Hello, I am a Muslim wanting to Invest according to Shariah principle. I have a net Income of about 2 lakhs INR/month. I am 37 and looking to create a corpus of 1.5 crore by the time I am 50.. As a practicing Muslim, I want to ensure the investment is Shariah compliant. I have a strength of investing upto 50k/month and this may grow in the future too! kindly suggest what would be my best options.

Ans: Hello Sultan. For the goal of 1 Cr., you can start sip in MF of around Rs 15000 with the below-mentioned schemes:

• Nippon India Multicap Fund
• Quant FlexiCap Fund
• Mirae Asset Midcap Fund
• SBI Small Cap Fund

Ans: As an individual interested in Shariah-compliant investments, it's important to adhere to Islamic principles when considering investment opportunities. Shariah-compliant investments avoid interest-based transactions, investments in businesses that involve prohibited activities such as alcohol, gambling, and unethical practices, and investments in companies with excessive debt levels.

Regarding your investments in Maxlife Life Flexi Wealth Plus and Bajaj Allianz Life, it's essential to evaluate whether these investments comply with Shariah principles. Here are some key considerations:

Insurance Investments: Shariah scholars have differing opinions on whether conventional insurance products are permissible. Some argue that certain life insurance products may involve elements of uncertainty (gharar) and speculation (maisir), which are prohibited in Islam. Therefore, it's advisable to consult with a qualified Shariah advisor to assess the permissibility of these specific insurance policies.

Investment Structure: Shariah-compliant investments typically involve structures such as Mudarabah (profit-sharing), Musharakah (partnership), and Wakalah (agency), among others. Assess whether the investment products you've chosen adhere to these principles and avoid interest-based transactions.

Transparency and Screening: Shariah-compliant investments undergo rigorous screening processes to ensure compliance with Islamic principles. Look for investment options that provide transparency regarding the underlying assets and adhere to Shariah screening criteria.

Performance and Returns: While adhering to Shariah principles is paramount, it's also essential to evaluate the performance and potential returns of your investments. Look for investment opportunities that offer competitive returns while maintaining compliance with Islamic finance principles.

Diversification: Diversifying your investments across various asset classes and sectors can help manage risk while pursuing your financial goals. Explore Shariah-compliant investment options such as Islamic equity funds, Sukuk (Islamic bonds), real estate investment trusts (REITs), and commodities.

Before making any investment decisions, it's advisable to consult with a qualified Shariah advisor or financial planner who can provide tailored guidance based on your individual circumstances and investment preferences. They can help you assess the Shariah compliance of your current investments and identify suitable opportunities that align with your financial goals and ethical principles.

Ans: You wish to invest in Shariah-compliant funds and avoid interest-based returns. This aligns with your faith and values. Your financial goal includes building a home next year and planning for retirement.

Your focus is also on your dependents: wife, daughter, and parents.

Let us structure a detailed plan tailored to your needs.

Principles of Shariah-Compliant Investing
Shariah-based investing prohibits interest (riba) and promotes ethical investments.

Avoidance of Prohibited Activities:
Investments must not involve gambling, alcohol, pork, or other restricted sectors.

Equity-Based Investments:
Shariah-compliant funds invest in stocks of ethically governed companies.

No Fixed Returns:
Shariah investments rely on profit-sharing or equity appreciation, avoiding fixed interest income.

Professional Guidance is Key:
Work with a Certified Financial Planner experienced in Shariah-based investments.

Investment Options Aligned with Shariah
Shariah-compliant investment options cater to your values and financial goals.

Shariah-Based Mutual Funds:
Invest in funds screened for Shariah compliance. These avoid interest-generating or prohibited sectors.

Equity Markets:
Directly invest in stocks of companies that adhere to Islamic principles.

Gold Investments:
Gold, in physical or electronic form, is permissible and a stable investment.

Retirement Planning
Retirement planning requires a disciplined and structured approach for 22 years until you turn 60.

Shariah-Compliant Equity Funds:
Allocate a significant portion to equity funds for long-term growth.

Diversify Across Geographies:
Consider international Shariah-compliant funds to reduce country-specific risks.

Gold as a Hedge:
Allocate a small percentage to gold for portfolio stability during economic downturns.

Flexible Withdrawal Plans:
Shariah investments can be designed to provide regular income during retirement.

Investment Strategy for Different Goals
Building Your Home
You plan to save sufficiently by next year for this purpose.

Preserve Capital:
Use low-risk Shariah-compliant options like Sukuk or liquid Shariah funds.

Avoid Volatile Investments:
Equity investments are unsuitable for short-term goals like building a home.

Daughter’s Education
Your daughter’s education is a critical long-term goal.

Long-Term Shariah Investments:
Invest in equity-based Shariah funds for wealth growth.

Start a Dedicated Portfolio:
Separate this portfolio to ensure funds are available when needed.

Periodic Reviews:
Monitor the investment performance and adjust as her education timeline nears.

Retirement Corpus
Retirement planning requires consistent investments over the next 22 years.

High Allocation to Equity:
Invest 70%-80% in Shariah-compliant equity funds for higher returns.

Gradual Risk Reduction:
Shift to lower-risk gold investments as retirement approaches.

Automated Investments:
Use SIPs in Shariah-compliant funds to ensure disciplined investing.

Managing Family and Dependent Needs
Your parents, wife, and daughter depend on you financially.

Emergency Fund:
Maintain 12-18 months of expenses in a non-interest savings account.

Takaful Insurance:
Consider Takaful, an Islamic alternative to traditional insurance, for life and health cover.

Health Provisions for Parents:
Ensure adequate health coverage for your aging parents under Shariah principles.

Key Advantages of Shariah-Compliant Funds
Ethical Investments:
They align with Islamic principles and provide peace of mind.

Global Opportunities:
Shariah-compliant funds offer access to international markets for diversification.

Potential for Long-Term Growth:
Equity-based funds typically outperform fixed-income investments over the long term.

Avoiding Index and Direct Funds
Shariah-compliant funds are actively managed by experts. Avoid index funds and direct funds due to:

Limited Customisation:
Index funds follow benchmarks and cannot adapt to specific Shariah requirements.

Professional Expertise Needed:
Direct funds lack the oversight provided by MFDs and Certified Financial Planners.

Tax Implications for Shariah Investments
Although you reside in the Middle East, taxation may apply if you invest in India.

Equity Investments:
LTCG above Rs. 1.25 lakh is taxed at 12.5%. STCG is taxed at 20%.

Sukuk and Gold:
Gains are taxed as per your income slab.

Consult a tax professional to optimise your tax liabilities based on your investments.

Final Insights
Shariah-compliant investing offers ethical and growth-oriented options aligned with your faith. Focus on a diversified portfolio for retirement, education, and family needs. Regularly review your investments with a Certified Financial Planner for sustained growth and compliance.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment