In a move that would enable Muslims in India to participate in the stock market, four asset management companies — Reliance Mutual Fund, UTI Asset Management, Way2Wealth and the newly-approved Edelweiss Mutual Fund — are planning to launch Shariah-compliant mutual funds in the coming months.
The move comes at a time when there is talk of Taurus Asset Management, which was tipped to come out with a Shariah fund earlier, is withdrawing its application from SEBI.
More than enabling Muslims to participate in the stock market, the reason for these asset management companies (AMCs) to launch a fund in the Shariah space is purely commercial. The funds are eyeing scores of rich and religious Muslims who do not invest in interest-yielding instruments or non-Shariah compliant stocks.
Shariah, the religious law of the followers of Islam, has strictures regarding finance and commercial activities permitted for believers. Arab investors only invest in a portfolio of ‘clean’ stocks. They do not invest in stocks of companies dealing in alcohol, conventional financial services (banking and insurance), entertainment (cinemas and hotels), tobacco, pork meat, defence and weapons. According to experts in Islamic investments, Muslims are only allowed to invest in companies where interest bearing income is less than 10% in any condition.
With regards to compliance, the current share of Indian Shariah-compliant market capitalisation (at 61%) is highest even when compared with the number of Islamic countries such as Malaysia (at 57%), Pakistan (51%) and Bahrain (6%). “We have been looking at the options in the Shariah space for some time now. The process to launch a Shariah fund is on. We are discussing about it with our partners,” said UTI Asset Management chief marketing officer Joydeep Bhattacharya.
The move will augur well for UTI, because it is already managing an offshore Shariah fund, including West Asian investors, partnering Al Madina Asset Management.
According to UTI sources, the fund house is likely to tie up with Mumbai-based Parsoli Corporation for launching the fund. The Shariah board in Parsoli Corporation will certify the scheme and the Parsoli Islamic Equity index would be the benchmark for the fund.
After Reliance Money launching its Shariah-compliant portfolio management service for Muslim HNIs, group firm Reliance Mutual Fund is close to filing its prospectus with the regulator to launch an Islamic fund. “The group is in advanced stage of talks with an Islamic institution to launch the fund. As a next step, Reliance is also planning to launch its entire spectrum of financial services the Shariah way,” said a company insider.
However, it will take some efforts of the part of these funds to get necessary approvals from the market regulator. According to sources in the fund industry, the regulator is not very happy to approve these funds as it feels, these schemes — intentionally or unintentionally — solicit only a class of investors to invest in them. Moreover, SEBI is still uneasy about the conduct of such funds, the screening process (of investible stocks) and the method to weed out ‘impurities’ as charity, sources said.
Devout Muslim investors weed out a portion of their gains in anticipation that these are due from investments in non-Shariah assets.