Give me some information on shariah-based mutual fund investments in India. By investing in these, can I get tax benefits?
-Abdul Jabbar
Shariah refers to the Islamic canonical law based on the teachings of the Koran, which has certain strictures regarding finance and commercial activities permitted for Muslims. While trade and investment are encouraged, shariah investing rules prohibit involvement in alcohol, gambling, pornography, abortion, human cloning, defence, conventional banks or insurers, and most forms of entertainment. Industries associated with pork are also out.
In March 2009, Benchmark Mutual Fund launched Shariah BeES, an exchange traded fund. It is a passively managed fund that invests in securities that constitute the S&P CNX Nifty Shariah Index, in the exact proportion. For an investor seeking a low risk exposure, this passively managed fund is a good option that would replicate the market and provide returns that closely correspond to the returns of the securities as represented by the S&P CNX Nifty Shariah Index.
On the other hand, Taurus Ethical is an actively managed diversified equity fund launched in March 2009. The stocks which comply with the principles of shariah are selected from the universe of the S&P CNX 500 Shariah Index.
Since both funds are equity schemes, any long-term capital gains arising from these are tax exempt, whereas short-term capital gains would attract a tax of 16.99 per cent. The two funds are not tax-saving vehicles. To avail of a deduction under Section 80C of the Income Tax Act, you will have to invest in an equity linked savings scheme (ELSS).
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I've been investing Rs 1,000 a month in ICICI Prudential Infrastructure Fund through a systematic investment plan (SIP) since February 2007. Though the fund has done well in the recent past, I am wondering if I should stay invested in it or switch to another fund. I also have SIPs in HDFC Top 200, HDFC Equity and Sundaram BNP Paribas S.M.I.L.E.
-Pravin Kumar
ICICI Prudential Infrastructure is 5-star rated. Besides, the fund is a good investment option, as infrastructure remains an attractive theme. Stick to this fund. If you want to opt out of the infrastructure theme, you may switch to any of the other funds you currently are invested in. They all command good ratings and are worthy of being held on to.
While ICICI Prudential Infrastructure is a thematic fund, Sundaram BNP Paribas S.M.I.L.E. is a mid- and small- cap fund. Together, these funds will make your portfolio volatile and they should not form a significant part of your portfolio. Limit your exposure to 20 per cent.
I have Rs 50,000 in a one-year fixed deposit offering 6.5 per cent a year. I am looking for some liquid funds which will assure me a better return than a fixed deposit.
-Alok Arora
While a fixed deposit give assured return, liquid funds score on liquidity and the possibility of a higher return. The one-year return of this category as on March 29 was around 3.68 per cent (category average). In case of a liquid fund, you would be able to avail off the redemption proceeds after a day.
Distribute your money between liquid funds and a bank fixed deposit. However, you could also park your money in a bank flexi deposit. This enables you to earn interest higher than what is offered in a savings banks account. Should you need to withdraw some money, you can do so without breaking the entire deposit.
Value Research