Posted by Jason on: 04.24.2008 /
economictimes.indiatimes.com/Investors….
Investors should separate business from religion
Dharma Global Index, Shariah-compliant online trading platform or mutual funds following the rules of faith, religion-based investment is emerging as a niche segment for new-age investors.In fact, many banks and other financial companies seeking to target investors who put their money in these faith-based investment products and modules. Naresh Kumar Garg, CEO, Sahara Mutual Fund, believes this segment offers a wide scope for both asset management companies (AMCs) and other financial institutions.
“Today, faith-based investment is not restricted to capsules of Islamic banking or Christianity-related funds. There is a scope that such financial products can also meet the demand of Buddhists and other sects, which are very much there in the Indian scenario,” he says.
Garg feels that soon the fund houses in India will realise the potential of tapping this sector. “Such type of products exist in the mutual fund industry abroad. They are similar to thematic funds, where in addition they also agree to the norms of a religion and either discounted coupons are offered or it works like a fixed deposit and not on a quarterly basis,” he says.
Perhaps, what Garg says is now becoming more visible in the international markets. This year, Dow Jones Indexes launched Dharma Index, which comprises stocks that comply with the religious beliefs of Hindus and Buddhists. The Dow Jones Dharma Index is a global index which will give the followers of both religions a chance to invest in stocks without compromising their religious beliefs. This index came after almost 13 years, when in 1995, the Dow Jones launched an Islamic Market Index.
In India, Taurus Asset Management plans to launch the country’s first Islamic or Shariah-compliant fund. Shariah forbids Muslims from receiving interest payments and from investing in companies involved in the production or sale of pork, alcohol, tobacco, pornography, gambling and non-Islamic structured finance or life insurance. The fund house has joined hands with Islamic fund management company, Parsoli Corporation, that would help it raise money and ensure the portfolio remains Shariah-compliant.
Taurus had filed the application for Taurus Parsoli Ethical Fund in October last year and is currently awaiting approval of Sebi. At present, Islamic banking in India is confined to the co-operative sector only. Only 10-15 Islamic banks, which are actually non-banking finance companies with deposits of about Rs 75 crore, operate all over the country.
According to Dow Jones, socially responsible investing, of which faith-based investing is a part, has around $4 trillion of assets under management and is growing at 20% a year. But Zankhana Shah, a certified financial planner and head, Moneycare Financial Planning, believes that as an investor it is prudent that you should separate business from religion.
“If you are making an investment, I’ll not suggest investors to opt for such products as they limit their portfolio. If, however, an investors insists, he can look at the available options,” she says. Part of the work that I do is for a mortgage expert (the sort of person who goes to court to explain mortgage law and theory to judges for a huge fee) and he’s been following the Sharia compliant mortgage market quite closely for a number of years. He gave a talk to the Council of Mortgage Lenders explaining the intricacies of Islamic law and mortgage law and how they interact. One important point is that Sharia law forbids the paying of interest on a loan. To get round this a Muslim following the Sharia law would get the bank to buy the property and then rent it to them at a higher rate. The higher rent acting as a traditional interest payment on a mortgage. It’s all very complicated and I’m certainly no expert but it is interesting.
Now, if I had any spare cash to invest I may well prefer to invest in companies not “involved in the production or sale of pork, alcohol, tobacco, pornography, (or) gambling”. I’m a vegetarian, non-smoking, non-gambler who is ambivalent towards porn and alcohol. I’d prefer my investment to go to industries that are closer to my moral safety zone. If I had any spare money, which I don’t.
Would you be more inclined to invest in funds where you could be assured that the money went only to those companies that fitted in to your own moral or religious code, or at least didn’t go against it?
Comment by: Ir (Helen)
1I think so although my husband deals with that, not me.
We both agree on what to donate money to. He doesn’t want to donate to any faith-based organization. That’s fine with me although I probably wouldn’t draw such a strict line if it was entirely up to me. I expect I’d ok with donating to organizations led by people with a particular belief system if the money went to helping people with their practical needs and not to promoting a particular religious belief system.
Comment by: Randy
2That’s a tough one. I decided a ways back not to invest in anything that had to do with banks, just because I had a personal gripe with banks. Not sure that was really good stewardship, but it made me feel good somehow. I’m over my beef with banks now, and I’m less concerned about where I’m investing than in how my investments are performing. No moral compass at all…not even a selfish one.
The whole mutual fund investment strategy seems very popular, and the selling point is that your money is spread out over a LOT of companies so your risk is lowered. Unfortunately, unless you’re somewhat of an investment geek, finding out what companies you’re actually investing in is a time-consuming pain in the tookus. (I’m justifying my lack of moral conscience here, if you hadn’t noticed).
So yes…I think it would make sense to invest in things that at least don’t contradict your own values and morality. I don’t know how to be certain about the morality of any company, though…and just because it’s faith-based doesn’t mean it’s above moral compromise.
Comment by: Jason
3Well, my bank is a cooperative that does not invest in many areas that I dislike. If I had a lot of money and could invest in different companies directly I’d avoid weapons companies, animal testing labs, meat processing companies, strip mining, sub-prime lending, petrol, and a whole plethora of other issues. I suppose that this just means that money is less important to me than my morals. At least in theory, I don’t have the wealth to test it. (hint hint to billionaires out there reading this)
Randy, you’re right about mutual funds. A few hundred a month from an investor may be split between a thousand companies (in the portfolio), some of whom will represent the antithesis of our own morals. Some will, of course, match our ideals.
In an investment there is always a risk. Mutual funds reduce that risk. Perhaps the market will emerge where not only risk but morality becomes a factor. I’d prefer a low risk, high moral investment to a high risk, low moral one. That’s just me. I don’t feel comfortable with a risky gamble with my money even if I could get a higher reward just as I don’t feel comfortable compromising my morals to make money.
It doesn’t particularly bother me if a fund is faith based as long as it’s moral. You may think that this is a given but I don’t think that it is, but as long as faith based matches my own moral base then I’m happy to play along.
Comment by: Ir (Helen)
4Jason wrote:
That’s how I feel.
Comment by: Mike O
5To me, faith-based funds are just funds. It seems comparable to people who would tend to invest, for example, in “green” funds or companies - those who strive to be environmentally friendly.
I suspect that for people with strong moral or religious concerns, their motive isn’t necessarily “the most profitable” funds, but rather “the most profitable within this set of limitations.” If they want to limit the scope of their investing, more power to ‘em.
On a related note, I have been looking for work for quite some time now, and an opportunity came up at a huge liquore wholesaler. I declined without even looking at it because, while I don’t personally have any issue with drinking, many in my circle of incluence do. Why would I raise that kind of questioning?
If it pays to be in an Islamic fund - or even if it doesn’t - if it fulfills you and accomplishes your goals, go for it. Even if it’s a loser, you could chock it up to being charitable towards those companies!
Comment by: Jason
6Yes, exactly. When I do, eventually, have money to spend of investments I will find a broker able to deal in or avoid those areas that I find morally suspect. That is whether I make more money or not.
I have to add that it’s good to see someone who has the character to reject the easy buck when things aren’t going as well as they could. Good for you.