Some might say it has been a long time coming, but India's first ever Shariah-compliant mutual fund has finally hit the markets. In a bid to provide innovative products to the Indian investors, Benchmark Mutual Fund has launched the Shariah Benchmark Exchange Traded Scheme, an open-ended ETF.
As per its mandate, the fund will track the S&P CNX Nifty Shariah Index. The fund's portfolio will replicate the same weightage to stocks as in the index. The fund will have at least 90 per cent exposure to the index constituents and would be allowed to keep up to 10 per cent of its assets in the form of cash.
Investment Strategy:
The Shariah Index is a variant of the Nifty index, excluding the companies that do not confirm to Shariah compliance. As per Shariah rules, the following sectors would be excluded from investment - Pork, Alcohol, Gambling, Financials, Advertising & Media, Pornography, Tobacco and Trading of Gold and Silver as cash on deferred basis. Thus the list of companies in the Shariah index currently constitutes 37 out of the 50 companies of the Nifty Index. The index has completely excluded companies from the financial and services sectors as well. From the remaining sectors, companies like Tata Steel, Hindalco Industries, ITC, Bharat Petroleum Corporation, Power Grid Corporation of India and Tata Motors have been excluded as well.
Being an index fund, the scheme will be passively managed to replicate the index constituents with respective weightings. The scheme will not try to beat its benchmark. Thus the fund manager's role is restricted to only monitoring the tracking error of the scheme on an ongoing basis and minimizing the same.
Fund Manager:
Vishal Jain the designated fund manager is responsible for overseeing the fund operations.
AMC Performance:
Benchmark Mutual Fund was set up in 2001 and specialises in ETFs. The AMC had Rs 1,903.35 crore under management as on January 31, 2009. It has seven ETFs and one Arbitrage Fund. The bulk of its assets are in Banking, Liquid and Gold ETFs.
Suitability & Recommendation:
ETFs are a low cost investment choice for investors with lower expense ratios. The maximum expense ratio an ETF can charge is 1.5 per cent, compared to the 2.25 per cent charged by actively managed equity funds. But investors need to have a demat account in order to invest in ETFs. Considering the limited popularity of ETFs in India and the restricted Shariah theme, whether this fund will be accepted by everybody equally or only by Shariah biased investors is something to wait and watch out for.
Basic Details:
Type: Open- ended Listed Index Scheme
NFO Opens: February 04, 2009
NFO Closes: February 25, 2009
Benchmark: S&P CNX Nifty Shariah Index
Fund Manager: Mr. Vishal Jain
Load Structure:
Entry Load: During NFO
Rs 10,000 to Rs 49,99,999 - 1.50 per cent
Rs 50,00,000 to Rs 1,99,99,999 - 1.00 per cent
Rs 2,00,00,000 to Rs 4, 99,99,999 - 0.50 per cent
Rs 5,00,00,000 and above -- Nil
During Continuous Offer:
Entry Load: Nil
Exit Load: Nil
Minimum Application Amount: Rs 10,000
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