Which investment products exist for Sharia-minded savers
Sharia-compliant investments in India are, in practice, listed company shares that pass a religious screen, plus the mutual funds and exchange-traded fund that hold them. The country has no licensed Islamic bank and no Islamic investment window, so a saver cannot buy sukuk or open a profit-sharing deposit at an Indian bank. What exists is the equity route, and it runs entirely through the securities market regulated by SEBI.
Three products appear again and again in the documents of the fund houses. The Tata Ethical Fund and the Taurus Ethical Fund are actively managed equity schemes. The Nippon India ETF Nifty 50 Shariah BeES is a passive fund that tracks an index. All three buy shares of companies that have been filtered against Shariah criteria by an outside adviser.
A word of caution runs through all of them: the label describes the shares that are bought, not a guarantee of how the fund behaves or what it earns. Each fund document also states that returns are not assured and that the value of units moves with the market.
How equities are screened for Sharia compliance
Screening has two layers. The first looks at what the company does. According to the product note of the Nippon ETF, the index screening is done by TASIS, an Indian Shariah advisory firm, for NSE Indices. The business screen leaves out conventional banking, insurance and finance, alcohol, pork, tobacco and gambling.
The second layer looks at the balance sheet. The same note gives the limits: interest-based debt may not exceed 25 per cent of total assets, interest income may not exceed 3 per cent of income, and receivables plus cash may not exceed 90 per cent. A company that fails any test drops out. The check is repeated every month, so the list of eligible shares is not fixed.
Why monthly review matters
A company that borrows more, or earns more interest on its cash pile, can fail the test in a later month. A fund tied to the screen then has to sell it. This turnover can add trading cost and means an investor’s holdings can change without any action on his or her part.
The same firm has a long record in India. The Bombay Stock Exchange and TASIS launched the BSE TASIS Shariah 50 Index on 27 December 2010, which shows how early the idea of a screened benchmark took root in the Indian market.
Ethical equity funds from Tata and Taurus
The Tata Ethical Fund states its aim as medium to long-term capital gains through Shariah-compliant equity of value and growth companies. It holds only listed Indian equities. It does not use preference shares, options, futures or other derivatives, and it neither borrows against its assets nor sells short. Its benchmark is the Nifty 500 Shariah TRI, and the scheme has existed since 24 May 1996. The Direct plan carried an expense ratio of 0.61 per cent as of 30 September 2026 and assets of ₹3,868.19 crore on 8 November 2026.
The scheme’s offer document says the investment manager may appoint a Shariah adviser to supply the list of compliant securities, and it does not name one. A buyer who cares about who certifies the list should therefore ask the fund house directly.
The Taurus Ethical Fund is older in its Shariah label. At its launch in 2009 it was described as the first actively managed equity-oriented Shariah-compliant fund in India, with TASIS as adviser and quarterly compliance certification. Units were allotted on 6 April 2009. Its benchmark is the BSE 500 Shariah TRI, its riskometer reads Very High, and the fund lists a Shariah audit certificate for 2025-26. Ask the fund house who the adviser is today.
Two points limit how far the Taurus figures can be relied on. Figures from its January 2025 factsheet may no longer be current, and part of the portfolio analysis shown by the fund dates from 2021. Anyone considering the scheme should ask for the latest factsheet and certificate before buying, and should put the questions about the adviser and the portfolio date to the fund house in writing, keeping the replies with the purchase records.
The Shariah index ETF and what it does not promise
The Nippon India ETF Nifty 50 Shariah BeES follows the Nifty50 Shariah Index, made up of Nifty 50 companies that pass the screen. Weights are free-float based and no single stock can exceed 33 per cent. The ETF was launched on 18 March 2009 and trades on the National Stock Exchange under the symbol SHARIABEES. Because it simply copies the index, it needs no stock-picking skill.
The index factsheet dated 30 October 2026 listed 17 constituents. The largest weights were Infosys at 17.48 per cent, TCS at 10.67 per cent, Eternal at 10.40 per cent, Sun Pharma at 7.86 per cent and Hindustan Unilever at 6.91 per cent. A buyer is thus making a concentrated bet on a small group of large companies, with technology and pharmaceuticals prominent.
The most important line in the product note is a disclaimer. The scheme itself does not claim to be Shariah compliant, has no Shariah board of its own, and runs no process to purify dividends. Compliance sits in the index screen only. The ETF buys at least 95 per cent of its assets in the index securities, so it follows the screen closely, but the fund house itself takes no position on religious status. Anyone who wants to give away the part of income considered impure has to work out that sum and do it separately.
Risks of Sharia-compliant investments in India
The first risk is plain market risk. Share prices fall, sometimes sharply, and the Tata fund carries a Very High risk level on its own scale. A religious screen does not protect against a bad year. A loss on a screened share is as real as a loss on any other.
The second is concentration. The screening removes banks, insurers and other financial companies, which are among the largest listed firms in India. What is left is narrower than the whole market, and the index can lag or lead for reasons unrelated to quality.
The third is costs and taxes, which depend on the plan and on the investor’s own position. The expense ratio is the visible cost. A tax adviser should be consulted on the tax treatment of gains instead of assuming a rule.
A fourth risk is the gap between a label and a certificate. A fund can say it follows Shariah principles while the documents leave the adviser unnamed. Reading who gives the opinion, how often, and whether it is published tells you more than the fund’s name does.
How to decide, and who decides on compliance
Begin with the question of what the money is for. A five-year goal and a one-year goal call for different risk. SEBI’s investor guidance lists goals, investment horizon, risk appetite and diversification among the points to weigh before investing, and the same list applies to a screened fund.
Next, read the fund’s own documents instead of a summary. They say what the fund buys, what it forbids, who the adviser is and what it charges. Look in particular for the sentence on purification, because it differs between products.
Last, remember that compliance is a judgement made by qualified scholars or a Sharia board, not by a product name. Two readers of the same screen may reach different conclusions about a particular company. If the point matters to you, ask a scholar you trust, and show him the factsheet.