- India is Asia Pacific’s fourth-largest Islamic fund market by AuM
- India still shuns Islamic finance decades after Pakistan-Bangladesh split
- Domestic Shariah market has much potential if political will allows
Overview
Despite its historical association with Islam dating back centuries, India does not have a vibrant Shariah investment landscape – mainly due to geopolitical repercussions stemming from the 1947 forced split along religious lines when gaining independence from British colonialism.
The largest set of Islamic assets in India today would be Waqf lands owned by various Waqf boards – housing mosques, religious settlements and cemeteries. Management of these assets is now in the eyes of a controversial regulatory revamp.
The Islamic investments sector is a relatively miniscule industry in India, especially when compared to thriving conventional asset management sector in the world’s most populated country of over 1.4 billion people.
It is confined to a handful of cooperative financial institutions and Shariah funds – despite a significant Muslim population, which the government estimated to be about 197 million in 2023.
The latest Reserve Bank of India (RBI) statistics showed assets under management (AuM) of open-ended equity-oriented mutual funds rising by 55% year-on-year to INR23.5 trillion (US$274.5 billion) at the end of March 2024. Tycoons also abound, UBS reported 185 Indian billionaires as of December 2024.
In comparison, India only hosts five Islamic funds tracked by the IFN Investor Funds Database, with a combined value of US$480 million at the end of Q4 2024, with the Shariah-focused Quantum Ethical Fund launched in 2024 after years of no new fund launches.
This ranks India fourth in Asia Pacific in terms of Shariah fund AuM value, after the US$32 billion each in Malaysia and Pakistan and US$3.24 billion in Indonesia.
From a global standpoint, India’s Muslim population ranks third after Indonesia and Pakistan – indicating the enormous Shariah investment sector potential, if politically permitted.
Nonetheless, the country’s massive economic growth – which has outpaced global growth over the last decade clocking in an impressive 105% GDP increase to US$4.3 trillion this year, according to the IMF – has attracted Islamic investors. Gulf Islamic Investments is one of them – the US$3 billion investment management firm launched two private equity Indian-focused portfolios to capture opportunities across high-growth sectors.
Some positivity can also be seen in the Indian capital markets. NSE Indices, a subsidiary of National Stock Exchange of India, provides several Shariah indices.
Table 1: Largest Islamic fund markets in Asia Pacific by AuM as at end 2024
| Rank | Country | Number of public funds | AuM (US$) |
| 1 | Malaysia | 594 | 33.04 billion |
| 2 | Pakistan | 222 | 6.96 billion |
| 3 | Indonesia | 250 | 3.46 billion |
| 4 | India | 5 | 478.85 million |
| 5 | Australia | 8 | 334.48 million |
| 6 | Singapore | 9 | 294.27 million |
| 7 | Russia | 1 | 59.17 million |
| 8 | Bangladesh | 15 | 52.37 million |
| 9 | Thailand | 10 | 40.74 million |
| 10 | Sri Lanka | 1 | 5.12 million |
Source: IFN Investor Funds Database
Regulatory environment
With the backdrop of a bitter split between Hindus and Muslims that led to the carving out decades ago of Pakistan and later Bangladesh, India’s political administration has resisted encouraging any instituting of Islamic finance.
As India’s central bank and financial regulator, RBI does not promote Islamic banking or investments. Its policies are consistent with the political opposition that has existed for decades against Shariah-based financial services in India. Saudi Arabia’s IsDB Group’s plan to set up a branch in the country was notably refused entry in 2016 after objections raised by the Vishva Hindu Parishad group.
The Bombay Stock Exchange and National Stock Exchange is regulated by the Securities and Exchange Board of India, which oversees the securities market.
Fund performance
India’s Shariah funds tracked by the IFN Investor Funds Database posted gains of above 6% for the year ended 2024, two of them in double-digit territory.
That hints at how well Shariah financial services could do if allowed to prosper in a country where the post-pandemic GDP recovery has consistently outpaced China’s flagging economy. India’s GDP is forecast to grow 7% or more in 2025, expanding a fifth straight year after the COVID-19 outbreak of 2020 when the economy shrank 5.8%, according to RBI. In 2023, growth was 9.2%, India’s most in 12 years.
The five Islamic funds offered in India tracked by the IFN Investor Funds Database are all equities-based. The largest of them is the US$388.13 million Tata Ethical Fund run by the Tata Asset Management. Benchmarked to the Nifty 500 Shariah TRI index, it also the top performer, rising 23.65%.
The Taurus Ethical Fund, with US$31.59 million in AuM and benchmarked to the BSE 500 Shariah index, was the second-best performer, returning 19.16%. The third was an exchange-traded fund run by Nippon, with an AuM of US$6.25 million. The Nippon India ETF Nifty 50 Shariah Bees fund, benchmarked to the Nifty50 Shariah Index, posted a one-year return of 9.24%.
Quantum Ethical Fund, the newest Indian Shariah compliant fund in the IFN Investor Funds Database, has yet to report a financial year after its launch in December 2024. The fund is classified as “very high risk”, allocating a minimum 80% into equities and related instruments and 20% in compliant debt and money market instruments.
Table 2: Performance of India’s Islamic funds at end Q4 2024
| Manager | Fund | Domicile | Asset class | AuM (US$ million) | One-year returns (%) | Three-year returns (%) | Five-year returns (%) |
| Nippon India ETF | Nippon India ETF Nifty 50 Shariah BEes | India | Equities | 6.25 | 9.24 | 5.09 | 15.86 |
| Quantum Asset Management | Quantum Ethical Fund* | India | Equities | 5.2 | – | – | – |
| Tata Asset Management | Tata Ethical Fund | India | Equities | 388.1 | 23.65 | 13.67 | 20.32 |
| Tata Asset Management | Tata Indian Sharia Equity Fund | Mauritius | Equities | 47.3 | 6.87 | 3.68 | 13.8 |
| Taurus Mutual Fund | Taurus Ethical Fund | India | Equities | 31.6 | 19.16 | 14.37 | 19.81 |
* Quantum Ethical Fund started operating on the 26th December 2024
Source: IFN Investor Funds Database
Outlook
With its 1.4 billion people and ebullient growth that makes it one of the world’s economic powerhouses, India is poised to increasingly raise its global profile. Worldwide uncertainties stemming from the tariff-biased policies of the Trump administration in the US while manufacturing bulwark China continues to find its post-COVID footing could well play to India’s advantages
As such, Islamic investment potential in India’s multi-dimensional economy has huge expansional opportunities – subject to the bending of political will in the Hindu-dominated nation.
India is also making overtures to woo investments from the Middle East and that could potentially boost the Shariah investments sector. Among recent initiatives are the India-Middle East-Europe Corridor project. Indian Prime Minister Narendra Modi’s official visit to Kuwait in December 2024 was the first in 43 years by an Indian leader. Qatar Emir Sheikh Tamim Bin Hamad Al-Thani visited India in February 2025.
