Mumbai: Benchmark Asset Management will launch India’s first shariah-compliant exchange traded fund (ETF) on 4 February, as part of a plan to expand its bouquet of passively-managed funds, executive director Rajan Mehta said Friday.
Shariah law forbids Muslims from receiving interest payments and from investing in companies involved in the production or sale of pork, alcohol, tobacco, pornography, gambling, non-Islamic finance or life insurance.
The Shariah Benchmark Exchange Traded Scheme, will track the S&P Nifty Shariah index, comprising 37 stocks that represent nearly half the market capitalization of shares listed on the National Stock Exchange, the firm said in a product note.
ETFs, listed and traded like individual stocks, give investors access to the underlying securities without the risk of holding them.
They are a relatively new concept in India, with a market share of about 0.6% in the Rs4.1 trillion domestic mutual fund industry.
In addition, the fund faces slumping flows to stock funds and a weak stock market, which has lost more than 50% in 2008.
“Response could be slow to start with,” Mehta said. However, he expected interest in the fund will be piqued when the stock market revives and awareness of shariah funds grows.
Muslims make up about 13% of India’s 1.1 billion plus population, giving it the third-largest Islamic population after Indonesia and Pakistan, and offering a vast market for investment products.
Mehta also said his firm remains hopeful of attracting foreign investors looking for shariah-compliant opportunities in India.
Shariah-compliant investments control about $65 billion in assets globally with almost half of this amount held in mutual funds, the fund house said in a presentation.