Islamic Finance in India
Investment funds are not a very new topic. However, if you follow Islam, then you might have well heard of the term Shariah funds. Are you aware of its true meaning? We will tell you!
In this blog, we will dig deeper into all about Shariah funds and make you aware of the various terms associated with it. Let us start from the very beginning.
Shariah Compliant Stocks in India.
Shariah compliant funds refer to all those investment funds and options that work along the lines of the Shariah law and regulations stipulated by Shariah Scholars.
What you need to know about them is that they are invested in a list of companies that comply with the set shariah compliant norms and standards.
These funds take into consideration the principles laid down by Shariah Boards and screen the funds based on whether they follow the same or not.
It is not a very new concept. However, yes, it has become very popular recently.
A few basic requirements of these funds include not going for those stocks of investments that generate income from the selling of pork, alcohol, drugs, gambling or sale of weapons and ammunition or any other activities opposing the shariah principles.
In India, there has been a rising popularity of Shariah compliant stocks
So, now you have a basic idea of what Shariah compliant funds are. Let us now look at why they are important.
Why Shariah Compliant Stocks ?
Investing in Shariah Compliant stocks or Shariah Compliant funds encourage investors to keep your investments Islamic and keep you away from Haram activities prohibited by Islam like sale of pork products, arms, ammunition, alcohol, drugs, etc.
Not only does it help you stick to the principles of Islam in all aspects, but it also enables you to participate in earning money for you and to participate in the development of the overall economy for the country.
What is the Shariah screening process for stocks?
Shariah Screening process consists of the below
1. Sector Based Screening
2. Accounting Based Screening
For more information about screening, please read Quick Tips – What are Shariah Compliant Stocks?
In brief, if any stock passes the sector based screening criteria as well as Accounting based screening criteria, the investments in such stock are Halal.
If any income earned from Non-Islamic activities, the same needs to be purified and given to the charity.
How Many Shariah Compliant Stocks are in India?
The numbers of Shariah compliant stocks in India are huge and Halal investors in Indian equities have several options to invest in different companies.
Thus they want to know how many shariah compliant stocks available for trading in.
Around 40% of Indian companies listed on the Stock exchanges are Shariah compliant.
If you need to know the shariah status of any individual stock, you need to download “Islamicly” app which will enable you to get the shariah status of any stock not only Indian stocks but global stocks also .
The NSE and BSE both has Shariah Compliant indices as below;
How you can invest in Shariah-compliant stock?
Once you are well versed with what Shariah compliant stocks are, you need to know how you can invest in the same. Isn’t it? We will now discuss it now.
One can invest in the mutual funds that are Shariah compliant or you can also directly partake investment in Halal shares. There is a board by the name of Taqwaa Advisory and Shariah Investment Solutions or TASIS that screens the various stocks for their Shariah compliance.
This board has a lot of knowledge in the Islamic jurisprudence of finance and commerce. You can refer to the TASIS shariah 50 index or the CNX 500 Shariah Index of the NSE that has been formed by the TASIS board.
Let us discuss few common points where you will have a fair idea whether they are allowed in Islam or not.
Is Investment banking allowed in Islam?
Yes, investment banking is permitted and allowed in Islam. However, the only thing to be kept in mind is that none of the investments must carry any interest. Basically, Islam deals with ethical investment only. This also means avoiding any association with companies that are dealing with objectionable items, as mentioned above.
How do I do Halal investing as a beginner?
As a beginner, you need to be a little cautious about how you invest in the shariah compliant funds. Firstly, you have to be sure that the stocks or the funds are under the Shariah Law.
You have to have a proper strategy before investing your hard earned money anywhere. You can take help from any halal financial experts or advisors.
Usually the first step is opening a trading account and then going ahead and starting your portfolio. You may get in touch with us too for any queries or help regarding the same.
Are there any conventional securities that are Halal to trade?
Before you select any particular stock or fund to invest in, you must check certain criteria that will help you decide better for yourself. You have to be fully aware of these criteria to decide whether the stock is Shariah compliant or not.
A few checks include the nature of business and other financial parameters. The first criterion includes a check on whether the company deals with the production or sales of items like tobacco, drugs, alcohol, Pork, Gambling, Pornography and Financials etc. The later criterion looks into parameters like Debt to Market Cap, Cash to Market Cap etc.
Is investing in stock halal? Is the income from stocks halal?
As we have discussed above, investing in stocks is halal as long as it doesn’t associate with any company dealing with prohibited activities as explained.
What are the halal ways I can invest my income?
You can do proper research on the various types of stocks, funds, and shares available in the investment market. These investment opportunities have proven to be very beneficial to increase your income.
This is all the basic information that you would need about the Shariah compliant funds. Once you are all set with your decision to invest in the same, you must read the market carefully to make out the best investment options for you.
We hope that our article has helped you in understanding this concept. In case you are flooded with more doubts, do reach out to us