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.

Is LIC insurance policy halal or haram

I have already clarified in an earlier post that only term insurance can be considered in the subject of halal/ haram:
Is Life Insurance Halal in India

Building on that we can analyze the policies of India's favourite Insurance destination.
Many Muslims may have been subscribed to these policies both for tax benefits as well as the promising returns. Those that have been blessed by knowledge may have curiosity to research the term and may have invested in Unit Linked plans (ULIP).
But biggest problem of all Insurance based Investments is transparency. It is not at all easy to find where exactly your money is invested. Mutual Funds are so much better since you can see every percentage of where exactly it is invested.
Here we analyze the investment pattern which will conclude what is permissible and what is not. Although this article takes LIC for reference, but it is applicable to all insurance companies since they all have similar plans.


LIC Term Insurance Plans:

Plain simple explanation: Except Term Insurance (Assurance), rest all are not permissible.
The Term policies in LIC are named:

1. LIC's Anmol Jeevan 
2. LIC’s Amulya Jeevan
3. LIC eTerm policy

All are pure insurance and not investment that will give you return on maturity. Since these are not "money-back" plans there aren't any investments made.
These are the only ones fine; rest all are non-permissible. Let us explore each category and check the reasons for the same.


Endowment Plans:

Whether it is single premium or any other Xxxxx Jeevan plan it doesn't matter. The fact that you are getting money back points to some form of investment. So we only have to examine where the returns from investment are coming.
All plans of LIC invest into Government debt unless explicitly specified that the plan investments majorly in equity.
So government debt means loan to government and the profit is gets is the INTEREST it receives from government for those loans.
So all these plans are just Interest based investments and obviously not permissible.


Money Back Plans and Child Plans:
Exactly same investment pattern as Endowment plans. Hence Interest based investments and obviously not permissible.


Pension Plans:
Similar problem either Interest based (Jeevan Nidhi) or Annuity based (Jeevan Akshay).
Annuity is nothing but interest earnings.


ULIP (Unit Linked Insurance Plan):
This is one plan that is sold to many Muslims who might raise the interest objection to an insurance agent. Many Muslims are told that investment plan can be chosen and you can invest 100% into stock market which is halal.
However, things are not so simple.
And also here comes the comparison with Mutual Funds. In case of Mutual Funds I can easily search and get the complete investment breakup of every single rupee. I know how much is invested in equity in which sectors and in which exact company's stock. This helps in finding out how much of the MF investment is in haram stocks.
All this is very difficult in ULIP. You cannot easily get these details at all. And in case you can get the details, please check the stock market investments. Am sure you will find major part of investment in Financial Sectors especially bank stocks.
Also not 100% is allowed in stocks. Most plans will restrict it to 70-80% in stocks and rest will be in Government Securities or Money Market Instruments (both interest based)
And this is the reason why ULIP cannot be counted as halal.


In the end I would suggest to completely read the policy document carefully and research on the internet. Do not fall into the Insurance Agents trap or the Investment trap since it is clear that other than basic life insurance rest all is purely interest based income.

Halal Tax Saving in India: Minimize your tax with no Investments

In the previous posts I discussed the status of Tax Saving Investments.
There are ways to at least minimize some impact of taxes. Here are some of them.
Will write about individual ones in detail is sometime, insha-allah. Update: Added articles of couple of topics.

Initial seven options are ones that every single salaried person can make use of; remaining are case-specific:

1. HRA (House Rent Agreement)
2. Internet and Telephone Rental
• Landline phone
• Mobile phone
• Broadband/ ADSL Internet
3. Medical Allowance
4. Insurance (maybe or may not be valid)
• Pure Life Insurance (Term Insurance)
• Self/Spouse/Children Mediclaim
• Parental Mediclaim
5. Donations to registered NGO/ Madrasas'/ Relief Funds/ Charitable Trusts.
6. Conveyance Expenses
7. LTA (Leave Travel Allowance)
8. Meal Coupons (and maybe some Gift Coupons)
9. School Fees of children.
10. Donation to political parties (I hope no one uses this one:))
11. Medical treatment for self in case of catastrophic illness/ disability.
12. Medical treatment for dependent handicapped/ disabled.

Pray for the taxes that you pay

I really mean it. Even if you adopt all of the measures am suggesting below you would certainly pay a good amount of taxes. Not to mention the huge amount of indirect taxes that everyone has to pay and there is no escape. (Indirect taxes are taxes on goods and services. So whenever you buy something it has a big chunk of tax built into it. Like say a cellphone costing 10K could have 2-4K of tax in it. So this unknown tax is actually also huge in number.)

OK back to the main point. Suppose you end up paying 50K tax in a year (not taking into account your indirect taxes). Now this is a good amount. Even your Zakat will be much less than this (unless you have inherited some good amount of wealth). 

We all know how efficient and ethical our governments are. If they allot 100 crores to a project, on an average maybe 20 crores might be used for the exact purpose; rest being pocketed for the luxuries and black money of the politicians. 

Now your hard-earned money should not go to feed such people's riches. So you should pray to Allah that the taxes paid by you end up in the good things like building school, hospitals, empowering the poor and disabled, salaries of workers, relief-work, scholarships etc.
Well, that it the only thing that we can do for the taxes we pay. 

Is Life Insurance Halal in India?

First, most people do not know what insurance is. I mean what most people invest in India cannot be called Insurance.

There are 2 types:

1. Pay premium, get coverage & no returns.
2. Pay premium, get coverage & get returns at maturity/ intervals.

The 1st one is popularly known as Term Insurance and it is the only real life insurance. The second although not exactly an insurance is called by various names like - ULIP/ ULPP/ Pension Plan/ Endowment, etc.

Basically, insurance is only payment of a premium for an uncertainty. If the uncertainty happens, you get the money assured If everything is fine, you get nothing.

Arguments against insurance:

1. Challenging Allah with Life: I don't see any challenge in this. We all know we are going to die. What we are doing is that, we pay a small sum, so that in any eventuality, our loved ones are financially secure.
2. Don't have faith that Allah will help: Faith in Allah doesn't mean just don't do anything. You have to be ready for your death always- and readiness includes your deeds and too some extent planning for your family. If you have earned enough or have sufficient amount of wealth, then there isn't a need for Insurance. It's only the case that you know that if you die today, your family could struggle financially. 
3. Haram Investments: This issue comes in for those so called insurance which promise a return. Their investments could be categorized into interest and gambling based. As I already said, they are not insurance, hence the question doesn't arise.
4. Uncertain Contracts/ Gambling: Most contracts/ dealings/ trades involve some degree of uncertainty. This is absolutely fine. It is only those which are 100% uncertain and based entirely on chance that are forbidden. Because in such cases, the chance of loss/ gain is very high and it could leave the losing party utterly sulking with loss.  
• In pure Insurance, first thing there is certainty that death will occur, so the Insurance company is well aware of the risk; it is only the timing that is uncertain. 
• Secondly all Insurance companies in India operate on a pan-India basis. They have huge no. of customers. There are statistical tables present that use the science of probability to find out the near-approximate calculations in deciding the premium and the profitability of the company. So there is not really a big gain/loss for any party. Note that most Insurance companies are making huge losses not due to Life Insurance but due to other Insurances. 
• Thirdly, claim rejections in case of Life Insurance are low.

Recently the Darul Uloom Deoband banned insurance. If you read carefully, you will find that they are talking of interest and gambling aspects. 

Regarding Interest part they do invest in interest bearing securities. However the claim is supposed to be paid from the premium collected. But we can never know for sure if the claim is paid from pooled premium or from interest income. This situation is somewhat similar to salaries paid by companies. You never know if your salary is paid from interest income of the company.

As for the gambling part, I have already explained above, not sure what else they are talking of in gambling. It would be great if someones can throw additional light on that aspect in a clear way with relevant references.

This is the Deoband Fatwa site, I am referring: http://darulifta-deoband.org 

Based on the various responses given for Transactions & Dealing, you can research about it.