Nifty Shariah Index consists of a group of stocks that are compliant with the Islamic Shariah law, Shariah is the fundamental religious concept of Islam – namely, its law. The total of three Shariah indices, Nifty 50 Shariah, Nifty 500 Shariah and Nifty Shariah 25 is there. To invest in Nifty 50 Shariah Index Nippon Mutual Fund has an ETF listed since 2009 called Nifty 50 Shariah Bees.
Principles that Shariah Index follows
Earning or paying interest, also called riba, is not allowed in Islamic finance. That is why no banking or insurance based companies are there in this Index. Investing in companies involved in haram or the activities that are forbidden is not allowed. These activities include anything related to alcohol, gambling, pork, or any other non-halal food. If the core Business of a company is halal, the financial structure of the company should also be compliant with Shariah rules.
Financial structure rules are that the Debt to asset ratio should be less than 33 percent to avoid over reliance on interest-bearing investment and borrowing. Not more than 5 percent of the total revenue should come from interest-bearing investments and income. Cash & Interest-bearing receivables to total assets ratios should be less than 50 percent, so that it is ensured that the company, instead of holding liquid assets, is actually generating business value.
Prominent Stocks and Index Returns
Nifty 50 Shariah Index comprises 18 Stocks from the list of 50 Nifty stocks, some of the stocks are ONGC, Hero MotoCorp, Sun Pharma, Coal India, Trent, HCL Tech, Ultratech Cement, and others.
5 Year CAGR Price return for Nifty 50 Shariah Index is 12.9 percent compared to Nifty 50 return of 14.6 percent. Since the Inception, the Shariah Index has given a CAGR of 8.5 percent, and Nifty 50 has given 11.1 percent.
Written By Abhishek Das
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