Ethical Investing:Examining the Performance of Indian Shariah Funds Vis-A-Vis Shariah Index

Ethical investment is an important part of 'Socially Responsible Investment' (SRI) that is based on investors' ethical beliefs and values. Shariah-compliant investment (SCI) is one such practice. In this backdrop, the primary objective of the study is to explore the performance of the existing two actively managed Shariah-compliant equity funds, namely, Tata Ethical Fund and Taurus Ethical Fund, from the perspective of risk-return parameters. Another objective is to analyse the performance of the Shariah index CNX 500 Shariah in relation to these two funds. The study is based on secondary data. The period of study is from March, 2010 to March, 2015. Measures like Annual return, Compound Annual Growth Rate (CAGR), Risk-adjusted CAGR, Jensen alpha, R-squared (R2), and beta have been used. The funds have exhibited superior risk-adjusted return. Further, funds are defensive in nature in most of the times, and are adequately diversified. Again, fund managers have superior stock selection skills. Returns from "Systematic Investment Plan" (SIP) are very much satisfactory. Moreover, the performance of Shariah index is inferior to that of the Tata Ethical Fund in respect of all parameters. Shariah-compliant funds have great potential to garner more investment from Shariah-conscious Indian investors.