Market sees ‘political action’ behind SBI MF shelving Shariah fund

The scheme had received all the approvals from market regulator Sebi, and was slated for launch on December 1

By: ENS Economic Bureau | Mumbai | Published:December 6, 2014 2:49 am

SBI Mutual Fund — the mutual fund arm of India’s largest bank, State Bank of India has shelved a  plan to launch Shariah Equity Fund, an open-ended scheme designed to invest money in companies that follow Islamic Shariah rules this week, leading to speculation in a section of the market that it could be “a political move”.

“Based on the inputs received from various participants in the pre-launch meetings, it has been decided to review the structure of SBI Shariah Fund,” an official of SBI Mutual Fund said.

Accordingly, it has been decided to defer the launch of new fund offer of Shariah Fund and it would be reoffered in a better and more attractive format in the future, the official told The Indian Express.

However, market analysts  said the reason for deferring the offering could be political. When asked specifically whether there was any political, governmental or social pressure to withdraw the fund, the official declined to discuss the issue.

Syed Zahid Ahmad, founder, Economic Initiatives, and advisor for participatory finance, Basix India, said, “I had gone through the scheme. It’s a good product. I don’t know why it was withdrawn. With SBI’s wide reach across the country, the scheme would have raised a substantial amount from the people.”

“In fact, we had proposed tax incentives for this Shariah Fund as the money will be invested in the infrastructure sector and it will help the government in cutting its fiscal deficit,” Ahmad said.
The scheme had received all the approvals from market regulator Sebi, and was slated for launch on December 1.

A senior SBI Mutual Fund official had earlier told The Indian Express that investment in the scheme was not restricted to any particular religious community. “Anybody can invest in this scheme. There are around 600-700 companies which fall under the requirements of Shariah rules. The fund mobilised will be invested in good companies selected from this lot,” he had said.

The original scheme had both growth and non-growth options. If an investor didn’t want interest or dividend as per the Shariah rules, he could opt for the growth option.

This is not the first time that such an ethical fund was planned. Benchmark MF earlier launched an ETF which tracks the S&P CNX Nifty Shariah Index.

Tata Mutual Fund has an ethical fund  which invests in a diversified equity portfolio based on principles of Shariah. Taurus MF had also launched a scheme which follows the principles of Shariah.

Investments based on Shariah rules have been getting popular in India. Although Sebi has allowed four mutual funds to launch Shariah funds in the Indian market, Islamic banking is yet to be allowed in the country as the banking regulator Reserve Bank of India has found it “inconsistent with the existing laws”. Shariah-compliant funds are normal funds but make investments only in companies or instruments that follow Shariah rules.

Shariah funds avoid investments in companies involved in activities like alcoholic beverages, casinos, non halal food products and conventional financial institutional based on interest. It also avoids companies with higher debt to equity ratios and thereby invests in low leverage companies.

However, such companies do not necessarily follow Shariah rules.

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