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Investing the Islamic way

Investing the Islamic way

Shariah investing has finally come to India. After Benchmark Mutual Fund's Shariah BeES, Taurus Mutual Fund has launched its first Shariah compliant open-ended equity scheme, Taurus Ethical Fund. The fund will actively invest in companies which comply with Shariah norms. It may also invest up to 20% in money market instruments in order to meet liquidity requirements.

What is it?

Shariah is the Islamic canonical law based on the teachings of the Koran. While trade and investment are encouraged, shariah rules prohibit involvement in alcohol, gambling, pornography, abortion, human cloning, defence, conventional banks or insurers, and most forms of entertainment. Industries associated with pork are also out. However, the biggest difficulty for devout Muslims is scouting for those stocks or funds that adhere to these principles. That’s where a mutual fund comes in handy.

The stock selection

The S&P CNX 500 Shariah Index will provide the initial universe for Taurus Ethical Fund. It will then be filtered by Taqwaa Advisory and Shariah Investment Solutions (TASIS). The final stock selection will take place from this universe. During the selection process, each company’s audited annual report is reviewed to ensure that the company is not involved in any non-Shariah compliant activities. Screening will also take place based on financial ratios. For instance, companies with 33% or more debt or those where non-operating interest income is greater than 5% of gross revenue could be rejected.

The global trend

A news report in the London press recently stated that cash-strapped Western companies are considering issuing Islamic bonds to tap investors in the Middle East. But it is certainly not new. Shariah investing is quite popular in the West. In 2007, British retailer Tesco issued its first sukuk -- or Islamic-compliant debt --in 2007 for its Malaysian unit. Back in 2006, bankers from Merrill Lynch (London) and Bemo Securities (Beirut) wrapped a $166 million sale of debt like certificates for natural gas producer East Cameron Gas (Houston). The certificates were believed to be the first shariah-compliant securitized market financing of U.S. assets and were structured so that Islamic investors effectively get a fixed rate of return while considering themselves owners of the underlying assets.

Basic Details:
NFO Opened: Feb 19, 2009
NFO Closes: Mar 20, 2009
Benchmark: S&P CNX 500 Shariah Index
Fund Manager: Mohit Mirchandani
Minimum Investment: Rs 5000
Entry Load: 2.25%
Exit Load: 1% (redemption within 6 months), 0.50% (between 6 and 12 months)
Options: Growth, Dividend (Payout and Re-Investment), Bonus