Best Shariah Compliant Mutual Funds in 2025
Shariah compliant mutual funds cater to investors who prefer their investments to align with Islamic finance principles. These funds focus on companies that follow ethical guidelines by avoiding sectors like alcohol, gambling, tobacco, weapons, and those dependent on interest-based income. While these funds are primarily for Muslim investors, they also attract non-Muslim investors who seek socially responsible and ethical investment options
Top Shariah Compliant Mutual Funds
The table below lists the Shariah-compliant mutual funds available in India along with their CAGR performance over the past few years.
| Name | AUM(Rs. in cr.) | CAGR 3Y(%) | CAGR 5Y(%) | Expense Ratio(%) | NAV(₹ per unit.) | Exit Load(%) | Volatility(%) |
|---|---|---|---|---|---|---|---|
| Tata Ethical Fund | 3601.332594 | 12.12945525 | 18.53595617 | 0.65 | 443.0409 | 0.5 | 13.16631682 |
| Taurus Ethical Fund | 326.9465 | 14.23498333 | 17.877935 | 0.97 | 143.84 | 1 | 14.50136294 |
| Quantum Ethical Fund | 66.7791 | _ | _ | 0.75 | 10.2 | 1 | 13.04408311 |
Disclaimer: Please note that the above Shariah compliant mutual funds list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Mutual Fund Screener and is subject to real-time updates.
Note: The data on the Shariah compliant mutual funds list is from 16th September 2025. This data is derived from the Tickertape Mutual Funds Screener.
- Plan: Growth
- 5Y CAGR: Sorted from Highest to Lowest
Pro Tip: You can use Tickertape’s Mutual Fund Screener to research the best halal mutual funds with over 50+ pre-loaded filters and parameters.
What are Shariah Compliant Mutual Funds?
Shariah compliant mutual funds are investment funds that follow the principles of Islamic finance. They invest only in companies and industries considered halal (permissible) under Shariah law. This means they avoid businesses involved in alcohol, gambling, tobacco, pork, and weapons.
They also stay away from companies that earn major income through interest (riba), such as conventional banks or non-banking financial companies (NBFCs). Instead, these funds invest in sectors like technology, healthcare, consumer goods, and manufacturing, provided the businesses meet Shariah screening guidelines.
Overview of Shariah Compliant Mutual Funds
Tata Ethical Fund
Tata Ethical Fund is an equity-oriented mutual fund that invests based on Shariah principles, focusing on businesses considered permissible under Islamic guidelines while avoiding restricted industries.
Taurus Ethical Fund
Taurus Ethical Fund follows Shariah investment rules and allocates money to companies screened for compliance, steering clear of businesses connected to alcohol, gambling, tobacco, or interest-based income.
Quantum Ethical Fund
Quantum Ethical Fund follows Shariah principles, investing in ethical and socially responsible businesses. It avoids interest-based industries and focuses on sectors like technology, healthcare, and consumer goods aligned with Islamic values.
Taxation on Shariah Compliant Mutual Funds
Since Shariah compliant mutual funds are classified as equity mutual funds, they follow the same tax rules announced in the Union Budget 2024:
| Type of Gain | Holding Period | Old Tax Rate | New Tax Rate (Budget 2024) | Key Points |
| Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% | Applies if units are sold within 1 year. |
| Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% | Gains up to ₹1.25 lakh are tax-free. No indexation benefit. |
How to Invest in the Shariah Compliant Mutual Funds?
You can easily start to invest in the best Shariah mutual funds by following these steps:
- To invest in the Shariah mutual funds, you can visit an equity investment platform such as smallcase
- The next step is to research and identify the best Shariah compliant mutual fund that matches your investment thesis. Tools like the Tickertape Mutual Fund Screener can help you filter and compare funds based on parameters such as returns, expense ratio, and fund size.
- Once you shortlist the funds, visit smallcase, log in, and search for the fund by name. You can then choose the investment mode, either a one-time lump sum or a SIP plan, and complete the process.
Features of Shariah Compliant Mutual Funds
- Ethical Boundaries: Shariah mutual funds invest only in businesses permitted under Islamic law. They avoid companies considered harmful to people or the environment.
- No Interest (Riba): As interest is prohibited in Islam, Shariah compliant mutual funds do not invest in businesses that earn from interest. Any incidental interest income is usually directed towards charitable purposes.
- Avoidance of Fixed Income Instruments: These funds stay away from fixed-income instruments such as bonds, since they generate interest.
- Low Debt Exposure: Shariah compliant funds tend to avoid companies with very high levels of debt or those engaged in excessive speculative trading through derivatives.
- Oversight by Shariah Board: A Shariah Advisory Board, usually consisting of scholars, oversees the fund’s portfolio. The board ensures that all investments comply with Islamic finance principles.
- Open to All Investors: Though designed for investors following Islamic principles, Shariah compliant mutual funds are not restricted to Muslims. Investors from any faith or background may also choose these funds.
Advantages of Investing in Shariah Compliant Mutual Funds
- Ethical Investing: These funds are designed to follow Islamic finance rules, focusing only on companies that meet ethical standards. For investors seeking faith-based investment options, halal mutual funds offer a choice that aligns with their values.
- Transparency: Funds are reviewed by a Shariah Advisory Board, giving investors clarity on where their money goes. This structure makes halal investment funds stand out for their transparency and compliance checks.
- Socially Responsible Investing: By avoiding specific industries, these funds align with socially responsible investing practices, focusing on businesses considered more ethical under Shariah guidelines.
Risks of Investing in Shariah Compliant Mutual Funds
- Exclusion of Interest-Based Sectors: Shariah compliant mutual funds don’t include banks and other interest-driven financial institutions. As a result, these funds may miss an opportunity to benefit from a sector that is often a large part of market indices.
- Concentration Risk: A shariah mutual fund invests in a smaller pool of eligible companies. This results in higher allocation to sectors like technology or healthcare. If these sectors underperform, the overall fund may face higher risk due to concentration.
- Limited Investment Universe: Since these funds avoid certain industries like banking, alcohol, gambling, and weapons, the investment universe is smaller compared to regular mutual funds. This limited scope may restrict diversification.
- Performance Variation: By excluding certain industries, performance may differ from broader equity benchmarks. For example, if banking stocks perform strongly, a Shariah compliant fund may not benefit from this growth.
Factors to Consider Before Investing in Shariah Compliant Mutual Funds
- Ethical Orientation: For those exploring halal funds, understanding these funds’ Islamic finance principles is important. These funds only invest in halal businesses and avoid interest-based or restricted industries.
- Fund Availability: Shariah-compliant mutual funds in India are limited in number, which means there are fewer options to choose from for investors interested in funds that follow Islamic finance principles.
- Additional Costs: When exploring the best Shariah compliant investments, investors also need to be aware of the expense ratio and exit load, as both directly impact overall returns. A higher expense ratio or exit load can reduce the final gains from the fund.
- Taxation: Taxation can affect the final returns, and understanding this factor helps investors set realistic expectations. Like equity mutual funds, short-term capital gains are taxed at 20%, while long-term capital gains above ₹1.25 lakh are taxed at 12.5% without indexation.
To Wrap It Up
Shariah compliant mutual funds combine the structure of equity investing with principles of Islamic finance. Though the fund universe is smaller compared to conventional equity funds, they provide an ethical and transparent framework for investors who prefer such options. However, returns of these funds are influenced by market conditions, taxation, costs, and sector concentration. Understanding these factors offers a clearer perspective on how these funds operate within the broader mutual fund space.
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Frequently Asked Questions on Shariah Compliant Mutual Funds
Shariah based mutual funds follow Islamic finance principles, investing only in businesses considered halal and avoiding sectors like banking, alcohol, gambling, and weapons.
Shariah compliant funds are open to everyone. Investors from any background may explore these options if they prefer the structure offered by halal funds.
Yes, both of these terms are often used interchangeably. They describe funds that follow Shariah principles and invest only in halal businesses.
Yes, some funds allow systematic investing through SIPs. These Shariah compliant SIPs enable fixed, regular contributions usually every month, while ensuring compliance with Islamic investment principles.
5. Which mutual fund is Shariah compliant?
In India, a few mutual funds follow Shariah principles by avoiding interest-based income and restricted industries. Some of these funds include
– Tata Ethical Fund
– Taurus Ethical Fund,
– Nippon India ETF Shariah BeEs
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory
The returns from Shariah mutual funds depend on market conditions and the sectors invested in. Since they avoid banking and certain industries, performance may differ.
Yes, there are halal index funds that follow Shariah principles, such as Nippon India ETF Shariah BeEs and HDFC Shariah Fund. These funds track Shariah-compliant indices, investing only in businesses that meet Islamic guidelines while avoiding interest-based or prohibited industries.
