What Are Halal Investments?

Ethical Investments or Shariah Compliant Investments

The word “Halal” in Arabic means Permissible, Allowed or

Legal in Religious terms. The opposite of which, would be
“Haram” meaning Forbidden or Illegal. The Islamic Law
which is called The Shariah, governs the Socio-Economics in a
Muslim Society safeguarding them from Corruption & Social
Evils. So all Products, Businesses and Trading Practices
involving Riba (Interest), Alcohol, Tobacco, Gambling,
Pornography, etc which are considered Social Evils are also
Haram (Forbidden / Illegal) In the Islamic Law, and hence
prohibited. So any Business that Avoids such Haram (Illegal)
Products & Practices, is called a Halal or Shariah Compliant
Business and any investment done in such businesses are
called Halal Investments.

To make it easier for the investors who intend to invest in such

Halal, Ethical & Socially Responsible Companies, separate
Indices are formed in Stock Exchanges all over the globe called
the Shariah Indices.
What Is A Shariah Index?
Shariah Index is a list of companies in a particular Stock
Exchange which are screened according to filters and criteria's
and deemed Shariah-Compliant or Halal to Trade. This list is
continuously checked & re-checked quarterly and companies
are added or removed if they comply or fail to comply to the
Shariah norms.

Scholars in Islamic Jurisprudence have come up with some

important Ratios to differentiate between Shariah Compliant
or Non-Compliant companies. Following are three main
Criteria:

First Criteria: In order to filter out Halal Businesses the first

major criteria to check is the Product in which the Business is
involved. If the product itself is Haram such as Interest
dealings, Manufacture and/or Sale of Alcohol or Tobacco etc, or
involved in Gambling, Pornography, etc then of course such
Businesses are outright removed from the Halal list of
Businesses.

Second Criteria: The next filter is the Debt Ratio. Businesses

have to take a certain amount of loans for their functioning and
many times it becomes a necessity and a compulsion. But the
loans available in today’s age are only Interest Based Loans.
Hence the Jurists have placed a limit to such Interest based
loans which come under compulsion to 33% of the
company’s Market Capitalisation. Some Jurists have a
conservative view of 25% and some even 10% above which
they consider the company Non-Compliant for trade. Whenever
the Ratio changes so does the Compliance Status.

Third Criteria: The third filter is the Profit Ratio / Income

Ratio. In today’s age working with banks is so common that it
is impossible to run a business without involving a bank for
payments and receipts. Since all banks are Interest based,
along with it comes Interest Income. Also, some
manufacturers have some by-products that are not the main
business but comes as a result of production. For example the
by-product of Sugar industry is Ethyl Alcohol or Ethanol.
Similarly, some businesses have a small part in Non-Halal
Products which are not the main business but cannot be
operated without them such as Hotel Industry & Airline
industry etc. which has the main business in Halal Products but
have a small percentage of profits coming from serving Non-
Halal Products. Jurists have limited such profits to 5% of the
net profit which if exceeds, the company becomes Non-
Compliant to trade in. Again some Jurists have conservative
view of 3% or even 0% of the net Profit.

With the help of these and some other criteria's and filters, it is
determined which company is Shariah Compliant and which is
not and on the basis of this an Index is formed. This Index is
called Shariah Index. By the formation of such Indices or list
of companies that are halal to trade in, it becomes easier for
other businesses to adhere to Halal trading and investments,
such as Stock Market Trading and Mutual Fund Schemes
that invest in these Shariah Compliant Companies with the help
of the Indices to bring to the layman an option to participate in
Halal Trading or to invest in Shariah Compliant Mutual
Funds or Halal Mutual Funds.

What is Halal Trading?

Equity/Shares/Stocks are units of ownership in a company
that provide for an equal distribution in its profits when
declared, in the form of dividends. A shareholder is any person,
company or other institution that owns at least one share of a
company’s stock. Because shareholders are a company's
owners, they reap the benefits of the company's successes in
the form of increased stock valuation. If the company does
poorly, however, shareholders can lose money if the price of its
stock declines. The share price of any stock can be influenced
by its performance in the company's business growth profits or
losses, the activities and announcements that involve the
company, as well as changes in an industry. Due to the
fluctuations of the share prices of the companies, traders can
invest their money to buy such shares at a lower price and sell
them at a higher price and earn profits. By the formation of
Shariah Indices it has become easy for a Stock Trader who
wishes to do Halal Trading to refer to the Index list and trade
in the Stocks that are Shariah Compliant..

Do We Have Shariah Index In India?

Both the Indian Exchanges viz. National Stock Exchange
(NSE) & Bombay Stock Exchange (BSE) have launched
various Shariah Indices to help Muslim Traders & Investors to
choose relevant stocks best suited to their belief. Following are
the current Indices listed on NSE & BSE Stock Exchanges, click
on each to read more about the Index, Factsheet &
Screening Methodology.

Nifty 25 Shariah
Nifty 50 Shariah
Nifty 500 Shariah
S&P BSE 500 Shariah

What are Mutual Funds?

A Mutual Fund is a professionally-managed trust that pools
the savings of many investors and invests them in securities
like stocks, bonds, short-term money market instruments and
commodities such as precious metals. Investors in a mutual
fund have a common financial goal and their money is invested
in different asset classes in accordance with the fund’s
investment objective. Investments in mutual funds entail
comparatively small amounts, giving retail investors the
advantage of having finance professionals control their money
even if it is a few thousand rupees.

There are basically three types of Mutual Funds depending on

their objectives where & how they conduct their business,
they are:
1 — Equtiy Mutual Funds — These Mutual Funds invest their
capital strictly in Equity Markets, buying and selling shares of
companies and thereby earning profits through such trades.

2 — Debt Mutual Funds — These Mutual Funds invest their

capital strictly in interest based instruments such as Treasury
Bills, Government Securities, Corporate Bonds, Money Market
instruments and other debt securities of different time
horizons.

3 — Hybrid Mutual funds — These Mutual Funds also called

as balanced schemes invest into a mix of equity as well as
debt. When the Equity is performing well they convert their
investments in Equity and when Markets are in a bear phase
they transfer their investments into Debt instruments.

What Are Halal Mutual Funds Or Ethical

Mutual Funds Or Shariah Compliant
Mutual Funds
Out of the above mentioned three types of Mutual Funds, The
Debt and Hybrid Mutual Funds are outright Non-Compliant
as they deal in Interest Based Instruments and hence any
profits generating from them will not be Halal. The Equity
Mutual Funds however, will be Halal Investment that too only
if the Mutual Funds Scheme specifically invests only in the
companies listed in the Shariah Index.

Hence, A Shariah-Compliant Mutual Fund or Halal Mutual

Fund is a fund that is an Equity Based Mutual Fund that only
trades in Equity Shares of Shariah-Compliant companies that
are listed under the Shariah-Index.

Dividends of such companies must be purified as it includes

the Non-Halal Income of 5% or 3% depending on the
methodology. Dividends are a part of Profits a company makes.
Are There Halal Mutual Funds In India?
Yes, There are two Shariah-Compliant Mutual Funds that have
an objective to provide capital gains by investing in Shariah-
Compliant equity and equity-related instruments, they are:

1 - Tata Ethical Fund - Tata Ethical Fund is an open ended

equity fund which invests in a diversified equity portfolio based
on principles of Shariah. The investment objective of the
scheme is to provide medium to long-term capital gains by
investing in Shariah compliant equity and equity-related
instruments of well-researched value and growth-oriented
companies. The Scheme was launched in 1997.

2 - Taurus Ethical Fund - Taurus Ethical Fund is an Open

Ended Equity Oriented Scheme that will invest in companies
which are in compliance with the Shariah norms. The scheme
will primarily invest in Equity and Equity related instruments.
The fund is Actively Managed and invests in diversified
portfolios. The investments in this fund are based on the
fundamentals of Shariah or Shariat, which are guided by the
Islamic investment philosophy which invests in companies
based on certain screening norms. Managed by seasoned
Investment Professionals from Taurus Mutual Fund. This
scheme was launched in 2009.

Apart from these, Reliance also had an Exchange Traded Fund

(ETF) which is now taken over by Nippon named Shariah
BeES that can be traded on Stock Exchanges only. SBI is also
planning to lunch a Shariah-Compliant Fund soon named SBI
Shariah Equity Fund - The scheme seeks to provide medium
to long term capital gains by investing in Shariah Compliant
Equity & Equity related instruments.

For more information, help or guidance about Halal Investments

In India you can visit NUR Tijarah at https://nurtijarah.com or
you can also call on +91 8097519192.