The concept of mutual funds Advantages for Investors The Indian MF Industry Islamic Fund Management Shariah Screening

Process Screening Methodology Taurus Ethical Fund Zakath Potential of Zakath from a Kerala Context Functioning of Baithuzzakath Kerala Futuristic Zakath Management System

 Mutual funds are vehicles to mobilize moneys from investors, to invest in different markets and securities, in line with the investment objectives agreed upon, between the mutual fund and the investors.

Professional Management Affordable Portfolio Diversification Economies of Scale Liquidity Tax Deferral Tax Benefits Convenient Options Investment Comfort Regulatory Comfort Systematic Approach to Investments

Open Ended
Income Equity Balanced Liquid/Money Market Gilt 4,41,422 1,48,726 15,277 73,030 3,171

Close Ended
26,203 19,621 1,864

Interval
8,759 325

Total
4,76,384 1,68,672 17,141 73,030 3,171

%
62.1% 22.0% 2.2% 9.5% 0.4%

ELSS-Equity
Gold ETF Other ETFs FoFs (Overseas) Total %

19,617
1,583 1,342 2,882 7,07,050 92.2%

3,047

22,664
1,583 1,342 2,882

3.0%
0.2% 0.2% 0.4% 100.00%

50,735 6.6%

9,084 1.2%

7,66,869 100.00%

 Mutual funds are constituted as Trusts. The mutual fund trust is created by one or more Sponsors, who are the main persons behind the mutual fund business. Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund trust, are the investors. The operations of the mutual fund trust are governed by a Trust Deed, which is executed by the sponsors. SEBI has laid down various clauses that need to be part of the Trust Deed. The Trust acts through its trustees. Therefore, the role of protecting the beneficiaries (investors) is that of the Trustees.

 Day to day management of the schemes is handled by an Asset Management Company (AMC). The AMC is appointed by the sponsor or the Trustees. Although the AMC manages the schemes, custody of the assets of the scheme (securities, gold, gold-related instruments & real estate assets) is with a Custodian, who is appointed by the Trustees. The record of investors and their unit-holding may be maintained by the AMC itself, or it can appoint a Registrar & Transfer Agent (RTA).

 Islamic unit trust schemes must be supervised by a Shariah committee or Shariah adviser to ensure that the fund is managed and administered in accordance with Shariah principles. The Shariah Committee should function independently of trustee and portfolio manager.

1.Portfolio purification 2.Portfolio selection screening stocks 3.Portfolio monitoring 4.Working with fund management 5.Monitoring of fund fees 6.Monitoring fund documentation

S&P CNX Shariah 500 Dow Jones Islamic Index BSE TASIS Shariah 50 GCC Islamic Index FTSE Global Islamic Index Series MSCI Islamic Index Series Jakarta Islamic Index

Business Screens

Financial Screens

Monitoring, Removal & Replacement

 The S&P CNX 500 Shariah is derived from the S&P CNX 500, the complete benchmark for the Indian stock market. Representative of the Indian equity market and with high correlations to their underlying indices, each Shariah compliant index provides investors with a comparable investable portfolio while adopting explicit selection criteria defined by Islamic law.

 Dr. Muhammad Ali Elgari

PhD in Economics from the University of California, United States.

Dr. Abdul Sattar Abu Ghuddah

PhD in Islamic Law from Al Azhar University, Cairo, Egypt.

Dr. Nazih Hammad

PhD in Islamic Law from the University of Cairo, Egypt.

Dr. Mohammad Amin Ali-Qattan

PhD in Islamic Banking, Birmingham University, United Kingdom.

Business activities related to the following are excluded: 1) Pork 2) Alcohol 3) Gambling 4) Financials 5) Advertising and Media (newspapers are allowed, sub industries are analyzed individually) 6) Pornography 7) Tobacco 8) Trading of gold and silver as cash on deferred basis

 During the selection process, each companys audited annual report is reviewed to ensure that the company is not involved in any non-Shariah compliant activities. Those that are found to be non-compliant are screened out. The above industries are not considered Islamic and would not be appropriate for investment for observant Muslims.

 After removing companies with non-compliant business activities, the rest of the companies are examined for compliance in financial ratios, as certain ratios may violate compliance measurements. Three areas of focus are leverage, cash, and the share of revenues derived from non-compliant activities. All of these are subject to evaluation on an ongoing basis.

 This compliance is measured as: Debt / Market Value of Equity (12 Month average) < 33 %

 One-third (33%) is representative of preponderance may be derived from a hadith, related by Bukhari, in which Prophet Muhammad (pbuh) said: ...Then a third. And a third is a great deal, when he was asked how much of ones estate a person may bequeath to some one other than the prescribed heirs. (It should be stated emphatically here that this formula is one that applies to investors interested in companies offering shares on the international market over which Muslims have no control. It should not be understood as an endorsement of the practice, by Muslim-owned businesses, of interest-based borrowing.)

 There are compliances with reference to cash holdings. These are: 1) Accounts Receivables / Market value of Equity (12 Month average) < 49 % 2) (Cash + Interest Bearing Securities) / Market value of Equity (12 Month average) <33%

 In certain cases, revenues from non compliant activities are permissible, if they comply with the following threshold:

(Non-Permissible Income other than Interest Income) / Revenue < 5%

 This ratio is provided to investors for purification purposes, it is calculated as: Dividends * (Non Permissible Revenue / Total Revenue)

 As soon as any new information regarding a constituent company is collected, compliance is reviewed. RI (Ratings Intelligence) provides the compliance data to Standard & Poors via a monthly compliance report. A daily screening report is checked by RI and provided to the Shariah supervisory board. A member of the Shariah board signs off on a monthly basis. Standard & Poors reviews the monthly report and, accordingly, removes any existing constituents for noncompliance.

 Diversified Equity fund catering to investors looking for Shariah compliant investment opportunities. Long term wealth creation through investment in Shariah compliant equity instruments. Invests across various sectors. Selection of stocks based on better management quality, good corporate governance and strong balance sheet with limited exposure to debt. During FY 09 10 declared 3 dividends amounting in aggregate to Rs. 4.50 per unit. During FY 10 11 declared a dividend of Rs. 1.80 per unit on 10th Dec 2010. As on 30th June 2011, TEF has given a CAGR of 21.47% in two years as against return of 12.94% by the Benchmark index.

Performance as on 30th June 2011

1 year

2 years

Since Inception (6th April 2009)

Taurus Ethical S&P CNX 500 Shariah

2.85% -0.06%

21.47% 12.94%

45.48% 28.71%

SIP Performance TEF & S&P CNX 500 Shariah

Monthly investment (5th of every month) No. of months Total investments Value of TEF investment (8th July, 2011) 1000 12 12,000 11,772 1000 27 27,000 31,395

Value of Benchmark (8th July, 2011)

11,746

28,820

Top 10 Equity Holdings of Taurus Ethical

Company Name
Infosys Ltd. Reliance Industries Ltd.

% of Net Asset
6.46% 5.09%

Oil & Natural Gas Corporation Ltd.

Bharti Airtel Ltd. HCL Technologies Ltd. Cairn India Ltd.

4.90%
4.62% 4.58% 4.07%

Gail (India) Ltd.

Havells India Ltd Rallis India Ltd. GVK Power & Infrastructure Ltd. Total Top 10 Equity Holding Other Equity Total Equity Holdings

3.68%
3.50% 3.49% 3.27% 43.67% 47.67% 91.34%

Top 10 Equity Sectors of Taurus Ethical

Sector Name
Software Pharmaceuticals

% of Net asset
13.26% 9.18%

Oil
Gas Power Consumer Non Durables Petroleum Products Trading Non Ferrous Metals Industrial Capital Goods Top 10 Equity Sector Holding Other Equity Sectors Total Equity Sector

8.97%
6.75% 6.30% 5.38% 5.09% 5.02% 4.71% 4.63% 69.31% 22.03% 91.34

 The literary meaning purification, growth Technical meaning in Islamic Shariah The prescribed rate of purging that each Muslim is obliged to do on the different categories of wealth under his ownership when they achieve prescribed levels of aggregation which shall be distributed to prescribed classes of people.

 The spiritual nature of Zakath. The material nature of Zakath.

 Thawba: 103. Depends on the strength of belief and the purity of intention.

 ArRoom: 39 Al Hashr:7 Muad (R) reports from Prophet (SAW): It will be collected from the rich among you and given back to the poor among you. Success in this front depends upon the efficiency of the Zakath collection-apportionmentdistribution system. Islam created its revolutions during those periods when this system was completely in vogue.

 A complete Zakath system is a must for the swift propagation of the Islamic message. Without a complete Zakath system the Islamic message loses its aura and becomes powerless.

 The robustness of any system has to be primarily assessed by comparing it with the systems during the period of the Prophet (SAW) and the rightly guided Caliphs. The expansionary nature and adaptability of Shariah. New methods can be developed to improve the efficiency of Zakath systems provided they are not in conflict with Shariah.

 Our discussion should touch upon this futuristic pictures of Zakath systems. Our discussion would be complete only when we consider the Islamic past and the Islamic future.

 Muslims in Kerala constitute 25% of the total population Population in Kerala around 3,20,00,000 Muslim population around 80,00,000

 Total remittance of around 30,000 cr. Muslims share around 56% which is around 16,800 cr.

 Around Rs. 5700 cr. remitted as salary a year. Muslims share around 11.5% which amounts to Rs. 655.5 cr.

 Keralas annual industrial production amounts to around Rs. 23,500 cr. Muslims share 30% which amounts to Rs. 7050 cr.

 Annual agricultural production of Kerala is Rs. 18,200 cr. Muslims share of the agricultural production is 23% which amounts to Rs. 4200 cr.

 Trade conducted to the tune of Rs. 37,000 cr. 40% of this is controlled by Muslims which amounts to Rs.14,800 cr.

 From official data itself the production of Kerala Muslims is to the tune of Rs. 43,500 cr. Let off 30% for basic expenses. Zakath being estimated at Rs. 1000 cr. Unaccounted money in the economy.

 Out of the 80 lakh Muslims in Kerala 31% live below poverty line, ie, about 25 lakh people. 10% of the Muslim population doesnt have habitable houses, ie, 8 lakh people. The poverty rate among Muslims is higher than that among low caste Hindus.

 Has been functioning for more than 30 years in the state at unit level. The Baithuzzakath Kerala was established in the year 2000. All party workers and members are required to deposit their Zakath with Baithuzzakath. Additional funds have to be raised from others for local operations. Receives Zakath remittances from Keralite expatriates also.

Year
2000-01 2001-02 2002-03 2003-04 2004-05

Total Collection
453089 1135031 2200031 3526734 6207175

Percentage Growth

151% 94% 60% 76%

2005-06

5077565

-18%

2006-07

9374751

85%

Year
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

No. of Remitters
69 164 239 353 565 411

Percentage Growth
138% 46% 48% 60% -27%

2006-07

678

65%

Year

No. of Beneficiaries Percentage Growth

2000-01
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

54
134 234 446 673 626 883 148% 75% 91% 51% -7% 41%

Year

Per Capita Remittance

Percentage Growth

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

6567 6921 9205 9991 10986 12354 13827 5% 33% 9% 10% 12% 12%

Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Per Capita Benefit 8391 8470 9402 7907 9223 8111 10617

Percentage Growth

1% 11% -16% 17% -12% 31%

Zakath Management as a Supply Chain function. Centralization with decentralization. Minimal time for clearances. Local distribution to the extent possible. Complete disbursement in an accounting year. Unhealthy practice of using the bulk funds for purposes other than poverty eradication. Introduction of centralized Zakath Database Management Systems. Training of those who work with Zakath funds.

Establish Shariah rulings as an integral part of the

business thought process while creating new paradigms for business performance and management.

 We shall see through the processes of establishing new businesses that are value bound and performance oriented. We shall see through the processes of value integrating existing businesses while raising performance levels. We shall continuously raise the content, variety and scope of Shariah oriented business education. We shall continuously innovate, challenge the status quo, continuously create opportunities and rejuvenate the way businesses operate.

 1) 2) 3) 4) 5)

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