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 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 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.

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.