Mutual Funds in India – Potential for Islamic Versions

By Mustafa Hussain Khan & Syed Ahmed Salman

Abstract

Purpose

This research investigates the prospects of Shari’ah mutual funds in India. India is among the fastest emerging destinations for investment. It has the second highest Muslim population in the world with 180 million representing some 14.4% of India’s total population. Having a huge potential and strong regulatory infrastructure, India has the ability to become a hub for Shari’ah compliant funds. In this regard, the Securities Exchange Board of India has thus far approved two Shari’ah mutual funds in India.

Methodology

It adopts a qualitative methodology wherein primary data is sourced through interviews. In addition, purposive, and judgemental sampling methods are employed and the findings are analysed based on thematic analysis. It has been conducted by personal interviews and e-interviews. In total 9 interviews have been conducted of which 4 from mutual funds companies and 5 from Shari’ah finance experts are analysed in this research.

Findings

The findings highlight that Shari’ah mutual funds can play a big role in economic reform and development by including Muslims and other communities into the financial institutions of India. When accompanied with a framework for Shari’ah governance, such investments will enjoy enhanced transparency and accountability. Further, the findings show that training, education, and awareness programmes are crucial to increase the confidence in and demand for Shari’ah mutual funds. The nature of Shari’ah investments limiting to areas that are not socially and ethically destructive render it a morally upright and socially responsible investment channel suitable to all religions.

Research Limitations

This research does not cover all Islamic finance experts and mutual fund companies of India. Due to time and other constraints, the researcher managed to interview five Islamic finance experts. Similarly, the researcher approached ten mutual fund companies located in Hyderabad and succeeded in interviewing four mutual fund companies as most of the mutual fund companies did not respond.

Practical Implications

This study is new in the context of India and is relevant to regulators and mutual fund companies towards establishing more Shari’ah compliant mutual funds and to serve as a guide for the future direction of the Shari’ah mutual fund industry of India.

Originality Value

Most of prior research focuses on the conventional mutual funds. As per the researchers’ knowledge, no study has been done on the prospects of Shari’ah mutual funds in India. This raises the high demand for various new funds to be launched according to Shari’ah guidelines. This research focuses on prospects of Shari’ah mutual funds in India. Thus, the findings of this research contribute to the existing literature.