Ask ET Mutual Funds: Should I continue with Tata Ethical Fund?

I am investing Rs 25,000 per month in TATA Ethical Fund (Regular, Growth) through an SIP since January 2016. The last one-year performance is nil. My investment horizon is long term - may be up to 10 years. Can you tell me whether I should continue with my investment? I prefer sharia-compliant funds.
--Usman Kuruppakka

Rishabh Parakh, Founder and Chief Gardener, Money Plant Consultancy, responds: Looking at the long-term horizon you have, coupled with the condition that you want to invest in sharia compliant fund, you should continue your existing SIPs in Tata Ethical Fund. The only other sharia-compliant is Taurus Ethical fund. So, you don’t have any other option in mutual funds than these two funds.

You are right in thinking whether to stop your investment if it is not giving you gain, as one can always be better off by not investing at all. But if you compare the performance of ethical funds with other equity funds, you will always find that it will be on a lower side due to the non-participation of Sharia Compliant funds in the banking stocks, tobacco, liquor and now with a recent addendum, even IT stocks cannot be a part of your portfolio.


But still, don’t look at the returns only for one year but look at the returns of ethical fund in the last three or five years’ window, then it has given around 15 per cent returns on an annual basis and that is how you should decide your investment strategy.

A point to note is that most halal investments can give decent returns and not extraordinary result like other regular equity funds. Because if bank stocks or other prohibited stocks rallies in a market then ethical fund can’t take advantage of that rally and obviously underperform, but 10 year is quite a long period which is ideal for even an Ethical/Sharia Compliant equity fund to give you a decent return, so you should continue to remain invested in Tata Ethical Fund.

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