Q. I am Alizeh, an IT professional from Bengaluru, India. I come from a family that follows Shariah principles and values. I recently sold my business and received a lumpsum amount. I want to grow my wealth and am seeking investment options that are ethically and religiously sound. How do I go about this?
Alizeh, please note that there are limited Shariah-compliant investment options available in India. Here are some:
Mutual funds: Several asset management companies in India offer mutual funds that invest in Shariah-compliant stocks and financial instruments.
Stocks: Take the help of Shariah-compliant stock screeners to pick stocks of companies that adhere to the religious principles that are important to you.
Bank products: Some banks in India offer Shariah-compliant banking products and services. These include Islamic savings accounts, Islamic fixed deposits, and home finance products that do not involve interest.
Gold: Physical gold, acquired as an investment, is considered Shariah-compliant. You may invest in gold coins or bars.
Real estate: You can invest in properties that conform to Islamic principles. The finance obtained to acquire the property and the income generated from it must both be Shariah-compliant.
As per Shariah, one can’t take loans as one needs to pay interest. However, there are some methods as below:
Ijara: The bank does not charge interest, as this is not allowed in Islamic finance, but instead charges rent on the part of the property that the customer doesn’t yet own. This gradually increases the equity holding in the property in your name. Similar to a lease agreement.
Murabaha: Bank purchases the house property on your behalf and re-sells to you with a said profit margin. Fixed amount is repaid (similar to EMI without interest component) over a fixed tenure until you have complete ownership of the house.
Some religious communities also take gold as collateral in return of the funds one needs. Much of Islamic finance activities in India are managed through cooperative societies.
Interest earned on a savings account must be purified – that means it must be given as charity. Another option, open a current account. In some countries, the depositors allow the banks to use their money invested in profitable business ventures which are legal and Shariah compliant. The profit will be shared as per a predetermined ratio, while the loss will be borne by the investor.
Profit distribution amongst the depositors and the shareholders will be made according to the weightage assigned usually at the beginning of each month to their investments. Savings deposits are generally placed in a joint investment pool with other deposits mobilised by the Islamic banks.
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Updated: 27 Oct 2023, 03:50 PM IST