Shariath Mutual Funds

The benchmark MF is preparing to launch Shariah based ETF. The shariah Index has got 60% of scrips in the Nifty. It has got all features of Nifty itself in all other respects according experts.

The base for screeing whether a scrip is Shariah compliant or not is baesed on the published audited final accounts statements: Profit and Loss account and Balance sheet.

Thereafter the company's use of interest on money in the management affairs is examined. A purification ratio will be worked out to give indication to the Shariah investor how much of the return earned has impure earnings.

How to determine the use of interest on money in the busineess? the following ratios come handy.

1. Debt/Equity ratio not less than 33%
2. Accounts receivable/Market Value equity not less than 49%
3. {Cash+Interest earning deposits}/Market value Equity not less than 33%
4. Share of prohibited business actiovities in the Total businesss not more than 5%

The purification ratio is worked out as follows:

Purification ratio=Dividend*{Income from prohobited business/Total income} .

Some of the Businesses that are prohibeted by Shariah are:

1. Pork
2. Alcohol
3. Gambling
4. Interest Earning related
5. Advertisement/Media(subject to conditions)
6. Tobacco
7. gold/silver derivative trading
8. porography related


The Shariah Index is basd January 1, 2007. The Index is serviced by Ms. India Index Services and Products limited which is jointly promoted by CRISIL and NSE.

The industry welcomed the move was witnessed when Benchmark AMC launched Shariah BeES by 04 February 2009 followed by Taurus Mutual Fund & Parsoli Corporation launched nation's first Shariah compliant Mutual fund scheme by 19 February 2009.

The first one is an ETF where as the next one is an opened end equity fund. The shariah advisory board constituted by the Fund will give guidances as to stock selection using the sector screens and business performance screens and the applicable purification ratios.