Shariah-Compliant Mutual Funds: Ethical Investment for All Investors

Shariah Compliant Mutual Funds in UAE

If you are looking to invest in a way that aligns with Islamic principles, exploring shariah compliant mutual funds is a smart move. In the UAE, these options give you exposure to diversified portfolios while ensuring your investments are Shariah-compliant and halal. This guide will walk you through ...read more

What Are Shariah Compliant Mutual Funds?

A Shariah mutual fund (also commonly called a halal mutual fund or Islamic mutual fund) is a pooled investment vehicle that invests only in assets and structure compliant with Shariah principles. That means avoiding interest-bearing assets, tobacco, alcohol, gambling, and other non-halal sectors.

In the UAE, shariah investment in UAE via mutual funds gives investors the opportunity to grow wealth in a way that respects their faith, while still enjoying diversification and professional fund management.

📝Take a Note
These funds primarily invest in equities, real estate, and Shariah-compliant bonds (Sukuk) to ensure compliance with Islamic finance principles.

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Why Consider Shariah Compliant Funds in UAE

Ethical and Faith-Aligned Investing

Choosing a shariah compliant mutual fund in UAE means your investments follow Islamic guidelines, ensuring you don’t compromise personal or religious values.

Diversification & Professional Management

Rather than picking individual stocks yourself, these funds spread your money across multiple approved companies or assets — reducing risk and benefiting from expert fund management.

Ease of Investing in UAE Residents

Shariah compliant funds are increasingly available to UAE investors, offering easy access to halal investment opportunities — ideal whether you are a resident, expatriate or UAE citizen.

What to Look for When Choosing Islamic Mutual Funds in UAE

Before you choose a Shariah mutual fund, consider these key factors:

Fund’s Compliance Certification

Ensure the fund is officially certified as halal by a recognized Shariah board or Shariah-compliance authority. This maintains faith compatibility.

Investment Strategy & Asset Types

Check what sectors and asset classes the fund invests in — equities, sukuk, real estate, or a mix. A well-diversified fund is generally safer and more stable.

Track Record & Performance History

Review how the fund has performed over time, especially during market downturns. Consistency matters more than just a single high-return year.

Fees, Charges, and Transparency

Make sure fee structure and charges are clear. Hidden costs or high fees can eat into your actual returns.

Sample Shariah Compliant Funds List (What a “Shariah Compliant Funds List” Looks Like)

Here’s an example of what a shariah funds list might include — depending on availability and current offerings by asset management companies:

Equity-based Shariah mutual funds focusing on halal-approved companies
Sukuk or fixed-income Shariah funds offering lower risk returns
Mixed or balanced Shariah funds combining equities and sukuk/Islamic bonds
Sector-specific halal funds (e.g. real estate, healthcare — if Shariah-compliant)

Such a list helps investors identify funds that match their risk tolerance and investment goals under shariah compliant investment in UAE.

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Best Shariah Compliant Mutual Funds in UAE

Before exploring the list, here are the 2 major indices —

Key Shariah Indices

S&P CNX Nifty Shariah: Tracks the 50 largest Shariah-compliant companies on the NSE
S&P CNX 500 Shariah: A broader index of 500 Shariah-compliant companies

We have mentioned the key Shariah-compliant fund options in India —

1. Tata Ethical Fund

The Tata Ethical Fund offers a diversified equity portfolio, focusing on companies that comply with the law. It avoids sectors that are non-compliant with Islamic principles.

Ideal for investors seeking long-term capital growth, this islamic mutual fund ensures exposure to ethical equity investments.

This Shariah-compliant mutual fund has shown strong performance across different time periods —

1-Year Return: 27.8%
3-Year Return (Annualised): 11.8%
5-Year Return (Annualised): 19.8%

2. Nippon India ETF Shariah BeES (formerly Reliance ETF Shariah BeES)

The Nippon India ETF Shariah BeES tracks the Nifty50 Shariah Index, investing in companies that meet specific criteria. By mirroring the index’s composition, it provides a way to invest in a broad market portfolio with ethical considerations.

Note: This halal mutual fund is ideal for medium to long-term growth but requires a Demat account for investment

While its returns may be lower compared to the equity funds, this ETF offers the advantage of being easier to trade and more liquid —

1-Year Return: 24.7%
3-Year Return: 6.33%
5-Year Return: 16.09%

3. Taurus Ethical Fund

Similar to the Tata Ethical Fund, the Taurus Ethical Fund invests in Shariah-compliant equity and equity-related instruments. It targets long-term capital appreciation while excluding sectors prohibited under Islamic law.

This islamic mutual fund is suited for investors who want to invest in line with Islamic values.

1-Year Return: 34.72%
3-Year Return: 21.84%
5-Year Return: 19.86%

Note: The returns are updated on a regular basis. Hence, it’s better to keep a check before making any decision.

Other Considerations: Gold ETFs

While most gold mutual funds in India may invest in fixed-income securities that can conflict with Shariah principles, Gold ETFs remain a halal investment option. These ETFs invest in physical gold, which allows you to gain exposure to the precious metal while adhering to Islamic guidelines.

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How to Invest in Shariah Mutual Funds in UAE

Choose a fund from the shariah compliant funds list that aligns with your goals.
Confirm it is certified as halal by a credible Shariah board.
Decide your investment horizon — short, medium or long term.
Invest through a licensed broker or fund distributor available in UAE.
Monitor performance, and ensure periodic reviews to stay aligned with your financial goals.

Conventional vs Shariah Compliant Mutual Funds

Here are the key differences and similarities between Shariah-compliant mutual funds and conventional funds —

Factor	Shariah-Compliant Funds	Conventional Funds
Investment Options	Avoid sectors like alcohol, gambling, and non-Islamic finance, resulting in fewer investment choices	No such restrictions — can invest across a wide range of sectors
Risk and Return Profile	Balances ethical considerations with financial returns, which may affect risks and performance	Focus solely on financial returns, with varying risks based on industry exposure
Costs	May have slightly higher fees due to the need for Shariah compliance	Typically lower fees due to fewer compliance restrictions
Social Responsibility	Prioritises ethical and social responsibility by avoiding unethical sectors	May not focus on social responsibility unless specified in the fund's mandate
Market Dynamics	Influenced by sectors that adhere to Islamic principles, affecting performance	More influenced by general market conditions and economic factors

The Bottom Line

For investors in the UAE who want to grow their wealth without compromising their faith, shariah compliant mutual funds offer a compelling option. Whether you choose an equity-based Islamic fund or a balanced halal mutual fund, you get a blend of ethical investing, professional management, and potential returns.

If you’re ready to begin your shariah investment in UAE, review the shariah funds list, confirm compliance, and pick a fund that matches your goals and risk appetite.

Start exploring halal investment opportunities today and stay aligned with both your financial ambitions and personal beliefs.

Frequently Asked Questions

A shariah mutual fund (or halal mutual fund) pools money from many investors and invests only in assets that comply with Islamic principles — avoiding interest, prohibited industries, and unethical businesses.

Yes — the UAE market offers a variety of Islamic mutual funds and shariah compliant funds that cater to investors seeking halal investment options.

Look for a Shariah-compliance certificate or approval from a recognized Shariah board. The fund’s literature should explicitly state that it follows Shariah guidelines.

Yes, many funds are available to expatriates as well as UAE citizens. Just ensure you meet the minimum investment requirements set by the fund distributor or broker.

Returns vary depending on asset mix and market conditions. Equity-based funds tend to have higher potential returns with higher risk; sukuk-based or balanced funds may offer more stable, moderate returns.

“Safer” depends on the fund’s structure and market conditions. While Shariah funds avoid certain risky sectors, they still carry market risks like any other fund. Diversified, well-managed funds help mitigate risk.

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