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Everything About Shariah Compliant Mutual Funds
Shariah Compliant Mutual Funds are carefully selected mutual funds designed to align with Islamic finance principles. These funds avoid interest-based instruments and businesses involved in prohibited activities, ensuring ethical compliance. By maintaining discipline in asset selection and following Shariah guidelines even during market volatility, these funds aim to deliver steady, long-term growth for faith-based and ethical investors alike.
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Best SIP Funds
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Invest
₹ 10,000
Invest for
High Growth Fund
AUM (Cr)
₹11,792
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 28.04 %
Instant tax receipt
Large Cap Equity Fund
AUM (Cr)
₹2,722
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 19.05 %
Instant tax receipt
Instant tax receipt
Opportunities Fund
AUM (Cr)
₹36,970
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 20.69 %
Instant tax receipt
Grow Money Plus Fund
AUM (Cr)
₹440
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 16.45 %
Instant tax receipt
Frontline Equity Fund
AUM (Cr)
₹4,690
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 19.06 %
Instant tax receipt
Accelerator Mid-Cap Fund II
AUM (Cr)
₹5,748
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 20.04 %
Instant tax receipt
Instant tax receipt
Diversified Equity Fund
AUM (Cr)
₹3,677
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 15.99 %
Instant tax receipt
Instant tax receipt
Large Cap Equity Fund
AUM (Cr)
₹2,722
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 19.05 %
Grow Money Plus Fund
AUM (Cr)
₹440
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 16.45 %
Frontline Equity Fund
AUM (Cr)
₹4,690
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 19.06 %
Diversified Equity Fund
AUM (Cr)
₹3,677
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 15.99 %
Growth Super Fund
AUM (Cr)
₹13,086
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 16.12 %
High Growth Fund
AUM (Cr)
₹11,792
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 28.04 %
Opportunities Fund
AUM (Cr)
₹36,970
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 20.69 %
Accelerator Mid-Cap Fund II
AUM (Cr)
₹5,748
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 20.04 %
Growth Opportunities Plus Fund
AUM (Cr)
₹1,037
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 18.13 %
Classic Opportunities Fund
AUM (Cr)
₹13,897
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 17.45 %
Opportunities Fund
AUM (Cr)
₹3,553
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 18.27 %
Equity Top 250 Fund
AUM (Cr)
₹541
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 15.81 %
Whole Life Income Fund
AUM (Cr)
₹826
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 5.86 %
Whole Life Aggressive Growth Fund
AUM (Cr)
₹917
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 18.67 %
Save N Grow Money Fund
AUM (Cr)
₹67
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 10.43 %
Asset Allocation Fund II
AUM (Cr)
₹281
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 11.43 %
Multi Cap Balanced Fund
AUM (Cr)
₹1,935
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 12.16 %
Super Select Equity Fund
AUM (Cr)
₹1,295
Estimated Value
₹
After 5 years
Returns (p.a.)
+ 18.4 %
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What are Shariah Compliant Mutual Funds?
Shariah Compliant Mutual Funds are investment funds that are structured and managed to adhere to the principles of Shariah (Islamic law). They are a form of socially responsible or ethical investing that aligns financial goals with Islamic values.
Core Principles and Prohibitions:
-
Prohibition of Interest (Riba):
- Shariah strictly forbids earning or paying interest (Riba).
- Therefore, these funds cannot invest in conventional interest-bearing instruments like corporate bonds or fixed deposits.
- They focus primarily on equity investments (stocks), real estate, commodities, and certain Islamic financial instruments like Sukuk (Islamic bonds, which represent ownership in an asset, not a debt obligation).
-
Exclusion of Forbidden (Haram) Activities:
- The funds are ethically screened to exclude companies involved in activities considered Haram (forbidden) under Islamic law.
- Prohibited sectors include:
- Alcohol and tobacco production/sales.
- Gambling and casinos.
- Pork-related products and non-halal food processing.
- Weapons manufacturing.
- Conventional financial services (banks, insurance companies) that rely heavily on interest.
- Pornography and adult entertainment.
-
Avoidance of Excessive Uncertainty and Speculation (Gharar and Maysir):
- Investments must be clear, transparent, and not involve excessive risk or speculation.
- Highly speculative transactions or complex financial derivatives like futures and options are typically avoided.
Features of Shariah Compliant Mutual Funds
Here are the main characteristics of the funds:
- Muslims are prohibited from investing in anything that could cause harm to others, be it emotional or physical. Additionally, they are forbidden from supporting ventures that pose harm to the environment or companies involved in the production of weapons.
- Shariah Compliant Mutual Funds prohibit investing in enterprises whose earnings are derived from selling tobacco, alcohol, weaponry, pork, explicit content, betting, and related military goods.
- Muslims are required to stay clear of Riba, or interest, as the Quran states that those who engage in it are waging a battle against God. Consequently, a Muslim investor is prohibited from investing in businesses involved in interest-based transactions. This is why Shariah-Compliant Mutual Funds strictly avoid any form of interest. Any interest earned from these investments is instead directed towards charitable purposes.
- The Shariah-compliant mutual fund refrains from investing in fixed-income instruments.
- These funds include a very low level of risk as companies and derivatives with high debts are not included.
- The Shariah Compliant Mutual Funds are not restricted to only Muslim investors. Investors of other religions are also allowed to invest in the fund.
Restrictions According to Shariah Law
There are certain rules investors must follow to invest in Shariah Compliant Mutual Funds. These are as follows:
-
Interest-Free Companies
Finding a company that has 100% interest-free income can be impossible. So, the Shariah Compliant Mutual Funds invest in companies whose interest income is 3% of the total income.
-
Total Debt to Asset Ratio
This fund cannot invest in companies whose total debt is one-fourth of its total assets or more.
-
Restricted Business
This fund cannot acquire shares of the company involved in financial services like insurance companies and banks. Also, the Shariah fund cannot invest in companies that manufacture tobacco, liquor, or pork or are involved in nightclub activities, gambling, pornography, etc.
Shariah Compliant Mutual Fund Returns
Let’s take a look at the yearly returns of different funds:
| Fund Name | Return 3 Years | Return 5 Years | Return 10 Years |
| Tata Ethical Fund Regular-Growth | 11.12% | 16.53% | 11.17% |
| Taurus Ethical Fund Regular-Growth | 13.89% | 15.98% | 12.07% |
| Nippon India ETF Nifty 50 Shariah BeES | 7.37% | 9.53% | 10.29% |
| Quantum Ethical Fund Regular - Growth | N/A | N/A | N/A |
Example of Shariah Compliant Mutual Fund
Currently, there are three Shariah Compliant Mutual Funds in India. These are as follows:
-
Tata Ethical Fund- Growth
The fund aims to provide medium to long term capital gains by investing in Sharia compliant equity and equity related instruments of well researched value and growth oriented companies.
Parameters Details Fund Name Tata Ethical Fund Regular-Growth NAV AUM ₹3,571.70 Crs Expense Ratio 1.89% Return Since Launch 15.68% Risk Level Principal at very high risk Fund Category Equity -
Taurus Ethical Fund Regular-Growth
The investment objective of Taurus Ethical Fund Regular-Growth is to provide capital appreciation and income distribution to unitholders through investment in a diversified portfolio of equities, which are based on the principles of Shariah. It aims for long-term capital appreciation by investing in equity and equity-related instruments aligned with Shariah principles.
Parameters Details Fund Name Taurus Ethical Fund Regular-Growth NAV AUM ₹320.48 Crs Expense Ratio 2.39% Return Since Launch 16.62% Risk Level Principal at very high risk Fund Category Equity -
Nippon India ETF Nifty 50 Shariah BeES
The Nippon India ETF allocates funds into various securities from the Nifty50 Shariah Index, intending to mirror its returns. The investments in the Nifty50 Shariah Index securities mirror the index's proportions. This ETF is well-suited for investors seeking medium to long-term growth in capital value.
Parameters Details Fund Name Nippon India ETF Nifty 50 Shariah BeES NAV AUM ₹45.88 Crs Expense Ratio 0.96% Return Since Launch 13.02% Risk Level Principal at very high risk Fund Category Equity -
Quantum Ethical Fund Regular - Growth
The investment objective of Quantum Ethical Fund - Regular Plan - Growth is to achieve long-term capital appreciation by investing in equity and equity-related instruments of companies that follow an ethical set of principles. There is no assurance that the investment objective will be achieved.
Parameters Details Fund Name Quantum Ethical Fund Regular - Growth NAV AUM ₹66.78 Crs Expense Ratio 2.18% Return Since Launch -1.3% Risk Level Principal at very high risk Fund Category Equity Note: You will need a Demat account to invest in Nippon India ETF Sharia BeES as it is an ETF.
*Standard T&C Apply
Tax Treatment of Shariah Compliant Mutual Funds
There are no special tax benefits provided to investors solely for investing in Shariah-compliant mutual funds.
The taxation is primarily governed by the duration you hold the fund units (the holding period) and whether the fund qualifies as an equity-oriented fund (investing at least 65% of its total assets in equity and equity-related instruments).
Conclusion
Shariah Compliant Mutual Funds fall under the category of socially responsible investments. They enable Muslim investors to participate in the market with the aim of achieving profitable returns on their investments, all while adhering strictly to the principles of Shariah Law within the Muslim religion.
FAQs
-
When were Shariah-based mutual funds introduced in India?
Shariah-based mutual funds were introduced in India in 2010, marking the beginning of ethical investing aligned with Islamic principles. -
Who launched the first Shariah indices in India?
In 2010, Standard & Poor’s (S&P) launched two Shariah indices in collaboration with Indian exchanges; S&P CNX 500 Shariah and S&P CNX Nifty Shariah. -
What is the S&P CNX 500 Shariah Index?
The S&P CNX 500 Shariah Index is a joint initiative between Standard & Poor’s and India Index Services & Products (IISL). It serves as a broad benchmark for the Indian equity market while adhering to Shariah investment norms. -
What does the S&P CNX Nifty Shariah represent?
The S&P CNX Nifty Shariah includes the largest and most liquid companies listed on the NSE, filtered according to Islamic finance principles. -
Why are Shariah-based mutual funds significant for Indian investors?
They provide a platform for investors seeking ethical and Shariah-compliant investment avenues while maintaining exposure to Indian equity markets. -
Is SIP halal in Islam?
Yes, SIP (Systematic Investment Plan) is halal in Islam. SIP is a way to invest in mutual funds on a regular basis, such as monthly or quarterly. This can be a good way to invest in Shariah compliant mutual funds, as it allows you to invest gradually over time. -
How do I know if my mutual fund is halal?
You can check if your mutual fund is halal by looking at the fund's investment objective and portfolio. The fund's investment objective should state that the fund invests in accordance with Islamic law. The fund's portfolio should list the companies and securities that the fund invests in, and you can check to see if these companies and securities are involved in any prohibited activities. -
Is Tata mutual fund Shariah compliant?
Yes, Tata Mutual Fund offers a number of Shariah compliant mutual funds. You can find a list of Tata Mutual Fund's Shariah compliant mutual funds on the Tata Mutual Fund website. -
Which mutual fund is halal in India?
Some of the popular halal mutual funds in India are Tata Ethical Fund, Taurus Ethical Fund, and Nippon India ETF Shariah BeES, which avoid sectors prohibited in Islam such as alcohol, gambling, and banking. -
Is Tata Ethical Fund 100% halal?
Tata Ethical Fund is structured to follow Shariah guidelines and is considered a halal mutual fund, though investors should review its regular Shariah compliance status for ongoing assurance.
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
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