Investment Avenues for AlBurooj Society Corpus Fund

Salam, to all the elders and friends. This write up is exclusively about the Investment Avenues for the Corpus Fund of the AlBurooj Maintenance Society. We would be soon handed over the realms of the maintenance of the Society. We have had a very good beginning with the formation of a committee and a very competent set of selfless office bearers. The best part was the unanimity about the decisions taken which very much speaks about the quality of the people we are having. The members are obviously a little apprehensive about moving forward and meeting the financial requirements of such a gigantic residential set up. It is a norm with the most Housing Societies of the day to create a corpus and deploy it in Bank Deposits or Mutual Funds or any financial product which yields a regular monthly cash flow. This is easily the best way of assuring regular incomes to meet the tall financial needs of the maintenance activities. The only catch about the financial products in contention is that they are interest bearing and antagonistic to our faith. Allah swt says in Quran in Surah Baqarah, Ayat no.275, “Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein”. I am aware that there are also differing Fiqhi positions in Islam which allow participation in interest based transactions in certain conditions. And many of our esteemed members might have leanings to such interpretations and it is absolutely fine. We should respect the faith of all the individuals and must not impose our interpretations on others. This is where we can explore other possible investment avenues which are very much compatible with the teachings of Islam. One of the probable options is to invest with a going business concern who would share profits with us but each one of us would agree that finding such a business concern and further to trust them with an amount running in Crores is not a wise thing to do. The other tangible option is to make investments in real estate or shops. As for real estate, we would be handicapped for not having liquidity to meet our regular requirements and thus it becomes a no-no option. For shops, the rates of returns are generally modest and managing the rental collection and disciplining the tenants would almost be an impossible task. Apart from the faith related problems, the interest based income from the Bank Deposits has one more issue. Best rates are offered by the Co-operative Banks which are not inherently zero risk. In Gujarat, we had a very hard time for the investors who parked their funds with the Co-operative Banks as many of them busted in the past. Those at the helm of the affairs have often been found indulged in creating a nexus with the defaulters and siphoning off Crores of rupees of the investors. Thus, even if Bank Deposits is an any option to by, the only probable risk free option is Nationalised Banks which obviously promise lower returns. This pretty much leaves us with an option of equity markets. However, we are all aware that inspite of the better returns promised by the equity markets, fund management is a full time job requiring a lot of skills and that too a risky proposition if investments are done in unworthy scrips. Here comes the utility of a Shariah compliant Equity Fund. Presently, the SEBI has approved two products form fund houses viz. Taurus and Tata Mutual Fund. I would not elaborate about Taurus due to relatively low brand equity and uncertainties involved with an unknown player. Speaking about Tata Mutual Fund it comes from the house a very reputed business house of the Tatas. They had launched a Shariah compliant fund “Tata Ethical Fund” back in 1996 and has been going strong since last twenty years. It has continuously outperformed the debt funds, Equity funds as well as the Sensex in its journey of twenty years. Those unaware about the Shariah compliant Mutual funds may note that this fund invests in the shares of those companies which do not trade in an unIslamic fashion. Thus the companies which do not deal in Interest, Gambling, Alcohol, Tobacco and Entertainment are qualified as Shariah complaint. There is one more speciality about these scrips which is that the companies where the money is interested are cash rich and are mostly zero debt companies. Since Islam also forbids from paying interest, the companies chosen are also the ones which has least debt exposure. This automatically means that companies are financially very healthy. A tabular presentation of the returns is as under: 1 mth 4.0 172 3 mth 4.6 218 6 mth 10.6 202 1 year -0.6 149 2 year 13.1 72 3 year 19.8 100 5 year 14.6 20 Source: http://www.moneycontrol.com/mutual-funds/nav/tata-ethical-fund-direct/MTA736 Fund Details: http://www.tatamutualfund.com/our-funds/equity/diversified/tata-ethical-fund In 2013, the SEBI has mandated all the fund houses to launch the direct plans of mutual funds thus bypassing brokers who chunk away a significant portion of the returns as brokerage. We can thus directly interact with the Fund House and ask them to devise services suitable to us. Thus, we can opt for Systematic WithDrawal plans of say Rs.3.5 lacs to Rs.4.0 lacs a month which would be adjusted from our portfolio. If the dividend earning is less than the withdrawn amount then our portfolio goes down by that amount and if the earnings are on a higher side our portfolio inflates by that amount. Thus, we would be saved from the volatilities of the stock market and would be benefited from the expertise of top class fund managers. I am feeling a little awkward while writing all this due to the fact that this seems to be a propaganda to drawing people to buy a specific product. However, my only intention is to avoid interest based incomes and thus demonstrate our deep faith in Almight Allah swt and his perfection of life made for us which is Islam. Even if the returns are slightly lower on side, we should not shy away from paying a couple of hundreds bucks extra per month. However, if the trend is to be believed we would be better off with the investments in the Mutual Fund. There are many more wiser, saner and mature people in our Society and the Committee. The decision would be eventually taken by all of you after making all considerations. This is my humble plea to give this investment a consideration. In case, further details are required I would be more than happy for volunteering this cause whenever required.