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Ethically Conservative

Avoiding banking stocks has worked for Shariah funds, but they haven’t garnered much interest from Indian investors…

Shariah funds in India have just not caught on. There are three funds in this space and their collective assets under management have decreased over the years. Taurus Ethical (mid & small cap), Tata Ethical (multi cap) and Goldman Sachs Shariah BeES (large cap) have a common investment mandate and share an identical benchmark (S&P CNX Nifty Shariah) but are not similar in their portfolio construction, as is evident from the equity categories they are classified into. All of them share common ground in the sense of avoiding companies involved in gambling, in the production of alcohol, tobacco and non-halal food products, and the banking industry. However, what is interesting is that such a shariah based portfolio is actually suited for conservative investors.

This style of investing advises against excessive debt. Targeting companies that have a low level of debt and, consequently, low interest payments, and are cash rich points to a style of investing that numerous investors would be comfortable with. Unfortunately, since such funds avoid banking stocks, they tend to stand out in the performance rankings when such stocks are being hammered. This would explain why last year when the Bankex fell by 31.59%, they fell by much less. But when banking stocks soar, they would be at a disadvantage.