INVESTMENT THROUGH THE SHARIAH WAY

A SUMMER INTERNSHIP REPORT

SUBMITTED BY:

HUSEN ALI MUSALMAN

Registration No:
11717512

in partial fulfilment of Summer Internship for the award of the degree of

BACHELOR OF BUSINESS ADMINISTRATION (FM)

School of Business
LOVELY PROFESSIONAL UNIVERSITY PHAGWARA (PUNJAB)

July, 2019
 Acknowledgement

I would like to express my deepest appreciation to all those who provided me the possibility to complete this
report. A special gratitude I give to our supervisor, Dr Mahesh Sarva, Assistant Professor, Lovely
Professional University, whose contribution in stimulating suggestions and encouragement, helped me to
complete my internship, especially in writing this report.

Furthermore, I would also like to acknowledge with much appreciation the crucial role of the staff of Idafa
Investments, whose cooperation and guidance has been very crucial for me to learn and perform by best. A
special thanks goes to our internship mentor, Ms Nikhat Mohamedy, who helped and mentored me
throughout the internship with all the various activities of learning and performing. Her professionalism had
been an inspiration for me for the whole period of the internship at Idafa Investments. Last but not least,
many thanks go to the Customer Relationship Manager of Idafa Investments, Mr Afroz Vasaya who has
invested his full efforts in guiding me in achieving the goals and understanding the work culture in corporate
spaces. I have to appreciate the support given by Mr Suhail as well as the fellow interns especially in
managing events and promotional activities that has improved our marketing skills, thanks to their comment
and cooperation
 Executive Summary

The well planned, properly executed and evaluated industrial training helps a lot in inculcating good work
culture among the future professionals. It provides linkage between studies and industry in order to develop
the awareness of industrial approach to problem solving, based on broad understanding of process and
mode of operation of an organization. During this period, the students get their real firsthand experience
on working in the actual environment.

I completed my 45 days internship at Idafa Investments, Mumbai. The company deal with equity and
mutual funds investments, but with Shariah ways. The internship gave me the exposure to 4 areas of
business, specifically: (1) Back office/Admin work (2) Fundamental and Technical Analysis (3) Customer
Support, and (4) Marketing and Event Management.

The objective of this report is to understand the meaning of Shariah and learn the aspects in which ways
this particular investment style is an unexplored opportunity in India. It explores the theme with literature
reviews and intends to learn the Shariah ways and its features.

Shariah ways of investment comes from the Islamic financial practices and is majorly restricted by religious
faiths. Given that Islamic community have strong faiths and are bounded by its restrictions, the choice for
them to invest freely in the financial markets is very much impossible. In one way or the other, necessarily
or not, companies end up dealing in certain aspects of businesses that are prohibited in Islam. Therefore,
Shariah is the set of guidelines with its special screening criteria that helps identify ethical or say Shariah
compliant companies, where people from this community can invest without violating their religious faiths
or rules.

Idafa Investments is one such company that deals in investments only the Shariah way. Most of their
customers belong to Islamic community, and are availing the services of investments in equity and Mutual
Fund SIPs without any hassle or violation of religious beliefs.
Chapter 1 Internship Details Page no

I. Internship Program .............................................................................1-5

II. Responsibilities carried out................................................................ 5-7

Chapter 2 Company Profile

I. Introduction ....................................................................................... 08
II. Vision .................................................................................................. 08
III. Mission ............................................................................................... 08
IV. Why Invest?........................................................................................ 8-10
V. Investment Products offered by Idafa Investments ......................... 11
VI. Working Style ..................................................................................... 12
VII. Services .............................................................................................. 13

Chapter 3 Analysis

I. Fundamental Analysis ....................................................................... 14-23

II. Technical Analysis ............................................................................. 23-33

Chapter 4 Research

I. Introduction ..................................................................................... 34
II. Objective .......................................................................................... 34
III. Scope ................................................................................................ 34
IV. Research Methodology .................................................................... 34
V. Understanding Shariah ................................................................... 35
VI. Ethics in Shariah Compliance .......................................................... 36
VII. Shariah Supervisory Board .............................................................. 37
VIII. Islamic Investment Policy .............................................................. 37-38

Chapter 5 Literature Review

I. Literature Review ...........................................................................39-46

II. Shariah Compliant Funds .............................................................. 47-48
 III. Shariah Screening Methodology .................................................... ……..49-50
IV. Shariah Screening Criteria .............................................................. ……..50-51
V. Shariah compliance through Mutual Funds ................................... …..…52

Chapter 6

I. SWOT Analysis for Shariah... ........................................................……....53

II. Comparative Analysis .................................................................. ……....53
III. Findings ....................................................................................... ……...54
IV. Challenges for Shariah ................................................................ ……....55
V. Conclusion……………………………………………………………………………..…………55
VI. Recommendations ..................................................................... …….....55
VII. References.................................................................................. ……....56
Internship Program

The internship program at Idafa Investments, Mumbai, had a full-time schedule. I joined the internship on 25th
May, 2019 and finished my full-time internship of 45 days on 8th July, 2019. The timing of the office was 09:00
AM to 06:00 PM, Monday to Friday and 10:00 AM to 06:00 PM on Saturdays.

Internship at Idafa Investments had 4 main aspects on which an intern was groomed and given tasks to perform.
These are:

1. Admin & Back office work

2. Fundamental & Technical Research
3. Marketing
4. Customer Support

Throughout the internship, mentorship from the experts in their particular areas helped to learn and perform. The
mentors were:
1. Mr Ashraf Mohamedy
2. Ms Nikhat Mohamedy
3. Mr Afroz Vasaya

Training, Tasks and Activities in the Internship

1. Personality Test and Detailed discussion
2. Learning about Shariah
3. Learning Fundamental Analysis
4. Angel Broking Trading App Demonstration
5. Calling and Customer Support
6. Marketing and Event Management
7. Learning basics of Technical Analysis
8. Self-Exploration Program

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 1. Personality Test

In the beginning of the internship itself, a program for identifying individual personalities was created. The interns
were supposed to take the Mayers-Brigg’s Type Indicator Personality Test at 16personalities.com. This was based
on Mayer’s and Brigg’s personality classification.

A detailed discussion was held by the mentor and main focus was given at strengths and weaknesses of each type,
so that interns can sharpen their strengths and work on their weaknesses.

MBTI Basics

The purpose of the Myers-Briggs Type Indicator (MBTI) personality inventory is to make the theory of
psychological types described by C. G. Jung understandable and useful in people's lives. The essence of the theory
is that much seemingly random variation in the behavior is actually quite orderly and consistent, being due to
basic differences in the ways individuals prefer to use their perception and judgment.

"Perception involves all the ways of becoming aware of things, people, happenings, or ideas. Judgment involves
all the ways of coming to conclusions about what has been perceived. If people differ systematically in what they
perceive and in how they reach conclusions, then it is only reasonable for them to differ correspondingly in their
interests, reactions, values, motivations, and skills."

In developing the Myers-Briggs Type Indicator [instrument], the aim of Isabel Briggs Myers, and her mother,
Katharine Briggs, was to make the insights of type theory accessible to individuals and groups. They addressed
the two related goals in the developments and application of the MBTI instrument:

• The identification of basic preferences of each of the four dichotomies specified or implicit in Jung's
theory.
• The identification and description of the 16 distinctive personality types that result from the interactions
among the preferences."

The MBTI instrument sorts for preferences and does not measure trait, ability, or character. The MBTI tool is
different from many other psychological instruments and also different from other personality tests.

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I identified myself as INFJ.

• INFJ stands for: Introversion (Nature), Intuition (Information Processing), Feeling (Decision
Making), Judging (Dealing with outside world).
• The indicators say about one’s approach or nature towards the aspect given in the brackets.
• This shall help me grow as an individual and a professional.

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 1. Learning about Shariah

The meaning of Shariah and its criteria were discussed by Ashraf Mohamedy. Interns learned the shariah ways of
investment and how this can serve as the wealth creation tool for the people of a particular community who are
bound by their religious faiths and are unable to freely invest in the market.

2. Learning Fundamental Analysis

Fundamental Analysis of equity stocks were taught to the interns by Ashraf Mohamedy, which included different
ratios, their analysis, and how to compare them.

Assignments for the same were also given, which interns had to complete and perform.

3. Angel Broking Trading App

An official came to the Idafa office and demonstrated the Angel Broking Trading app for Android.

4. Calling and Customer Service

Idafa Investments has gone through major restructuring recently. This led to the change in their ARN number, for
their Mutual Fund services that they provide. Now the need to transfer all their old customer’s account to their
new ARN number aroused. The old ARN (26516) was not valid anymore, so the company was making efforts to
transfer all the older customer’s accounts by redeeming them and setting up new accounts with the new ARN
(125370).

• Interns were given the task of calling the customers and notifying them about the same.
• Interns performed mock calls for training. Later on certain number of customer’s were assigned to each
calling representative and then the calls were made.
• Customers were supposed to informed about their holdings first and then the situation of change in ARN.
• There were two sets of customers. One with completed KYC and others with incomplete KYC.
• KYC Not-done customers were sent the KYC forms. Other customers were sent the AOF and Bank
mandate forms, to be signed by them.
• Interns used telephone, emails and WhatsApp for the purpose of communication.
• Calling again after a few days to get a follow back on the progress was also done.

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 5. Marketing and Event Management

Idafa Investments organizes two events for the purpose of spreading awareness about Shariah and investments.
The focus is laid upon encouraging and empowering potential retail investors to participate in the financial
markets, and create wealth the Shariah way.

• Two events are namely: “Aazaadi” and “Main Aazaad Hoon”.

• Aazaadi is a free to attend seminar on Shariah and ways of investment. Main Azaad Hoon is a paid 4 day
workshop on empowering the retail investors with skills of fundamental and technical analysis.
• Aazaadi events were organized at 3 different places in Mumbai on 28, 29 and 30th June, 2019 in Bhiwandi,
South Mumbai and Mumbra respectively.
• Interns were given the responsibility of arranging halls and other backend tasks for the preparation of the
events.
• Marketing/Promotions of the events were also done by the interns. Facebook promotional campaign was
run. The events were also promoted over other social media platforms, such as Instagram, WhatsApp, etc.
• All the events witnessed 100+ participants. In the events itself, promotion for the paid workshop was also
carried out, and so far (by July 08, 2019) 15 registrations have already been received.

6. Learning Basics of Technical Analysis

Basics of Technical Analysis were taught to us. It included reading candles, open, close, resistance, support, etc.

7. Self-Exploration Program

In the end of the internship, under the mentorship of Ms Nikhat, interns went through the self-exploration program.
This supposedly helped interns identify their true selves and their inner drive. This intend to help to find a
meaningful purpose for one’s life and thrive to be a better person and a professional.

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Responsibilities carried out
• I was given the responsibility of creating final data sheets from several other excel sheets for the purpose
of calling the customers and informing about their holdings, which I was able to perform effectively
because of my sound knowledge of Excel Sheets.
• I was given the task of calling the customers. I performed all the 70 calls effectively and gained positive
responses.
• Mails were to be sent in bulk. I was given the responsibility to help other calling executives with mail
merging via Gmail. I was able to help, as I learnt the mail merge with Google Sheets and sent all the mails
successfully, without third party services for the sake of avoiding the risk of getting the mails sent as
spams.
• In the event management team, I performed all my duties responsibly.

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Event AAZAADI’s promotional poster:

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Company Info: Introduction

Idafa Investments was started in 1994 by Ashraf Abdul-Haq Mohamedy, an entrepreneur and a student of Islamic
Economics and Finance. Coming from a strong family background of investors, the choice of a profession in stock
broking was natural for him, but he preferred to offer these services following the Shariah based investment
philosophy.

Ashraf is of the opinion that Shariah is not the exclusive domain of Muslims, but is for the whole of humankind.
Shariah consists of the teachings of the Qur'an and Hadith.

Company’s efficient services and business dealings has brought it to the stage that it is at today. With offices in
Bombay and Surat and over 750 clients, it has transformed steadily from a plain broking company to an all-round
investment advisory offering pioneering services in the Shariah based investments sector.

Vision & Mission of the Company

VISION

To popularise and introduce Islamic Financing Principles as this will completely change the global resource
distribution and bring harmony among the economies of the world by eliminating disparities in income and wealth
of the people at large

MISSION STATEMENT

Our mission statement project our commitment to offer wealth creation opportunities to our partners, i.e. our
customers, staff, Franchisees, IFAs and investors in a manner which is consistent with the Islamic Shariah.

WHY INVEST?

Investing means committing funds for financial gains in the future. It is extremely important to save regularly and
invest wisely as the short time span in which we are able to earn money needs to provide for our future so that we
can achieve our financial goals or retire peacefully.But inflation destroys the value of what we save. A sum of Rs.
10,000.00 saved this year will not have the same purchasing power ten years down the line. Hence we need to
preserve the purchasing power of what we save.The only way to hedge inflation in an Islamic manner is to invest

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 in equity shares, gold or real estate and to earn returns from these assets that compensate for the decline in our
purchasing power.

Why Invest in Shares?

Investing in equity shares is like to owning part of a business. A profitable business keeps ploughing back profits
to earn more profits or rather "compounding profits".

Hence unlike investing in assets like gold, which are not productive, investing in shares, which represent
ownership in productive assets (business), hold very high upside potential. The "power of compounding" is what
makes investing in stocks very attractive. In very simple terms it means that the returns on the principal also earn
returns. In other words, Rs 10,000 that earns mere returns of 20% per annum becomes Rs 30,000 in ten years
whereas Rs 10,000 compounding at 20% per annum turns out to be Rs 62,000 in ten years.As you stretch the time
horizon, your money appreciates further. Compounding at 20% per annum Rs 10,000 becomes Rs 62,000 in ten
years, Rs 1,54,000 in 15 years and Rs 3,83,000 in 20 years. Hence the longer the duration of investment, the better
are the returns.

If one top its original investment with regular savings, the return would be exponential, as seen in the table given
below:

Return @ a modest Additional Investment Total Amt. to be carried forward to next

earing Investment
20% annually year

1 10,000.00 2,000.00 10,000.00 22,000.00

2 22,000.00 4,400.00 10,000.00 36,400.00

3 36,400.00 7,280.00 10,000.00 53,680.00

4 53,680.00 10,736.00 10,000.00 74,416.00

5 74,416.00 14,883.20 10,000.00 99,299.20

6 99,299.20 19,859.84 10,000.00 129,159.04

7 129,159.04 25,831.81 10,000.00 164,990.85

8 164,990.85 32,998.17 10,000.00 207,989.02

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 9 207,989.02 41,597.80 10,000.00 259,586.82

10 259,586.82 51,917.36 10,000.00 321,504.19

11 321,504.19 64,300.84 10,000.00 395,805.02

12 395,805.02 79,161.00 10,000.00 484,966.03

13 484,966.03 96,993.21 10,000.00 591,959.23

14 591,959.23 118,391.85 10,000.00 720,351.08

15 720,351.08 144,070.22 10,000.00 874,421.29

16 874,421.29 174,884.26 10,000.00 1,059,305.55

17 1,059,305.55 211,861.11 10,000.00 1,281,166.66

18 1,281,166.66 256,233.33 10,000.00 1,547,400.00

19 1,547,400.00 309,480.00 10,000.00 1,866,880.00

20 1,866,880.00 373,376.00 10,000.00 2,250,256.00

When should one start investing in shares?

The critical point to remember is that the earlier in your life do you start investing in shares, the better the returns
you can generate. The money that you use to buy shares must necessarily be money that you do not need in the
next three to four years. So you can start investing only when you have surplus money (after taking care of
personal debts if any). Never borrow to invest in the stock market. The surplus money that you have should be
invested wisely in shares to reap the rewards. Certainly, investing is risky. Higher returns always come with higher
risks. However the risks of investing need not deter one. After all, the rewards outweigh the risks. A ship is safest
in the harbour, but it was never built to stay anchored. Similarly, your surplus money is meant to create wealth
for you. And it can't generate wealth for you unless you invest it in shares.

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Investment Products offered by Idafa Investments

IDAFA (iz’aafah) means multiplying or doubling. As the name suggests, company’s main concern at Idafa
Investments is to create wealth for their customers, but we take on the additional responsibility of helping you to
make money – the shariah way!

Investing in Equity Shares – the Shariah Way!

Idafa Investments offers Equity Share Broking services since 1994 on Indian Exchanges. It screens all the listed
companies based on the Shariah guidelines and does not deal in the ones involved in Haraam businesses like
production and sales of alcohol, tobacco, obscene entertainment, banking / finance companies and companies
involved in operations that are detrimental for our environment and ecosystem.

Idafa Investments also follow guidelines offered by Shariah scholars and screen companies on the basis of some
financial ratios like ‘Debt to Market Capitalisation’, ‘Liquid Investments to Market Capitalisation’ and
‘Receivables to Market Capitalisation’. If it finds the companies to be extremely stretched on these financials,
they disallow their customers to deal in them. It hosts the complete list of shares with its Shariah Compliance
Status on www.idafa.cmlinks.com.

It is commonly understood that investing in Equity Shares is like Gambling, but considering the compliance
criteria mentioned above and the fact that speculative trading is prohibited leads one to the correct perspective.
Investment in equity shares should be done based on fundamental analysis of a company and not on the basis of
tips and rumours. Idafa Investments has experts for this purpose, who trade on behalf of their customers.

Recently Idafa has introduced internet trading and have joined hands with Angel Broking Ltd. to offer better
services to our customers.

One can invest in Tata Select Equity Fund, previously the only Shariah Compliant mutual fund in India, through
Idafa Investments. One can start with a minimum investment of Rs. 5,000.00 in this fund. A Systematic
Investment Plan (SIP) is an excellent option for youngsters to save and invest over the long term and benefit
exponentially from the opportunities available in the equity markets from time to time. This is made possible by
the ‘Power of compounding’. The minimum amount for SIP is Rs. 1,000.00 and all the customer has to do is give
their bank account details and the amount will be debited by Tata Asset Management Co. every month. Investment
Advisory & Management – the Shariah Way, Idafa can take care of an entire range of investment related activities
for its customers - from assisting them in selecting stocks to managing their portfolio of equity shares for optimum
wealth creation.
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Working Style of Idafa Investments

Idafa investments have a sincere and dedicated team of consultants who continuously monitor the stock markets
to generate profits for you, without compromising on Shariah by avoiding any dealings in companies involved in:

Production and sales of alcohol,

Production and sales of tobacco,

Production and sales of vulgar entertainment

lending and borrowing on interest (banks and finance companies)

There are some financial parameters required for Shariah compliance like:

Debt to Assets: Exclude companies for which Total Debt divided by Trailing 12-Month Average Market
Capitalization (TTMAMC) is greater than or equal to 33%. (Note: Total Debt = Short-Term Debt + Current
Portion of Long-Term Debt + Long-Term Debt)

Liquid Assets to Total Assets: Exclude companies for which the sum of Cash and Interest-Bearing
Securities divided by TTMAMC is greater than or equal to 33%.

Receivables to Assets: Exclude companies if Accounts Receivables divided by TTMAMC is greater than
or equal to 33%. (Note: Accounts Receivables = Current Receivables + Long-Term Receivables). Receivables
(current + long term) should not be more than 45% of the total assets

It is often understood by people at large that Stock Exchanges are Gambling Dens and thus an unethical avenue
for investment. This understanding is flawed, if we consider the criteria of investments listed above and the fact
that any form of speculative trading swing trading, margin trading, day trading, short selling or trading in
derivatives is prohibited. In fact, every investment has to done on the basis of the fundamental analysis of a
company and its activities.

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Services offered to invest - the Shariah Way

Stock Broking: Idafa Investments offer Stock Broking services since 1994. Our dedicated team of dealers
can diligently execute your trades on BSE and NSE. We screen all companies based on the Shariah guidelines.

Mutual Funds: A mutual fund is a pool of investments by several thousand investors, which in turn
invests in various listed and unlisted securities. Idafa Investments offer investment options in Tata Select Equity
Fund and Taurus Ethical Funds, the only Shariah Compliant mutual funds in India.

Investment Advisory & Management: Idafa Investments can take care of an entire range of Investment
related activities for its customers - from assisting you in selecting stocks to managing your portfolio of stocks
for optimum wealth creation.

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Fundamental Analysis

Fundamental analysis is the process of looking at a business at the most basic or fundamental financial level. This
type of analysis examines the key ratios of a business to determine its financial health. Fundamental analysis can
also give you an idea of the value of what a company's stock should be. It takes several factors into account,
including revenue, asset management, and the production of a business as well as interest rate.

Fundamental Analysis (FA) is a holistic approach to study a business. When an investor wishes to invest in a
business for the long term it becomes extremely essential to understand the business from various perspectives. It
is critical for an investor to separate the daily short-term noise in the stock prices and concentrate on the underlying
business performance. Over the long term, the stock prices of a fundamentally strong company tend to appreciate,
thereby creating wealth for its investors.

Financial Ratios

Ratio analysis is a quantitative method of gaining insight into a company's liquidity, operational efficiency, and
profitability by comparing information contained in its financial statements. Ratio analysis is a cornerstone
of fundamental analysis. A financial ratio or accounting ratio is a relative magnitude of two selected numerical
values taken from an enterprise's financial statements. Often used in accounting, there are many
standard ratios used to try to evaluate the overall financial condition of a corporation or other organization.
Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm,
and by a firm's creditors. Financial analysts use financial ratios to compare the strengths and weaknesses in
various companies. If shares in a company are traded in a financial market, the market price of the shares is used
in certain financial ratios.

Financial ratios quantify many aspects of a business and are an integral part of the financial statement analysis.
Financial ratios are categorized according to the financial aspect of the business which the ratio
measures. Liquidity ratios measure the availability of cash to pay debt. Activity ratios measure how quickly a firm
converts non-cash assets to cash assets. Debt ratios measure the firm's ability to repay long-term debt. Profitability
ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return.
Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. These
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are concerned with the return on investment for shareholders, and with the relationship between return and the
value of an investment in company's shares.

Financial ratios allow for comparisons

• between companies
• between industries
• between different time periods for one company
• between a single company and its industry average

Types of Financial ratios

I. Profitability Ratios
II. Leverage Ratios
III. Valuation Ratios
IV. Operating Ratios

Profitability Ratios
The Profitability ratios help the analyst measure the profitability of the company. The ratios convey how well
the company is able to perform in terms of generating profits. Profitability of a company also signals the
competitiveness of the management. As the profits are needed for business expansion and to pay dividends to its
shareholders a company’s profitability is an important consideration for the shareholders.

The profitability ratios, also known as performance ratios, assesses the firm`s ability to earn profits on sales, assets
and equity. These are critical to determining the attractiveness of investing in company shares, and investors use
these ratios widely. We will examine five important profitability ratios, namely, gross profit margin, operating
profit margin, net profit margin, return on assets, and return on equity.

1. Gross Profit Margin

The gross profit margin (GPM) shows the firm`s profit margin after deducting costs of goods sold but before
deducting operating expenses, interest expenses, and taxes.This ratio is also known as gross profit ratio.

Sales - Cost of Goods Sold

Gross Profit Margin =
Sales
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This is the first level of profitability. The GPM depends primarily on the firm`s product pricing and cost control.
The price of the product impacts sales. Production cost such as material, labour, and overhead or the cost of
purchases affect the cost of goods sold. A firm with a better ability to price products in line with inflation of cost
of production and the ability to control production costs or suppliers will be able to maintain or increase gross
margins.

2. Operating Profit margin

The operating profit margin (OPM) shows the firm`s profit margin after deducting cost of goods sold and
operating expenses but before interest expenses and taxes. The operating profit is the earnings before interest and
taxes or EBIT as a percent of ales.

Operating Profit margin = EBIT

SALES

The OPM reflects the true profitability of firm`s business in that it is calculated before deducting interest costs,
which are a result from firm`s financing decision, and taxes, which are outside the control of the firm. In other
words, regardless of the way the firm is financed, whether through debt or equity, and regardless of the taxes
imposed by the government, the firm is able to earn this margin.

3. Net Profit Margin

This is the bottom-line profitability, which most analysts and investors pay attention to on a regular basis. The net
profit margin (NPM) shows the firm`s profit margin after all the costs and expenses. It is the profit available for
distribution to common shareholders a percentage of sales.

Net Profit margin =

Net Income

Sales

Obviously, the lower operating profit margin is one reason for the lower NPM. It is also possible that, since the
firm is more debt-financed than an average firm, it has more interest expenses as well. Since taxes are fixed, the
key difference between the OPM and NPM is interest costs, which are linked to the firm`s financing decision.

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4. Return on assets

The return on assets (ROA) measures the return earned on total assets employed in the business. Sometimes, this
is also referred to as the return on total capital. Since total assets are financed through both debt and equity, is
important that the return measure used for this calculation reflects income to both shareholders and debt holders.
We define the return as the net income available for distribution to shareholders plus the interest expenses paid to
debt holders. This return is divided by the average total assets, which represents the simple average of the total
assets at the beginning and ending balance sheets.

Return on assets = Net Income + Interest

Expenses

Average Total Assets

5. Return on Equity

The return on equity (ROE) measures the return earned on the capital provided by the common stockholders
(Equity holders). It is the net income as a percent of the average common equity, where the average common
equity is the simple average of the common equity at the beginning and ending balance sheets. The net income is
the income available for distribution to ordinary shareholders after deducting any preferred dividends.

ROE =
Net Income

Average Common Equity

Leverage Ratios

The leverage ratios, also called debt management ratios, measure two key aspects of the use of debt financing by
the firm. The use of debt financing a called financial leverage. We want to know the level of financial leverage
used by the business as well as the ability of the firm to service its debt obligations. The debt ratio, debt-equity
ratio and interest cover is discussed below.

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1. Debt Ratio

The debt ratio indicates the proportion of assets financed through both short-term and longterm debt. This ratio is
computed as total debt, which is the sum of short-term and long-term debt, as a percentage of total assets. A higher
ration indicates higher leverage. A higher ration also means lower debt capacity in that the ability for the firm to
raise funds through more debt is lower due to already high debt levels.

Debt Ratio = Total Debt

Total Assets

2. Debt – Equity Ratio

The debt to equity ratio (D/E) is also widely used as an indication of the level of financial leverage. While there
are several ways of computing this ratio, the most useful version is to express long term debt as percent of total
equity. Thus it focuses only on the long-term financing, both debt and equity, and it is meaningful when we want
to examine the long-term leverage. Total equity includes both preferred equity and common equity. A higher debt
equity ratio indicates greater leverage and potentially higher financial risk.

Long Term Debt

Debt – Equity Ratio =
Total Equity

3. Interest Cover

The interest converge ratio, also known as the times-interest earned ( TIE), measures the ability of firm`s current
operating earnings (EBIT) to meet current interest obligations. It is the ratio of EBIT to interest charge. The ratio
shows number of times the interest payment are covered by the firm`s operating earnings. The larger the coverage
the better their ability of the firm to service interest obligations on debt.

Interest Coverage = EBIT

Interest Charge

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Valuation Ratios

The valuation ratios indicate the market valuation of a stock in terms of some measure of company fundamentals
such as earnings, book value, cash flows, and dividends. These are the ratios that investors tend to look at on a
daily basis. These ratios change whenever the price of the stock changes. We will discuss the price/earnings ratios,
the price/book value ratio, the price/cash flow ratio, and dividend yield.

1. Price / Earnings ratio (P/E)

This is the most widely used valuation ratio. It indicates the market price of a share in terms of earnings. It is the
rupee amount an investor has to pay for each rupee of earnings made by the firm for the ordinary shareholder.

P/E = Market Price per share

Earnings per Share

The earnings per share (EPS) is calculated as the net income available for ordinary shareholders divided by the
number of issued shares.

EPS = Net Income

Number of Shares

2. Price / Book Value Ratio (P/BV)

Price / Book Value is also a regularly reported and watched valuation ratio. It indicates the market price of a share
in terms of the book value of equity. It is the rupee amount an investor has to pay for each rupee of book value.

Equity
P/BV =
Number of Shares

The book value per share is calculated as the equity divided by the number of ordinary shares outstanding.

BV = Market Price per share

Booking Value per share

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3. Price / Cash Flow Ratio

The price/cash flow indicates the price of a share in terms of the cash flow per share. It shows the rupee amount
an investor has to pay for each rupee of cash flow generated.

Market Price Per Share

P/CF =
Cash Flow Per Share

Although not widely reported, this is in fact a more useful ratio than the P/E and P/BV ratios discussed earlier.
This is because the price of a share must be related to the actual cash flows generated by the firm to its
shareholders. There are a number of different definitions of cash flow, and the one we use here is the most basic
definition of cash flow. The cash flow is the net income available for ordinary shareholders adjusted for non-cash
income and expenses included in the income statement. Since most common non-cash item in the income
statement is depreciation of physical assets and amortization of intangible assets, the cash flow is calculated by
adding these two items to the net income.

Total cash flow = Net income + Depreciation & Amortization

CF = Total Cash Flow

Number of Shares

4. Dividend Yield (DY)

The dividend yield indicates the dividend income as a percentage of the investment. It is calculated as the common
dividend per share dividend by the market price per share.

DY =
Dividend Per Share * 100

Market price per share

This is a particularly an important valuation measure for investors seeking regular income. Investor who depend
on income from their investments include retired persons and well as pension and mutual funds, which invest with
the primary objective of maximizing the income return. These investors like to see a higher dividend yield.
Typically, higher dividend yields are associated with more stable and mature companies such as utilities. Growth

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 -oriented companies tend to pay lower dividends such as at a higher multiple, and as a result, produce lower
dividend yields.

The dividend per share (DPS) is the total dividends to ordinary shareholders during a specific period divided by
the number of ordinary shares outstanding.

Total Ordinary Share

DPS =
Number Of Shares

Operating Ratios

Operating Ratios also called ‘Activity ratios’ or the ‘Management ratios’ indicate the efficiency of the company’s
operational activity. To some degree, the operating ratios reveal the management’s efficiency as well. These ratios
are called the Asset Management Ratios, as these ratios indicate the efficiency with which the assets of the
company are utilized.

Some of the popular Operating Ratios are:

I. Fixed Assets Turnover Ratio

II. Working Capital Turnover Ratio
III. Total Assets Turnover Ratio
IV. Inventory Turnover Ratio
V. Inventory Number of Days
VI. Receivable Turnover Ratio
VII. Days Sales Outstanding

1. Fixed Assets Turnover Ratio

The ratio measures the extent of the revenue generated in comparison to its investment in fixed assets. It tells us
how effectively the company uses its plant and equipment. Fixed assets include the property, plant and equipment.
Higher the ratio, it means the company is effectively and efficiently managing its fixed assets.

Fixed Assets Turnover = Operating Revenues / Total Average Asset

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2. Working Capital Turnover Ratio

Working capital refers to the capital required by the firm to run its day to day operations. To run the day to day
operations, the company needs certain type of assets. Typically such assets are – inventories, receivables, cash
etc. If you realize these are current assets. A well managed company finances the current assets by current
liabilities. The difference between the current assets and current liabilities gives us the working capital of the
company.

Working Capital = Current Assets – Current Liabilities

3. Total Assets Turnover Ratio

This is a very straight forward ratio. It indicates the company’s capability to generate revenues with the given
amount of assets. Here the assets include both the fixed assets as well as current assets. A higher total asset
turnover ratio compared to its historical data and competitor data means the company is using its assets well to
generate more sales.

Total Asset Turnover = Operating Revenue / Average Total Assets

4. Inventory Turnover Ratio

Inventory refers to the finished goods that a company maintains in its store or showroom with an expectation of
selling the finished goods to prospective clients. Typically, the company besides keeping the goods in the store
would also keep some additional units of finished goods in its warehouse.

If a company is selling popular products, then the goods in the inventory gets cleared rapidly, and the company
has to replenish the inventory time and again. This is called the ‘Inventory turnover

Inventory Turnover = [Cost of Goods Sold / Average Inventory]

5. Inventory Number of Days

While the Inventory turnover ratio gives a sense of how many times the company ‘replenishes’ their inventory,
the ‘Inventory number of Days’ gives a sense of how much time the company takes to convert its inventory into
cash. Lesser the number of days, the better it is. A short inventory number of day’s number implies, the company’s
products are fast moving. The formula to calculate the inventory number of days is:

Inventory Number of Days = 365 / Inventory Turnover

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6. Receivable Turnover Ratio

Having understood the inventory turnover ratio, understanding the receivable turnover ratio should be quite easy.
The receivable turnover ratio indicates how many times in a given period the company receives money/cash from
its debtors and customers. Naturally a high number indicates that the company collects cash more frequently.

The formula to calculate the same is:

Accounts Receivable Turnover Ratio = Revenue / Average Receivables

7. Days Sales Outstanding

The days sales outstanding ratio illustrates the average cash collection period i.e the time lag between billing and
collection. This calculation shows the efficiency of the company’s collection department. Quicker/faster the cash
is collected from the creditors, faster the cash can be used for other activities. The formula to calculate the same
is:

Days Sales outstanding = 365 / Receivable Turnover Ratio

Technical Analysis

Technical Analysis (also abbreviated as TA) is a popular technique that allows you to do just that. It not only
helps you develop a point of view on a particular stock or index but also helps you define the trade keeping in
mind the entry, exit and risk perspective.

Like all research techniques, Technical Analysis also comes with its own attributes, some of which can be highly
complex. However technology makes it easy to understand.

Probably one of the greatest versatile features of technical analysis is the fact you can apply TA on any asset class
as long as the asset type has historical time series data. Time series data in technical analysis context is information
pertaining to the price variables namely – open high, low, close, volume etc. you can apply the concept of TA on
any asset class – equities, commodities, foreign exchange, fixed income etc.

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if you are dealing with agricultural commodity like Coffee or Pepper then the fundamental analysis includes
analysing rainfall, harvest, demand, supply, inventory etc. However, the fundamentals of metal commodities are
different, so is for energy commodities. So, every time you choose a commodity, the fundamentals change.

However, the concept of technical analysis will remain the same irrespective of the asset you are studying. For
example, an indicator such as ‘Moving average convergence divergence’ (MACD) or ‘Relative strength index’
(RSI) is used exactly the same way on equity, commodity or currency.

Assumption in Technical Analysis

Unlike fundamental analysts, technical analysts don’t care whether a stock is undervalued or overvalued. In fact
the only thing that matters is the stocks past trading data (price and volume) and what information this data can
provide about the future movement in the security.

Technical Analysis is based on few key assumptions. One needs to be aware of these assumptions to ensure the
best results.

1) Markets discount everything – This assumption tells us that, all known and unknown information in the public
domain is reflected in the latest stock price. For example there could be an insider in the company buying the
company’s stock in large quantity in anticipation of a good quarterly earnings announcement. While he does this
secretively, the price reacts to his actions thus revealing to the technical analyst that this could be a good buy.

2) The ‘how’ is more important than ‘why’ – This is an extension to the first assumption. Going with the same
example as discussed above – the technical analyst would not be interested in questioning why the insider bought
the stock as long he knows how the price reacted to the insider’s action.

3) Price moves in trend – All major moves in the market is an outcome of a trend. The concept of trend is the
foundation of technical analysis. For example the recent upward movement in the NIFTY Index to 7700 from
6400 did not happen overnight. This move happened in a phased manner, in over 11 months. Another way to look
at it is, once the trend is established, the price moves in the direction of the trend.

4) History tends to repeat itself – In the technical analysis context, the price trend tends to repeat itself. This
happens because the market participants consistently react to price movements in a remarkably similar way, each
and every time the price moves in a certain direction. For example in up trending markets, market participants get
greedy and want to buy irrespective of the high price. Likewise in a down trend, market participants want to sell
irrespective of the low and unattractive prices. This human reaction ensures that the price history repeats itself.

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The Indian stock market is open from 9:15 AM to 15:30 PM. During the 6 hour 15 minute market session, there
are millions of trades that take place. Think about an individual stock every minute there is a trade that gets
executed on the exchange.

To illustrate this further, let us consider this Reliance instustries stock in which there are many trades. Look at
the picture below. Each bar refers to a trade being executed at a particular time. If one manages to plot a graph
which includes every second from 9:15 AM to 15:30 PM, the graph will be cluttered with many bars. Hence in
the chart below, for ease of understating I’ve plotted a limited time scale period:

Market opened at 9:15 AM and closed at 15:30 PM during which there were many trades. It will be practically
impossible to track all these different price points. In fact what one needs is a summary of the trading action and
not really the details on all the different price points.

By tracking the Open, high, low and close we can draw a summary of the price action.

The open – When the markets open for trading, the first price at which a trade executes is called the opening Price.

The high – This represents the highest price at which the market participants were willing to transact for the given
day.

The Low – This represents the lowest level at which the market participants were willing to transact for the given
day.

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 The close – The Close price is the most important price because it is the final price at which the market closed for
a particular period of time. The close serves as an indicator for the intraday strength. If the close is higher than
the open, then it is considered a positive day else negative. Of course we will deal with this in a greater detail as
we progress through the module.

The closing price also shows the market sentiment and serves as a reference point for the next day’s trading. For
these reasons, closing price is more important than the Open, High or Low prices.

The open, high, low, close prices are the main data points from the technical analysis perspective. Each of these
prices have to be plotted on the chart and analyzed.

As you may have guessed, the regular charts that we are generally used to – like the column chart, pie chart, area
chart etc does not work for technical analysis. The only exception to this is the line chart.

The regular charts don’t work mainly because they display one data point at a given point in time. However
Technical Analysis requires four data points to be displayed at the same time.

Below are some of the chart types:

1. Line chart

2. Japanese Candlestick

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 The Line and Bar chart

The line chart is the most basic chart type and it uses only one data point to form the chart. When it comes to
technical analysis, a line chart is formed by plotting the closing prices of a stock or an index. A dot is placed for
each closing price and the various dots are then connected by a line.

If we are looking 60-day data then the line chart is formed by connecting the dots of the closing prices for 60
days.

The advantage of the line chart is its simplicity. With one glance, the trader can identify the generic trend of the
security. However, the disadvantage of the line chart is also its simplicity. Besides giving the analysts a view on
the trend, the line chart does not provide any additional detail. Plus the line chart takes into consideration only the
closing prices ignoring the open, high and low. For this reason, traders prefer not to use the line charts.

In a candle stick chart, candles can be classified as a bullish or bearish candle usually represented by
blue/green/white and red/black candles respectively. Needless to say, the colours can be customized to any colour
of your choice; the technical analysis software allows you to do this. In this module we have opted for the blue
and red combination to represent bullish and bearish candles respectively.

Let us look at the bullish candle. The candlestick, like a bar chart is made of 3 components.

1. The Central real body – The real body, rectangular in shape connects the opening and closing price

2. Upper shadow – Connects the high point to the close

3. Lower Shadow – Connects the low point to the open

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 Have a look at the image below to understand how a bullish candlestick is formed:

Likewise, the bearish candle also has 3 components:

1. The Central real body – The real body, rectangular in shape which connects the opening and closing price.
However, the opening is at the top end and the closing is at the bottom end of the rectangle

2. Upper shadow – Connects the high point to the open

3. Lower Shadow – Connects the Low point to the close

The Support and Resistance

The best way to identify the target price is to identify the support and the resistance points. The support and
resistance (S&R) are specific price points on a chart which are expected to attract maximum amount of either
buying or selling. The support price is a price at which one can expect more buyers than sellers. Likewise, the
resistance price is a price at which one can expect more sellers than buyers.

On a standalone basis, traders can use S&R to identify trade entry points as well.

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The Resistance

As the name suggests, resistance is something which stops the price from rising further. The resistance level is a
price point on the chart where traders expect maximum supply (in terms of selling) for the stock/index. The
resistance level is always above the current market price.

The likely hood of the price rising up to the resistance level, consolidating, absorbing all the supply, and then
declining is high. The resistance is one of the critical technical analysis tools which market participants look at in
a rising market. The resistance often acts as a trigger to sell.

Here is the chart of Kotak bank. Previously it tried to break 1507-09 levels but didn’t break and after breaking the
resistance it good movement in its price and now kotak back at same levels if breaks this level the we can see
movement in stock and it can test 1520 levels importance resistance for kotak bank is 1542-04 we can see that it
tried many times to break this level but not able to cross.

The Support

As the name suggests, the support is something that prevents the price from falling further. The support level is a
price point on the chart where the trader expects maximum demand (in terms of buying) coming into the
stock/index. Whenever the price falls to the support line, it is likely to bounce back. The support level is always
below the current market price.

There is a maximum likely hood that the price could fall till the support, consolidate, absorb all the demand, and
then start to move upwards. The support is one of the critical technical level market participants look for in a
falling market. The support often acts as a trigger to buy.

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 Below is the chart of kotak bank support is mainly know as reversal point of any stock as we can see that kotak
has strong support at 1490-92 levels and stock has reversed from this level many time and after taking support it
has shown good upward movement.

Construction/Drawing of the Support and Resistance level

Step 1) Load data points – If the objective is to identify short term S&R load at least 3-6 months of data points.
If you want to identify long term S&R, load at least 12 – 18 months of data points. When you load many data
points, the chart looks compressed. This also explains why the above two charts looks squeezed.

1. Long term S&R – is useful for swing trading

2. Short term S&R – is useful intraday and BTST trades

In the chart below, the encircled points indicate the price hesitating to move up further after a brief up move:

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In the chart below, the encircled points indicate the price hesitating to move down further after a brief down move:

In the chart below, the encircled points indicate sharp price reversals:

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Step 3) Align the price action zones – When you look at a 12 month chart, it is common to spot many price
action zones. But the trick is to identify at least 3 price action zones that are at the same price level.

Step 4) Fit a horizontal line – Connect the three price action zones with a horizontal line. Based on where this
line fits in with respect to the current market price, it either becomes a support or resistance.

Have a look at this chart:

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Here is another chart, where both S&R have been identified for Kotak bank.

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Research: Understanding Shariah and its aspects

Introduction

Understanding Shariah and its characteristics are important to fully understand the Shariah based investments.
Shariah based indices, funds etc can be seen in many countries now, such as Malasia, Indonesia, Middle east
countries, Pakistan and even India, including many others. This research aims to understand the meaning and
characteristics of shariah, and how it is performing.

Objective

• To understand the meaning of Shariah

• To evaluate how shariah based investments perform

Scope

Shariah is a widely accepted concept of investing among Muslim communities and countries with majority of this
community. Thus, the scope of this research is very wide, yet focused on specific theme of “ethical” investment,
as per Shariah guidelines.

Research Methodology

For research purpose, articles and studies from around the world about this particular theme are referred. Also,
various sources of information are used to extract important content. Being a conceptual topic, the research carried
out is mainly descriptive in nature.

Literatures are read and reviewed. Findings are extracted from these reviews itself.

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Shariah
What is Shariah

Sharia (also known as "Shariah" or "Shari'a") is an Islamic religious law that governs not only religious rituals but
also aspects of day-to-day life in Islam. Sharia, literally translated, means "the way."

There is extreme variation in how Sharia is interpreted and implemented among and within Muslim societies
today. This is especially prevalent for its financial laws.

Breaking Down Shariah

Sharia-compliant finance is an area of modern finance that is growing among many banks and investment houses.
This is due in part to investors eager to work with the Middle East as oil prices continue to increase. Western
financial services firms are beginning to offer Sharia-compliant investment vehicles that neither pay interest, nor
benefit from gambling.

Ways Sharia Establishes Guidelines for Making Investments

Sharia prohibits the collection of interest paid by a borrower to a lender. Neither party can engage in this practice,
which is a staple of many types of financial arrangements and transactions. This naturally can include loans and
mortgages, as well as financial vehicles that build interest in order to generate a return. Investing in conventional
banking and insurance firms therefore can be prohibited under Sharia.

The activities of business that are invested in under Sharia are also relevant. Companies that may not be invested
in include brewers and other producers of alcoholic beverages. Producers and distributors of pornography are
likewise banned. Companies that create products such as ham, bacon are disallowed from investments. The
producers of weapons and related armaments are not to be invested in. Makers of tobacco and tobacco-related
products are also may not be invested in. Businesses that are also deemed by the Sharia Board as prejudicial
against the principals of the faith are disqualified from being invested in.

Businesses that are not directly engaged in but derive more than 5% of their revenue from proscribed activities
are also prohibited.

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The various tenants of Sharia law mean that investment strategies must be developed that can accommodate these
restrictions. This does mean that followers of the faith who abide by Sharia cannot engage in sizable portions of
the market. There are Sharia-compliant funds that exist to adhere to the restrictions of the faith.

In late 2007, a Sharia index was launched on the Tokyo Stock Exchange. This index includes companies that
comply with Sharia law. The companies included in this index are screened on a daily basis and exclude non-
Sharia-compliant companies such as casinos and alcohol and tobacco companies.

In the West, Sharia-compliant investments are similar to socially responsible investments.

Ethics in Shariah-Compliant Business and Finance

Ethics involves the moral behaviour of a person and it is equally important in today’s business and finance. Ethics
in business includes social and environmental responsibilities and leads to sustainable business. Islamic Shariah-
compliant commerce and finance is based on religious doctrines and thus is inherently ethical. Islamic business
ethics outlines the permissible forms of business and Shariah-compliant products and transactions. Specific ethical
rules in Islamic business, many of which are common to business ethics anywhere in the world, are as follows:

• Honesty. All parties should be truthful, fair and just to each other and fulfil their obligations.
• Transparency. All contracts should clearly specify the quality, quantity and price of the goods or services
being transacted; they should also specify delivery details, and the rights and obligations of all parties.
• Mutual consent. All parties in the contract should have entered into it with mutual consent, without any
coercion or exploitation.
• Property. No property can be appropriated wrongfully or unjustly.
• Employees. All employees of the business should be treated fairly.
• Price stability. Shariah prohibits hoarding or cheating, which achieves price stability.
• Generosity and leniency. Shariah encourages parties in the business transaction to be considerate of all
other parties, and be generous whenever possible, sell or buy at a fair price and allow additional time to
borrowers if they really need it.
• Halal versus Haram. Only Halal businesses, products and transactions should be dealt with and all Haram
or prohibited items should be avoided.

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Shariah Supervisory Board (SSB)
All Islamic financial institutions require Shariah supervision and the body most commonly responsible for this is
the Shariah Supervisory Board, formed by a group of Shariah scholars or Islamic jurists. The Shariah scholars
usually have Shariah qualifications from acceptable institutions and some knowledge and expertise in the areas
of finance and banking is useful. In the organizational structure of the IFI, the SSB has authority over the Board
of Directors in matters related to Shariah compliance and the SSB may have conflicts with the BOD or
management or there may be a lack of consensus within the members of the SSB. The aim of the Islamic finance
and banking industry is to develop a global SSB that provides standardized rulings for institutions around the
world to minimize conflicts.

The SSB has multiple functions revolving around the achievement of Shariah compliance in the products,
processes and operations of IFIs and these functions can be grouped into supervisory and advisory roles. Shariah
governance is to a large extent like corporate governance, ensuring that the organization is managed to uphold the
best interests of all stakeholders; additionally, it guarantees that the IFI follows Shariah requirements and is in
compliance. The Shariah governance process involves the internal and external Shariah audit and the production
of the annual Shariah report and the Shariah certificates.

Islamic Investment Policy

Islamic investments are a unique form of socially responsible investments because Islam makes no division
between the spiritual and the secular.

The establishment of an Islamic investment policy, be it for the institutional or individual investor, starts with
the Sharia Board, a group of Islamic scholars (jurists) that vests investment products for compliance with Islamic
Law and conducts ongoing due diligence of them. Sources for interpretation follow a hierarchy of authority: the
Quran, believed by Muslims to be the words of Allah verbatim as revealed to his prophet Muhammad in the
seventh century; the Sunnah, which are rules from the prophet's sayings (Hadiths) and actions; Qiyas, which are
scholarly legal deductions; and Ijma, the consensus of scholars on a particular issue.

The challenges a Sharia-compliant portfolio faces are similar to those that any other portfolio manager would
come up against in that the manager must formulate an investment thesis, which drives portfolio selection criteria,
and then decide on the appropriate benchmark against which to measure performance. However, managing assets
in accordance with Islamic precepts is a bit more complicated because there is the unique specification of avoiding
interest-bearing investments of any kind.

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Because borrowing and setting aside excess funds in short-term, low-risk, interest-bearing instruments is integral
to corporate finance, the application of Islamic law to corporate finance poses some interesting questions.

From a private client portfolio management perspective, once armed with Sharia-permissible products, an
investment committee at an Islamic private wealth firm would face the same issues as any other, namely, how to
develop, implement and monitor an investment policy consistent with a client's objectives. Additional challenges
exist, though, namely the lack of both a deep secondary market for these products and the lack of uniform
standards in the vetting process across the Muslim world.

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Literature Reviews

1. Author: Alam, A. (2011)

“Choosing the Best Investment for Muslims According to Shariah”

Investment is owning one or more assets and usually long term with the hope of gaining profit in the future. The
return earned must be proportional to the risk of losses on assets. That is, the higher the risk of assets the higher
the expected return of the asset. The purpose of this study is to determine the difference of rate of risk on Islamic
stock, Islamic mutual fund, sukuk, 3 months of mudharabah deposit, gold, and property period 2008-2016. It uses
quantitative approach by using Kruskal-Wallis test. The sample collecting method used is purposive sampling.
This study used secondary data that was collected from official websites of Indonesia Stock Exchange, PT BNP
Paribas, Indosat Ooredoo, Bank Syariah Mandiri, Price Gold, and Residential Property Price Index on Makassar.
Data used was historical data. The result Kruskal-Wallis test show that there was significant difference of rate of
risk on Islamic Stock, Islamic Mutual Fund, Sukuk, Mudharabah deposit, Gold and Property. The result of this
study proved that Islamic Stock is better than another type of investments.

2. Author: Alam, M., Choudhary, A. & Shahriar, S. (2012)

“The Islamic Shariah Principles for Investment in Stock Market”

Due to chronic financial crises experienced during last several decades repeatedly and a failure to protect
investors’ rights as a result, the world is looking for an alternative form of stock market for quite some time so
that interests of all relevant stakeholders can be safeguarded. At the same time, from the perspectives of devout
Muslims, the current form of stock market restricts a Muslim to make investments in the market due to
unsatisfying several provisions from the Islamic law, known as shariah. This study provides the criteria under
which conditions the Islamic shariah permits making investments in the stock market. Hand in hand with that
primary discussion, it has been eluded briefly why the Islamic shariah principles offer a better alternative against
conventional practices of the stock market.

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 3. Author: Catherine, S. (2019)

“External and internal determinants of performances of Shariah and non-Shariah compliant firms”

This study provides comprehensive models that investigate the combination of both external fundamentals and
internal characteristics on firm performance and if there is any difference between Shariah and non-Shariah
compliant firms. The objective of this paper therefore is to analyze the significant relation between external
fundamentals, internal characteristics and firm performance. Design/methodology/approach Panel data regression
analyses are applied to determine significant results. It helps to control for unobserved factors of firm
heterogeneity, which may result in spurious regression. Findings Most internal firm characteristics are found to
be significant, but the same cannot be said for external fundamentals. Firm size is found to be very significant in
driving both sets of firm performances. Financial distress in term of higher level of leverage is found to be a
negative driver of non-Shariah-compliant firms’ performance in terms of return on asset but not for Shariah firms
consistent with Islamic finance understanding. Shariah-compliant firms with higher liquidity tend to perform
much better than less liquid firms, but the same is not found for non-Shariah-compliant ones. Research
limitations/implications This study is limited to the industrial production sector and compares both Shariah and
non-Shariah compliant firms. Practical implications This study adds new findings to clarify the roles of external
macroeconomic fundamentals and internal characteristics determinants on firm performance. Findings from this
study combine relevant information on different sets of determinants on firm performance and produce empirical
evidence beneficial to both sets of Shariah and non-Shariah compliant firms in the industry. Originality/value This
paper fulfills the need for firms to understand the external and internal environment for continuous survival and
performance. It is therefore important for firms to recognize the possible factors which may influence their
performance and mechanisms to sustain their performance for long-term survival.

4. Author: Ghosh, B. (2013)

“Shariah Investment in India: An Unexplored Opportunity”

The Religious set of banking, especially Islamic Banking and Investment was nonexistent around 30 years back.
But in 2006, Islamic financial institutions’ (IFIs) assets worldwide were estimated at more than $300 billion, with
another $400 billion i n financial investments, according to a study by accounting firm KPMG. Which is
considerable and the growth momentum noticed by KPMG is also substantial. According to the study conducted
by Consulting firm McKinsey & Co the current growth rate of Islamic Banking & Investment is 15% annually
and in coming 5 years this rate is going to be 20%. Islamic finance is built on the premise that while “commerce
had always been central to Islamic tradition, profits from pure finance [are] viewed with suspicion. Profits from
commerce are fundamentally different from those generated by money-lending.” Islam prohibits riba (“extra” or
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interest) and usury (excessive interest), because fixed, per-determined interest -based lending casts an inherent
risk of the lender exploiting the borrower. Islamic banking differs in the relationships between borrower and
lender, favouring profit-and loss sharing or partnership finance. Most large western financial institutions have
Islamic subsidiaries or at least Islamic products. In the US, a Dow Jones Islamic market index (DJIM) was
launched in 1999 to benchmark Shariah -compliant portfolios, even employing a board of Shariah scholars. Lately
though the formal introduction in Banking is delayed jointly by RBI and SEBI, because of complex methods of
operation.

5. Author: Habib, S. (2018)

“Shariah Law and the Shariah Supervisory Board”

All Islamic financial institutions require Shariah supervision and the body most commonly responsible for this is
the Shariah Supervisory Board, formed by a group of Shariah scholars or Islamic jurists. The Shariah scholars
usually have Shariah qualifications from acceptable institutions and some knowledge and expertise in the areas
of finance and banking is useful. In the organizational structure of the IFI, the SSB has authority over the Board
of Directors in matters related to Shariah compliance and the SSB may have conflicts with the BOD or
management or there may be a lack of consensus within the members of the SSB. The aim of the Islamic finance
and banking industry is to develop a global SSB that provides standardized rulings for institutions around the
world to minimize conflicts.

6. Author: Hussin, A., Ramli, N. & Zahid, Z. (2018)

“Performance of low volatility shariah equities in Malaysia”

Underperformance of Islamic equity investment encourages investors to look for new strategies such as low-
volatility investing. The most popular advantage in low-volatility stocks picking approach claimed by global
players, is the ability of volatile or bear market as a tool to reduce losses. The main objective of this paper is to
investigate the performance of low-volatility Shariah stocks in Malaysia by using FTSE Bursa Malaysia Emas
Shariah Index as the universe. The performance is evaluated using risk adjusted ratio, Sharpe and Treynor ratio
over a 10-year period from 2006 to 2016. The results show that the low-volatility shariah stocks in Malaysia
outperformed the conventional stock market in medium and long-term period. However the low-volatility Shariah
stocks underperformed the FBM Emas Shariah Index for all period of study. The analysis also suggest that in
long-term period, Sharpe Ratio of low-volatility equity has a significant lower unsystematic risk. The Sharp Ratio
for long-term period is the highest among the quintile portfolio. Sharpe Ratio of 0.01 indicates that the low-
volatility has earned an excess return over the risk free rate 0.01 the level of risk that it adds. However, short-term

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and medium-term show negative Sharpe Ratio for all quintile portfolio indicate that these portfolios earn a
negative excess return over the risk free rate of every 1% of risk that it adds.

7. Author: Aziz, N., Azmi, A. & Non, N. (2017)

“Challenges to Shariah equity screening, from Shariah scholars’ perspective”

This paper aims to examine the challenges of applying Shariah law in the equity market by engaging in narratives
with Shariah screeners and advisors on how they conduct their screening responsibilities despite the low levels of
Islamic-related disclosure made by companies in their annual reports. The Shariah screening processes in three
countries with different Islamic equity markets – Malaysia, Saudi Arabia and the United Kingdom – are examined.
Design/methodology/approach: The authors interview 19 Shariah screeners and advisors in three different Islamic
equity markets – Malaysia, Saudi Arabia and the United Kingdom. Findings: Overall, the findings in this study
show that despite the differences in the regulatory environment, companies still make Islamic-related disclosures
on a voluntary basis. However, the lack of Islamic-related disclosures presents various challenges for Shariah
screeners, particularly when identifying the operations that constitute the main activity of the company in
screening for prohibited activities. Research limitations/implications: Shariah screeners can play an important role
in increasing the level of understanding and perhaps increasing Islamic-related disclosures in annual reports by
establishing a set of effective guidelines or practices for Shariah screeners to use when screening companies for
their Shariah-compliant status. Originality/value: The paper identifies a gap in the Shariah screening literature and
voluntary Islamic disclosures literature. By identifying this gap, the paper highlights the challenges Shariah
screeners and advisors face because of the low level of Islamic-related disclosures.

8. Author: Kuanova, L. (2019)

“Universe of Islamic Investing – Capital Market”

This paper gives a discussion about the Islamic capital market products and it’s possible role to promote economy
and foster financial stability to a post revolution country such Tunisia. The Islamic financial system as a part of
the whole Islamic capital market is playing important roles in offering original modes of financing to both
individuals and businesses. That’s why we are asking about the possibility to develop an Islamic capital market
which will contribute to come out the economic difficulties of this country. This paper can be thought of as an
indicator about the contribution of Islamic capital market products.

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 9. Author: Kumar, S. (2015)

“Shariah Compliant stocks as wealth creation Tool”

The Shariah compliant stocks, which adhere the Shariah Investment principles. Shariah investment is rising
gradually in India for the last two-three decades. An empirical examination on risk and return behavior has been
conducted on the selected Shariah Compliant Stocks and benchmark indices during the period of 6 years from Jan
2006 to Dec 2011, which cover period prior during and after financial crisis. T-test, CAPM to estimate β, and
correlation Matrix calculation has been done on the closing prices of stocks and Shariah index of NSE, NIFTY
and Sensex .The study find the similarity of average returns of the Shariah Compliant Stocks and benchmark
indices, average return of the Shariah index and Stock index in India during the study period were also highly
resembled .Hence, the study reveals that the Viability of equity based Shariah Compliant as investment avenue.

10. Author: Manusami, D. (2015)

“Perception And Awareness Of An Ethical Investor's About The Shariah Investment In India”

This study examined the awareness about Shariah investment in India during the study period. The researcher
prepared a questionnaire and surveyed the respondents through an online survey. The study purposely selected
ethical investors in the Ethical wealth city group in Chennai. The researcher sent the questionnaire to 250
respondents and receives only 159 respondents during the study period. The study uses Cronbach's Alpha test and
examined the internal consistency of the variables and find that there is a reliability and an internal consistency in
the variables. The study also employs the Chi-Square test, Kolmogorov-Smirnov Test, simple regression and
multiple regression to test the hypotheses. The study found that an 80 percent of the respondents have gained
awareness about Shariah investment. The results of the Kruskal-Wallis Test indicates that there is a significant
difference between personal profile groups and awareness variables such as awareness factors, motivational
factors, risk & return perception and trading perception of the respondents about Shariah investment in India. The
study also found that there is a significant difference between awareness factors and other factors such as
motivational factors and trading perception. Finally, the study reveals that there is impact of awareness, motivation
and risk & return perception on the trading perception of respondents of Shariah Investment. The overall study
concludes that the awareness of respondents has been increasing and ethical investors are participating in the stock
market activity keenly.

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 11. Author: Manusamy, D., Hassan, M. & Paltriniery, A. (2019)

“Faith-based norms and portfolio performance: Evidence from India”

This paper investigates the performance of Shariah and conventional stock portfolios in India during the period
2001–2017 by using asset pricing models. We first examine the influence of Shariah investment principles on the
stock returns’ cross-section. Then we assess the overall risk of Shariah and conventional portfolios, focusing also
on financial crises. We provide evidence of a positive Shariah effect on stock returns in India. Therefore, Shariah
stocks offer higher returns than non-Shariah stocks. We also find that Shariah portfolios have lower risk than
unconstrained conventional ones. Overall our results reveal that both portfolios have similar performance, but the
Shariah portfolio has a lower level of risk. Finally, the results clearly indicate that the volatility of the Shariah
portfolio is lower during the crisis period.

12. Author: Mohammad, W. (2017)

“Shariah Compliant Investment Opportunities in Micro, Small and Medium Enterprises in India”

This paper discovers that in view of the uncertain behaviour of the GOI and RBI on introduction of Islamic
Banking in India, it is worthwhile to utilise the alternate options available within the existing regulations. One
among such options is Structured Shariah compliant Products. The study concludes that given the notable
participation of Muslims in MSMEs (especially in Gujarat state) and their funds requirement, it can be said that
MSME sector has huge potential for Shariah Compliant Investment practices. A few of such practices have been
initiated recently, but these have to be promoted further so as to enable Muslim community to contribute to India’s
Economic Development through MSME sector.

13. Author: Natrajan, P. (2012)

“Shariah Compliant Stocks in India - A Viable and Ethical Investment Vehicle”

The Shariah compliant stocks are tradable stocks which are adhere the Shariah Investment principles. Shariah
investment has been growing gradually in India for the last two decades. This work empirically examined the risk
and return behavior of the selected Shariah Compliant Stocks and benchmark indices during the period from 2nd
January 2007 to 29th July 2011. The closing prices of the selected Shariah Compliant stocks and closing value of
the Nifty Shariah index, Nifty index and BSE Sensex index were collected from the CMIE Prowess, NSE and

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BSE websites. The study objectives were examined by employing the t-test, CAPM to estimate beta, and
correlation Matrix. The study reveals that the average returns of the Shariah Compliant Stocks and benchmark
indices were almost similar. In the same line, average return of the Shariah index and Common index in India
during the study period were also highly resembled each other. With all Shariah principles, the Shariah index
provides same return as common index provide. Hence, the study reveals that the equity based Shariah Compliant
investment is a viable and ethical investment avenue.

14. Author: Nor, F. & Hassan, R. (2019)

“Value-Based Intermediation: An Analysis from The Perspective of Shariah And Its Objectives”

Despite considerable growth across the globe, including Malaysia, Islamic banking and finance has witnessed
substantial criticism over the lack of social concern in its economic activities, which is one of the most significant
elements of the objectives of Shariah. Currently, Bank Negara Malaysia has taken a new initiative by introducing
Value-Based Intermediation (VBI). It plays a crucial role in delivering the objectives of Shariah through various
strategies. The aim of this paper, hence, is to explore the Shariah principles that have been embedded in VBI. It
also aims to discuss the objectives of Shariah in VBI. This paper is qualitative, descriptive, and exploratory. It
employs document analysis and library research whereby the data is mainly derived from both primary and
secondary sources. This paper is confined to only a conceptual discussion on the implementation of Shari`ah and
its objectives in VBI. The findings indicate that there are at least five Shariah principles that have been embedded
in VBI. Furthermore, the general Shariah objective of having VBI is to deliver justice, establish values, and
enhance social responsibility. However, the specific Shariah objective of VBI is to achieve preservation of wealth
through various tools and mechanisms. Finally, this paper contributes to the body of knowledge by giving insights
on the implementation of the Shariah and its objectives in VBI, and it could be used as a reference in developing
a sound Islamic ethical foundation for future Islamic financial institutions that is lacking in Islamic finance
literature.

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 15. Author: Sherif, M. (2017)

“Shariah-Compliant Investments and Stock Returns: Evidence from the Indonesian Stock Market”

This paper investigates the impact of the Indonesia Shariah-compliant Stock Index (ISSI) on the performance of
included shares. In essence, we ask whether the establishment of the Indonesia Sharia Stock Index (ISSI) provides
abnormal returns for the firms that are not included in the Jakarta Index (JII). Design/methodology/approach: This
paper used an event study methodology to estimate cumulative abnormal returns (CARs) in the days surrounding
the event in order to examine the relationship between Shariah-compliant investments and stock returns. The
estimation window of 90 trading days prior to the event (-30) to day 60 after (+60) is adopted. It also use a range
of investment performance measures to provide new evidence on whether faith-based ethical investments generate
superior performance compared to their unscreened benchmarks. Originality/value: Although the global growth
of the Islamic capital market products and services has been tremendous in recent years, very few studies focus
on the Indonesian market and indeed, none of them devote sufficient attention to Shariah-compliant investments
and stock returns. Findings: Using daily returns, the Indonesia Sharia Stock Index (ISSI) and panel data model,
our findings show that the inclusion of the ISSI has a positive impact on the financial performance of the included
shares during the 41-day event window. The evidence also suggests that the ethical investment has a significant
influence on the performance of stock market returns.

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Shariah-Compliant Funds

What are Shariah-Compliant Funds?

Shariah-compliant funds are investment funds governed by the requirements of Shariah law and the principles of
the Muslim religion. Shariah-compliant funds are considered to be a type of socially responsible investing.

Understanding Shariah-Compliant Funds

Shariah-compliant funds are one of many categories found in socially responsible investing. Similar to other
socially responsible funds within the environmental, social and governance (ESG) universe, the funds screen
potential portfolio investments for specific requirements desired by followers of the Muslim religion.

Shariah-compliant funds have expanded in popularity only recently, even though the concept was first developed
in the late 1960s. According to a 2011 report by consulting firm PricewaterhouseCoopers (PwC), Shariah-
compliant funds grew at an annualized rate of 26% in the first ten years of this century. The report further states
that "an inflection point" in their growth occurred between 2002 and 2003, when petrodollar liquidity multiplied
and capital markets in the Gulf Cooperation Council (GCC) countries matured to enable investment.

According to a report by the Malaysia Islamic International Financial Center, total global Islamic assets under
management (AUM) were $70.8 billion at the end of the first quarter of 2017.The corresponding figure in 2008
was $47 billion. However, it is difficult to accurately estimate the industry's size or valuation because much of
the investment occurs through private placement. The funds are also not traded in secondary markets, thereby
providing less of a window into their constituents.

The concept requires considerable effort to implement, since much attention must be paid to compliance with a
comprehensive set of rules and requirements guided by the Shariah principles.

Shariah-compliant funds have many requirements that must be adhered to. Some of the requirements for a Shariah-
compliant fund include the exclusion of investments which derive a majority of their income from the sale of
alcohol, pork products, pornography, gambling, military equipment or weapons. Other characteristics of a
Shariah-compliant fund include an appointed Shariah board, an annual Shariah audit and purifying certain
prohibited types of income, such as interest, by donating them to a charity.

These rules can add complexity and costs to the management of a Shariah-compliant fund. For example, Shariah
boards are constituted of Islamic scholars whose fees can run into millions of dollars per year, adding to the overall
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cost of managing the fund. The scholars have varying interpretations of Islamic law, making it difficult and time-
consuming for them to arrive at a consensus for analysis and implementation regarding a particular course of
action.

Popular categories of investment for Shariah-compliant funds include real estate and exchange-traded funds.
Private equity is also considered a good investment but carried interest is considered a problem within Shariah law.

Key Takeaways

• Shariah-compliant funds are investment funds that comply with Islamic law.
• They are different from conventional investment funds because they have many requirements, such as
appointment of a Shariah board and prohibition from investing in companies that derive a majority of their
income from sale of alcohol, pork products, gambling etc.
• While Shariah-compliant funds have grown at a respectable clip, it is difficult to accurately estimate the
industry's size or valuation.

Shariah Screening and Islamic Equity Indices

Islam as a religion guides all aspects of the lives of its followers. Hence, Muslims are required to conduct their
economic affairs in accordance with the teachings of Islam.

The concept of screening companies before making investments in them is derived from the Shariah principle that
Muslims should not partake in an activity that does not comply with the teachings of Islam.

For centuries, it has been the practice to seek the guidance of Shariah scholars on the permissibility of an
investment or business venture. The practice, however, has evolved from an informal consultation with a local
mosque leader to the development of a methodology approved by renowned religious scholars and used by
financial institutions around the globe.

Increased awareness of Muslim investors about opportunities offered by the foreign stock markets played an
important role in the development of a coherent Shariah screening methodology.

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Evolution of Shariah Screening Methodology

Under the Shariah, the ownership of shares in a company is considered a proportionate ownership of the
company’s business and assets. Muslim investors therefore cannot own a company that is involved in non-Shariah
compliant activity.

Non-Shariah compliant activities range from having a line of business that is considered impermissible (like in
the arms industry) to dealing with “interest” while managing the financial affairs of a company (for example,
taking interest-based loans).

Due to the prevalence of the interest-based conventional banking system, most of the companies today end up
dealing with interest even though it is not part of their major business activities. These companies would not
qualify for Shariah–compliant investments. Such a development kept the majority of Muslim investors away from
the stock markets for a long time.

Cognisant of the situation and appreciating the important role of listed companies in an economy, a team of leading
Shariah scholars came up with criteria in 1987 that would allow Muslim investors to own shares of listed joint
stock companies. The team consisted of Muhammad Taqi Usmani of Pakistan, Professor Saleh Tug (Turkey) and
Sheikh Mohammad Al-Tayyeb Al Najar (Egypt).

The premise behind the approach adopted by these scholars was that even for the companies whose line of business
is permissible under the Shariah, it was almost impossible to conduct their financial activities and fully comply
with the principles of the Shariah. This meant that Muslim investors could not participate in an important
component of the global economy.

It was important to carefully study the non-compliant elements in a company and find the means and ways to
avoid them or deal with them in a manner consistent with Shariah principles. The scholars presented the Shariah
screening criteria and ruled that Muslim investors can purchase shares of the companies that fulfil the criteria.

The government of Malaysia, as part of its overall initiative to develop an Islamic banking and finance industry
in the country, established a Shariah Advisory Council (SAC) in 1996.

The SAC’s primary task is to advise the Securities Commission on all matters related to the development of the
Islamic capital market and function as a reference body for issues related to the Shariah. Soon after its
establishment, the SAC issued a Shariah–compliant securities selection methodology. The rationale and objectives
of the methodology were similar to the one developed by scholars in the Middle East.

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Over the past 20 years, a majority of Shariah scholars worldwide have accepted the screening methodology and
its rationale. There is, however, a minority of such scholars who think that only companies that fully comply with
Shariah principles are eligible for Shariah–compliant investments.

They contend that a shareholder of a company is considered a partner in the company. By becoming an
owner/partner in the company, he/she indirectly consents to and authorises its non-Shariah compliant activities.
These scholars do not find sufficient grounds to allow an exception in the well-established rule of Islamic law
prohibiting participation in a non-Shariah compliant activity.

The proponents of a Shariah screening methodology argue that present-day joint stock companies are not similar
to a traditional partnership where all the partners have an equal say in the business affairs. Hence, it is not
appropriate to compare the two.

Moreover, the proposed screening methodology ensures that Muslim investors do not benefit from any non-
compliant activity of the company. Given the opportunity, they are also required to express their disapproval of
such activities. A Shariah–compliant investor never intends to either endorse or benefit from a non-compliant
activity.

Shariah Screening Criteria

The Shariah screening criteria provide guidelines to screen companies conducting non-Shariah–compliant
business activities. The criteria also exclude companies whose financials do not meet the minimum acceptable
levels.

The criteria have been developed with the ultimate objective of excluding companies that do not comply with
Shariah principles. We will first discuss in detail the screening criteria developed by the Shariah scholars in 1987.
Subsequently, we will discuss the Shariah screening criteria of the Malaysian SAC.

A discussion on Shariah screening criteria would be incomplete without including the screening criteria endorsed
by another important industry organisation, the Accounting and Auditing Organization for Islamic Financial
Institutions (AAOIFI).

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Business Activity Screens

The following business activities are not permissible under the Shariah. Hence the companies conducting these
activities do not qualify for Shariah–compliant investments:

• alcohol, tobacco and pork-related products;

• entertainment (hotels, gambling, cinema/movie theatres, music, pornography and so on);

• weapons and defence;

• conventional financial services (i.e. banking, insurance and so on); and

• biotechnology companies involved in human/animal genetic

• engineering

The test a company must satisfy is that at least 95% of its gross revenues are generated by activities other than
those mentioned above. Some Shariah scholars have also excluded the printing and media sector companies,
excluding newspapers. Other sub-sectors that fall under “advertising and media” are reviewed on an individual
basis to decide their acceptability.

A general reason for exclusion of companies from the abovementioned industries is that Muslims are commanded
to participate in good things and work for righteousness. The products of many of the industries mentioned above
have been specifically prohibited in Islamic teachings.

Financial Ratio Screens

Islamic teachings do not allow participation in or benefit from a transaction that involves interest in any form or
shape. Hence, the companies that give or take interest do not qualify for Shariah–compliant investments.

The purpose of financial ratio screens is to exclude companies that do not comply with a minimum acceptable
level of leverage, receivables and interest income. The financial ratio criteria have evolved over the period.

A company would be acceptable for Shariah–compliant investments if it meets the following criteria in terms of
level of debt, receivables or impure interest income:

• total debts (non-Shariah compliant) should be less than 33% of the equity;

• account receivables should be less than 49% of total assets;

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Shariah-compliant investments through Mutual Funds

Within the mutual fund industry, investors have a choice of two equity-oriented schemes and one gold scheme
that are shariah compliant. Those are:

1. Tata Ethical Fund

2. Taurus Ethical Fund
3. Gold ETF

There are 43 Asset Management Companies in India. And they offer more than 2,000 mutual fund schemes, and
manages assets (AUM) worth of above Rs 25 lakh. Mutual funds in India have been growing at more than 10%
annually. Yet the needs of the country’s second largest faith-believers of Islam with a population of 172 million
are not being addressed nor are efforts made to include them in the financial system.

Within the mutual fund industry, investors have a choice of two equity-oriented schemes and one gold scheme.
Of this, Tata Ethical Fund is the oldest and the only scheme with shariah-compliant certification from scholars.
The other scheme namely, Taurus Ethical Fund, approved by SEBI as a Shariah-compliant scheme obtained a
certification at the time of NFO launch but chose to do away later. Management may be of the view that since
they use S&P BSE 500 Shariah Index list and the response from investors was not up to their expectations it may
not be worth the additional expense in the shrinking TER regime. During the last five years Tata Ethical Fund and
Taurus Ethical Fund have given a return of 11.77% and 12.39%.

Any gold mutual fund scheme should as a thumb rule be shariah-compliant as the money generally is invested in
either gold or cash. With a view to restrict the metal imports regulation permitted them to lend physical gold to
banks and earn interest. Such lending of the metal from the vaults on interest may at times label the scheme as
non-compliant.

Gold mutual funds and Gold ETF may not give exceptional returns but are important for shariah-compliant
investors as an alternative because they are prohibited from investing in fixed income instruments.

Reliance ETF Shariah BeES was originally launched by Benchmark AMC. Later it changed hands from Goldman
Sachs to Reliance. The scheme in their investment objective declares that the fund will invest in constituents of
the Nifty 50 Shariah Index in the same proportion as in the index but surprisingly cautions investors with a
declaration that it is not a Shariah-compliant scheme, for reasons best known to the fund managers. However, the
scheme has given a return of 11.13% in the last five years and 14.17% in the last three years.

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SWOT Analysis of Shariah

Strengths:

It can attract Muslim retail investors strongly.

Weaknesses:

Net investments in the Shariah based funds will always be low as compared to other funds as this is a very selective
and thematic system, which all the other investors may not find luring enough to put their money into.

Opportunities:

In India, Shariah based investments are an unexplored opportunity and it has a lot of potential has a very bright
potential to grow if marketed properly.

Threats:

This being a religiously thematic system, everyone finds it very politically sensitive, even the fund managers. This
sensitivity can turn into a threat.

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Findings

• In the research it is found that Shariah can be a very good way of encouraging and attracting Muslim retail
investors, which can definitely work in India, as we have a very big population of Muslim community
• Shariah has contributed positively towards investment culture in many countries, and the research included
study of evidence from Indonesian financial markets. This is certainly a good sign that Shariah ways of
investment can contribute to the system positively, along with giving opportunities of investment to the
faith bound investors.
• Comparing Shariah with other indices may not be fair, as Shariah, in India as seen in the research, doesn’t
have much diversity of sectors, as found in conventional investment practices. Although, Shariah indices
at NSE very much follows the trend of Nifty50.
• There are only 2 mutual funds available, that are Shariah Compliant in India. Those are: Tata Ethical Funds
and Taurus Ethical Fund.
• Shariah is not about forming faith based indices, or putting religion in the middle of investment practices,
rather it is the opportunity creator for the faith bound retail investors to get to invest in the market and
create wealth, the Shariah way.
• Companies lile Idafa Investments are working towards making Shariah Investments known and serve the
investors better.

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Challenges for Shariah

• Fund managers see Shariah as a politically sensitive theme. This in one way or the other is a challenge for
Shariah to grow faster in the economy like India.
• It is faith based, and focusses only one community. Although, that is what it is supposed to be there for,
but this very thing may disinterest other investors to be attracted towards such funds (MF) as they will not
find much diversity in them because of the strict screening criteria.
• Not enough mutual funds schemes are available for professional management of one’s funds. Just 2
schemes in India MF are Shariah Compliant.

Conclusion

Shariah is not about forming faith-based indices, or putting religion in the middle of investment practices, rather
it is the opportunity creator for the faith bound retail investors to get to invest in the market and create wealth, the
Shariah way. It has the potential to grow in India if marketed properly, as India has a huge Muslim potential
investor base who might find it attractive.

Shariah can prove to be a well balanced (between faith and contemporary practices) system of creating wealth for
everyone, especially investors from Muslim community.

Recommendation

• Information should be spread about Shariah ways and companies like Idafa Investments that handle such
investments among the masses so that people can come to know about it.
• It shall be promoted nation wide so that more potential investors, who are not active in investment practices
due to faith-based restrictions can come out and create wealth for themselves, the Shariah way.
• Shariah shall be promoted more like a thematic system of investment, not involving religious elements so
that the political sensitivity around it can be ruled out.
• More companies shall come up with Shriah based schemes so that more options are available.

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Refrences:

1. : Alam, A. (2011)Alam, M., Choudhary, A. & Shahriar, S. (2012)

2. Catherine, S. (2019)
3. Ghosh, B. (2013) Habib, S. (2018)Hussin, A., Ramli, N. & Zahid, Z. (2018)
4. Aziz, N., Azmi, A. & Non, N. (2017)
5. Kuanova, L. (2019)Kumar, S. (2015)
6. Manusami, D. (2015)Manusamy, D., Hassan, M. & Paltriniery, A. (2019)
7. Mohammad, W. (2017)
8. Natrajan, P. (2012)
9. Nor, F. & Hassan, R. (2019)
10. Sherif, M. (2017)
11. www.idafa.com

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