Shariah Compliant ULIP / Insurance / Pension Funds in India: Are they really Islamic?

I never felt the need to write an article related to ULIP or Insurance/ Pension Funds being Islamic. I thought it was clear. But it seems there have been some funds launched with the ethical/pure tag and labelling them shariah compliant.

This article is specific to Shariah based Insurance funds. For other insurance discussion, please refer these posts:
Is Life Insurance Halal in India
Is LIC policy Halal or Haram


Let me list all these fund first:

1. Bajaj Allianz Pure Stock Fund
2. Bajaj Allianz Pure Equity Fund
3. Bajaj Allianz Pure Stock Pension Plan
4. Tata AIA Life Select Equity Fund
5. Tata AIA Life Future Select Equity Fund

Bajaj Allianz Funds:

Straight from Bajaj Allianz policy document, we get this:

Pure Stock Fund: (SFIN: ULIF02721/07/06PURESTKFUN116) 

The investment objective of this fund is to specifically exclude companies dealing in gambling, contests, liquor, entertainment (films, TV etc.), hotels, banks and financial institutions. 

Portfolio Allocation: 

Equity & Equity Related Instruments: Not less than 60% 

Government treasury bills (Non-interest bearing): Not more than 40%

The equity investment is in non-haram sectors. But the stocks themselves either take interest or give interest; so nothing is mentioned about it.

Also as can be seen from the last line it can invest up to 40% in non-equity. Note that there is no such things as non-interest bearing Government Treasury bills.

Actually the word interest is hidden in case of Government Treasury bills and in many places it is written that they are non-interest bearing.

From the RBI docs, we have the definition:

a. Treasury Bills (T-bills)

1.2 Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest. They are issued at a discount and redeemed at the face value at maturity. The return to the investors is the difference between the maturity value or the face value (that is Rs.100) and the issue price 

You will find it mentions "pay no interest". However those who know a little finance should be alarmed by 2 words used in the definition "money market" and "debt instrument". These 2 terms mean pure interest based investments. Let me explain:

For example, a 384 day Treasury bill of Rs.100/- (face value) may be issued at say Rs. 93, that is, at a discount of say, Rs.7 and would be redeemed at the face value of Rs.100/-.

So what it means that you invest Rs. 93 and after 384 days government will return you Rs. 100. You make a profit of Rs. 7 but that Rs. 7 is not profit as these people make you believe. That Rs. 7 is the interest the government pays you (approximately 7% interest rate for a year)

You can google for the Bajaj Allianz Pure Stock Fund and open MorningStar website. It can be seen that 

76% is invested in stocks

16% in bonds (pure interest)

7% in cash (may be in bank with interest or may not be - no details)

I am not aware if they are cleaning these profits. (If they are then there is some hope)

I don't thing I need to analyze any of the other Bajaj funds since it is clear how the investment is done.

Tata AIA:

In this cases things seem better. Investment pattern seems simple:

80% in equities

20% in cash and bank (non-interest account)

So this is definitely better. From MorningStar website it can be seen less than 2% is in cash; remaining all is in stocks. Stocks avoid all haram sectors. But the stocks do have some interest taking and some interest giving components themselves. Not sure if the Tata ULIP are cleaning this part similar to the cleaning done in Tata Ethical Mutual Fund.