Top Shariah Compliant Mutual Funds in India
Shariah-compliant mutual funds are a niche subset of equity and equity-linked schemes designed to align with Islamic law (Shariah) by investing only in businesses and securities permitted under those principles. These funds apply strict screening, typically excluding companies involved in alcohol, gambling, tobacco, conventional banking/insurance and other “haram” activities, and favouring low-debt profiles per Shariah criteria, under oversight of Shariah advisory boards or screening indices.
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 | 3,817.44 | 12.49 | 13.67 | 0.65 | 436.71 | 0.50 | 12.02 |
| Taurus Ethical Fund | 370.14 | 17.64 | 14.20 | 0.91 | 143.57 | 1.00 | 13.08 |
| The Wealth Company Ethical Fund | 38.56 | - | - | - | 9.95 | 1.00 | 15.86 |
| Quantum Ethical Fund | 91.73 | _ | _ | 0.75 | 9.66 | 1.00 | 12.09 |
Note: The data on the list of halal mutual funds in India is from 15th June 2026. This data is derived from the Tickertape Mutual Funds Screener.
- Plan: Growth
- AUM: Sorted from Highest to Lowest
Pro Tip: You can use Tickertape’s Mutual Fund Screener to research the best halal mutual funds India 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 avoid companies that earn significant income from interest (riba), such as conventional banks or non-banking financial companies (NBFCs). Instead, these funds invest in sectors such as technology, healthcare, consumer goods, and manufacturing, provided that 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 capital to companies screened for compliance, steering clear of businesses engaged in alcohol, gambling, tobacco, or interest-based income.
Quantum Ethical Fund
Quantum Ethical Fund follows Shariah principles and invests in ethical and socially responsible businesses. It avoids interest-based industries and focuses on sectors such as technology, healthcare, and consumer goods that align with Islamic values.
The Wealth Company Ethical Fund
The Wealth Company Ethical Fund invests in ethical principle-compliant companies through equity and equity-related instruments. It follows an active management approach and aims for long-term capital growth while avoiding businesses that may harm living creatures, society, or the environment.
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 2026:
| 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.
Looking for Investments that are Shariah-Compliant? Explore these smallcases
Zamzam Capital is a SEBI-registered research analyst firm founded by Saif Ahmed. He blends Shariah principles with modern investing to guide ethical stock market participation. Here are two Sharia-compliant smallcases offered by Zamzam Capital that may interest you:
1. ZC Shariah Leaders Smart Beta: This smallcase draws from actively traded Indian equities with strong liquidity, adequate free-float market capitalisation, and consistent volumes. It excludes illiquid and micro-cap stocks to reduce execution risk. The strategy combines technical momentum with fundamental growth factors to identify stocks that align with its defined portfolio framework.
2. ZC Shariah Nifty 50 Smart Beta: This smallcase is a passive, rules-based portfolio selecting 10–12 Shariah-compliant stocks from the Nifty 50. It offers large-cap exposure with high liquidity and governance standards. The strategy follows predefined screening criteria and undergoes quarterly review and rebalancing to maintain benchmark alignment and Shariah compliance.
Disclosures for the aforementioned smallcases.
Features of Shariah Compliant Mutual Funds
- Shariah-Based Screening Process: Companies are screened using qualitative and quantitative Shariah principles. This includes evaluating business activities, debt levels, interest income and financial ratios.
- Investment in Permissible Businesses: Shariah-compliant funds invest only in companies engaged in permissible activities and avoid sectors such as alcohol, gambling, tobacco, conventional banking and adult entertainment.
- Equity-Oriented Portfolio: Most Shariah mutual funds in India invest predominantly in equities that meet Shariah screening requirements, making them largely equity-focused.
- Periodic Compliance Review: Portfolios are reviewed regularly to ensure continued compliance with Shariah guidelines. Companies that no longer meet the criteria may be removed from the portfolio.
- Ethical Investment Framework: The investment approach focuses on businesses engaged in productive economic activities and excludes companies that derive significant income from prohibited sources.
- Transparency and Disclosure: Fund houses generally disclose the methodology, screening framework and portfolio holdings to help investors understand the basis of Shariah compliance.
Restrictions on Shariah Compliant Mutual Funds As Per Shariah Law
- Prohibition of Interest-Based Businesses (Riba): Investments in conventional banks, interest-based financial institutions, and businesses that derive substantial income from interest are generally not permitted.
- Restriction on Prohibited Industries: Companies involved in alcohol, gambling, tobacco, pork-related products, weapons manufacturing and adult entertainment are excluded.
- Debt Screening Requirements: Companies must generally maintain debt levels within specified Shariah thresholds. Highly leveraged businesses may not qualify for inclusion.
- Limits on Non-Compliant Income: Revenue earned from non-permissible activities must remain below prescribed limits under commonly used Shariah screening frameworks.
- Avoidance of Excessive Speculation (Gharar): Businesses heavily dependent on speculative transactions, uncertainty or non-transparent contracts may be excluded.
- Purification of Non-Compliant Income: Any incidental non-permissible income identified in investments is generally segregated and purified in accordance with Shariah guidelines.
Advantages of Investing in Shariah Compliant Mutual Funds
- Ethical and Values-Based Investing: Shariah-compliant mutual funds follow a defined ethical framework that excludes businesses considered non-compliant under Shariah principles.
- Exposure to Financially Disciplined Companies: Shariah screening often excludes highly leveraged companies, resulting in portfolios with lower debt levels than broader market indices.
- Focus on the Real Economy: Investments are generally concentrated in businesses involved in manufacturing, technology, healthcare, consumer goods and other productive economic activities.
- Built-In Screening Framework: Investors gain access to professionally managed portfolios that continuously monitor compliance with Shariah guidelines.
- Potential Diversification Within Equity Markets: Although sector restrictions exist, Shariah-compliant funds still invest across multiple industries and in listed companies that meet eligibility criteria.
- Growing Interest in Ethical Investing: Globally, Islamic finance assets are estimated to exceed US$4 tn, reflecting increasing interest in faith-based and ethical investment products as of 2026.
Risks of Investing in Shariah Compliant Mutual Funds
- Limited Investment Universe: Excluding certain sectors reduces the number of eligible companies available for investment compared to conventional equity funds.
- Sector Concentration Risk: The absence of sectors such as conventional banking and financial services can lead to higher exposure to technology, healthcare, consumer and industrial sectors.
- Equity Market Risk: Since most Shariah-compliant mutual funds are equity-oriented, they remain exposed to stock market volatility and economic cycles.
- Tracking and Compliance Risk: Changes in Shariah screening standards or a company’s compliance status may require portfolio adjustments, affecting holdings and performance.
- Potential Relative Underperformance: During periods when excluded sectors outperform the broader market, Shariah-compliant funds may lag conventional equity benchmarks.
- Liquidity Risk in Certain Stocks: Some Shariah-compliant companies, particularly in the mid-cap and small-cap segments, may have lower trading volumes and liquidity.
Factors to Consider Before Investing in Shariah Compliant Mutual Funds
- Shariah Screening Framework: Shariah-compliant funds follow predefined screening criteria that determine which companies qualify for inclusion and which sectors are excluded.
- Investment Universe: The exclusion of sectors such as conventional banking, alcohol, gambling, and tobacco results in a narrower investable universe than that of broader equity funds.
- Fund Category: Most Shariah-compliant mutual funds are equity-oriented schemes, which means their performance is generally linked to stock market movements.
- Portfolio Composition: Sector allocation, stock concentration and market-cap exposure provide insight into the types of businesses represented in the portfolio.
- Compliance Review Process: Fund portfolios are periodically reviewed to ensure continued adherence to Shariah principles and screening requirements.
- Risk Level: The risk profile depends on factors such as asset allocation, sector exposure, stock concentration and market conditions.
- Expense Ratio: The expense ratio reflects the annual cost of managing the fund and forms part of the scheme’s overall cost structure.
- Past Performance: Historical performance data provide information on how the fund has performed across different market environments, but they do not indicate future returns.
- Tax Treatment: Taxation is determined by the fund’s asset allocation and holding period, rather than its Shariah-compliant status.
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 than that of conventional equity funds, it provides an ethical and transparent framework for investors who prefer such options. However, returns of shariah-compliant mutual funds are influenced by market conditions, taxation, costs, and sector concentration. Understanding these factors offers a clearer perspective on how Shariah-compliant mutual funds operate within the broader mutual fund space.
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Frequently Asked Questions on Shariah Compliant Mutual Funds
Shariah-compliant mutual funds follow Islamic finance principles by investing only in permissible businesses and avoiding restricted sectors such as conventional banking, alcohol, gambling, tobacco and weapons.
Shariah compliant funds are open to all investors. Investors from any background may explore halal mutual funds in India if they prefer funds that follow Shariah-based screening.
Disclaimer: Shariah-compliant mutual funds carry market risks like other mutual funds. Investors should review the fund’s objectives, screening process, costs, and suitability before investing.
Yes, both terms are often used interchangeably. Shariah funds and halal mutual funds describe funds that follow Islamic finance principles and invest in permissible businesses.
Yes, some fund houses allow systematic investing through SIPs. A halal SIP in India allows regular contributions into Shariah-compliant schemes, subject to fund availability and platform rules.
In India, some funds follow Shariah principles by avoiding interest-based income and restricted industries. A list of halal mutual funds in India may include:
– Tata Ethical Fund
– Taurus Ethical Fund
– Nippon India ETF Shariah BeEs
– The Wealth Company Ethical Fund
– Quantum Ethical Fund
Disclaimer: Please note that the above list of halal mutual funds in India is for educational purposes only, and is not recommendatory
A Shariah mutual fund is generally reviewed by Shariah scholars or an advisory board to ensure the portfolio adheres to Islamic investment principles and screening rules.
Yes, some halal index funds follow Shariah-compliant indices. Investors may also use a halal SIP route where available, depending on the fund house and platform.
