are available in India?

There are very few choices available in this space.

As of now, only 3 Shariah-compliant mutual funds and ETFs are available in India. And here is the Shariah-compliant fund list:

• Tata Ethical Fund
• Taurus Ethical Fund
• Nippon India ETF Shariah Bees

So this is the list of the Best and the only available Halal Mutual Fund options in India. And if you were to ask me that which mutual fund is Shariah-compliant in India? Then now you have your answer that the 3 above-listed funds are Shariah-compliant or Best Halal Mutual Funds in India.

Please note that even though these are Shariah-compliant mutual funds, investors from any religion and faith can invest in these schemes. It is not restricted to Muslims alone. So anyone can invest in these schemes if they wish to.

These funds are benchmarked against Shariah indexes in India. The Sharia index can be used as a basis for investing in Sharia-compliant companies via the mutual fund route or even directly. As of now, there are 3 Shariah indexes in India, namely:

• Nifty 50 Shariah Index (read more here)
• Nifty 500 Shariah Index (read more here)
• S&P BSE 500 Shariah Index (read more here)

These indexes only include companies that operate within the bounds of Shariah law and can be termed as Halal companies of India.

Let’s discuss the 3 Shariah mutual funds in India in a bit more detail:

Tata Ethical Fund – It invests around 55-60% in large-cap stocks, 35-40% in mid-cap stocks, and 0-5% in small-cap stocks. So even though this fund is housed under the thematic fund (or sectoral fund) category, it’s more like a large-cap fund or a Flexi-cap fund with a bias for large caps, for all practical purposes. This fund is benchmarked against the Nifty 500 Shariah index and has an AUM of Rs 818 crore (as of April 2021).

Taurus Ethical Fund – It invests around 40-45% in large-cap stocks, 40-45% in mid-cap stocks, and 10-15% in small-cap stocks. So even though this fund is housed under the thematic fund (or sectoral fund) category, it’s more like a large-&-mid-cap fund for all practical purposes. This fund is benchmarked against the BSE 500 Shariah index and has an AUM of only Rs 56 crore (as of April 2021).

Nippon India ETF Shariah Bees – It invests almost 95-100% in large-cap stocks that are part of the Nifty 50 Sharia Index. So this is a kind of pure large-cap fund or ETF. But it has an AUM of only Rs 8 crore (as of April 2021). You will need a Demat account to invest in Nippon India ETF Sharia Bees as it is an ETF.

Further reading – Different categories of mutual funds in India and how to differentiate between Large cap Vs Mid cap Vs Small Cap stocks in India?

As you can see the total AUM under these schemes is less than Rs 1000 crore and hence, it’s a pretty small space in AUM terms where the total Indian mutual fund AUM is close to Rs 33 lac crore!

Taxation of Shariah-compliant mutual funds (2023)

Shariah-compliant Halal mutual funds don’t provide any additional tax benefits to investors as they are not considered as tax-saving ELSS funds. As far as capital gains are concerned, these Shariah mutual funds follow similar rules to regular mutual fund taxation rules in India. That is:

• Short-term capital gains or STCG (less than 1 year) are taxed at 15%.
• Long-term capital gains or LTCG (more than 1 year) are taxed at 10% on capital gains above Rs 1 lakh in a year. Read more about LTCG of 10% on equity profits in India.

That is how are Shariah-compliant Mutual Funds taxed in India (2023).

So that is about what is the best halal investment in India. As of now, there are only 3 Shariah-compliant Halal mutual funds and ETF in India Tata Ethical Fund, Taurus Ethical Fund and Nippon India ETF Shariah Bees – That is the full list of Islamic Equity Funds in India or you can say that, the list of Islamic Mutual Funds in India that provide investors the option of doing Shariah-compliant investments through mutual funds.

So if you want to invest in Shariah Compliant Mutual Funds in India, I hope you found this article on Which mutual fund is best for Muslims among the available Shariah-compliant mutual funds in India, useful. Also, I hope you are now aware of all you need to know about Shariah-Compliant Mutual Funds in India (2023).