The Indian financial market has been exacerbated in the world financial market. The investors have been looking forward to the financial market with their own investment strategies to edge the volatility. The mutual funds were weird with high profitable investment strategies and along with other financial derivatives. The mutual fund industry has great significant importance in investment of the government and co-operate entities as it channelizes the funds from saving units to deficit units [1-3]. In India the mutual fund industry began with Unit Trust of India (UTI) in 1964. It has been expanded since it was founded. According to the Asset under the management board, from 1993 to 2003 the Indian mutual funds earmarked as 60.28 % [4]. in 2011-12 the gross fund raised by the Indian mutual fund industry has been exceeded from INR 68,196.79 billion to INR 188,134.58 billion in 2019 -20 [5]. Lastly the industry stood at 61, 33,227 core at the month of June 30 in 2024. The Asset under management (AUM) states that this industry has grown from INR 9.75 trillion as June 30, 2014 to INR 61.16 trillion as June 30, 2024 more than six fold increase in a span of a decade. Nowadays the Muslims are looking forward to financial markets for mange the liquidities as a professional manner without smashing the Sharia fundamental principles [6]. The financial market procures ethically based mutual funds. So the investors need a distinct idea on it. It works on ethical or socially responsible principles and has been popular in the mutual fund industry [7]. Some investors use these funds as an investment strategic tool which can incorporate environment and social benefits in long-term investment plans and maximize social and financial rewards [8]. According to the stock exchange board of India [5], there were 1916 schemes among which only 14 open ended schemes were based on ethical principles. Out of 44 mutual fund Asset management companies only 3 companies were provided the ethical level funds namely TATA ethical mutual fund, Taurus ethical fund, Nippon India ETF Sharia BeES [25].

Kaur& Chaudhary [3] clearly defined the performance evaluation of ethical Mutual funds in terms of evidence from India. It indicates that nine out of ten ethical schemes outperformed the benchmark index. Ahmad.A.S [5] discuss on the sustainability performance of Sharia compliant equity fund in India and examined the environmental, social, and governance performance of all Sharia compliant fund in India Tipet [9], Lozano et al [10], Mill [11], Tripathi & Bhandari, [12], Cortez et al [13] these studies clearly state the performance of ethical mutual fund and stocks in terms of risk returns on the basis of conventional and ethical level. The seminal work of Friend [23]. Provides the empirical evidence of mutual fund performance after Treynor [14], Sharpe [15] and Jensen [16] developed the standard structure of measurement of risk adjustment of mutual funds. Several studies are going on the performance evaluation of the Indian Mutual fund. There are ample investors who are interestingly looking forward to the Sharia compliant fund. The TATA ethical fund is the most commented fund in the name of Sharia compliant, while I analyse the TATA mutual funds white paper it contradicts Sharia principles. So this paper took a critical analysis of TATA ethical fund investment as Sharia compliant mutual funds [24].

In this study, it takes a qualitative approach by referring to journals, articles, books and statutory reports.

Objective

To understand the TATA ethical fund system.

To study the Indian ethical mutual funds.

To analyse the TATA ethical fund operations with Sharia principles.

The non-conventional financial system has been rapidly exacerbated in the World. In 1963, the establishment of MitGhamr saving bank Egypt which was considered as the first Islamic bank as the birth of modern Islamic banking and financing. These sector rapidly revamping in globally as expected to grow 10% [17]. According to Erragragay & Revelli [18] states that ethical mutual fund were screening on the basis of environmental, social and governance performance metrics. This practices lead variations of Islamic financial markets from the Islamic economic thought of sustainability and social impact. The mutual funds which are highly scrutinized on the basis of environmental, social and governance performance can be termed as ethical and not Sharia compliant funds. The Sharia compliant fund distinguishes from conventional funds is the existence of Islamic law. The Sharia compliant funds must be screened on the rules and regulations of Maqasithu Sharia which is derived from the legitimate sources of Islam as Quran, Hadees, ijmah, Qiyas. The ethical mutual funds are mainly focused on profit motives [19] they need to improve their overall and several aspects in terms of environment, social and governance [20].While analysing the sample data of India mutual funds are Nippon ETF Sharia BeES, TATA ethical fund and Taurus ethical fund. According to the data of TATA mutual fund [21] & National stock exchange indices limited [22] states that the first two mutual funds are Sharia compliance methodology of Taqwa Advisory and Sharia investment solutions (TASIS) [27] and also applied similar screening methodologies to ensure the Sharia compliances such as industry screening and excludes the Islamic prohibited activities such as alcohol and narcotics productions and sales, conventional financial services, non halal food productions and related services [26].

Tata Ethical Fund

Tata ethical fund is a diversified equity fund with an investment objective to invest in Sharia compliant stocks and bonds.it follows a bottom up approach in investment decisions and stoke selection to build a portfolio of companies which adhere to Sharia principles. The Sharia is a code of law which is prescribed in the Islamic religion. Sharia addresses socio - economic micro and macro variables as well as hygiene, diet, prayer and fasting. Sharia has such specific rules and conditions on investment transactions. It's based on certain norms and filter related public needs and wants, and ensures the business is fairable and ethical. According to TATA ethical fund [21] it explains that it's wired with three key features. Firstly, it Diversified portfolio of Sharia compliant stocks which means that the fund will invest only in securities which are comply with Sharia principles, The investment manager has appointed Sharia advisor to analysis or make sure the list of securities which is compliance with Sharia rules, the fund doesn't works or operates any market cap bias and selection of the stock done on the basis of bottom up approach. Secondly, portfolio of fundamentally strong stocks with low leverage which means that they invest in companies which have less than 25 % of its total assets financed using interest bearing debt due to those companies generally no need any large external debt to fund their growth as the capability of high internal cash generation. Lastly, it is strictly adherence to Sharia principles which means that the portfolio was checked by an independent advisor and the deviation is corrected time to time. TATA ethical fund is ideal for investors to invest in a diversified equity fund. It's suitable for investors who are interested in long-term capital appreciation and wish to invest in equity and equity related financial instruments which are Sharia compliant. These funds adhere to Islamic principles and avoid investing in business which is contained conventional financing. The Sharia compliant fund must be adhere to Islamic basic principles which are following below;

Prohibition on Interest (Riba): The fund cannot invest in companies that deal with conventional financing or interest-based activities. According to the TATA ethical mutual fund [21], it clearly defined that these ethical funds were wired with a portfolio of fundamentally strong stocks with low leverage by investing in companies which have less than 25% of its total assets financed using interest bearing debt and it is justified with those companies generally do not need large external debt to fund their growth as high internal cash generation capability. In short, these ethical funds invest only in the companies which have less than 25% of interest based debts. According to Sharia law , the holy Qur'an chapter 2 :257 states that " Allah permits trading and forbid usury" therefore the Sharia compliant mutual fund investment are not permissible to contain any elements of Usury or Riba ( interest) as the the fundamental principles of Sharia. Here TATA ethical fund are involved less than 25 percentage debt interest companies practices, it’s explicitly illustrate that the involvement of Usury then how it can term as Sharia compliant ethical fund. It's doesn't obey the fundamental principles of Sharia compliant fund so it can only term as ethical mutual funds in terms of environmental, social and governance level of performance [28].

Prohibition on gambling (Maisir): The fund cannot invest in companies involved in gambling or related activities. According to TATA ethical fund [21] its clear state that these funds prohibited from gambling activities and craved this as a key feature.

Prohibition on alcohol (khamr): The fund cannot invest in companies involved in the production or distribution of alcohol. While analysing the the top investment sector, there is no involvement of investment in these non-ethical sectors.

Prohibition on Gaming and game of chance sectors: the fund cannot invest in companies involved in these sectors. It’s invested more in the information technology sectors

Prohibition on conventional insurance: The fund cannot invest in companies involved in conventional insurance activities. The previous data of investment exposes that these funds are not allocated for conventional insurance companies.

Prohibited in non halal food productions: These funds never allocates to these sectors. The previous data are literally exposed that they invest in capital goods and consumer durables.

In a nutshell, the Indian financial market hikes up day to day. The volatility of the financial market tends to risk edge measure by investing in mutual funds. Nowadays more of the Muslims people come forward to the financial market to manage their money as Sharia compliant level, in this scenario the most of the industry obey basic principles of Sharia and executes the mutual fund platforms on the basis of Sharia. Here TATA ethical fund are involved less than 25 percentage debt interest companies practices, it’s explicitly illustrate that the involvement of Usury then it cannot term as Sharia compliant ethical fund. It's doesn't obey the fundamental principles of Sharia compliant fund so it can only term as ethical mutual funds in terms of environmental, social and governance level of performance. More of the further researches and studies are literally needed in these scenarios especially on Indian ethical Mutual funds.

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