Need For an Ethical Unit Trust in India

By Dr. Abdul Azim Islahi
Professor, Islamic Economics Research Center, King Abdulaziz University, Jeddah
Former Faculty, Department of Economics, Aligarh Muslim University

Years back I read a news that a certain house of Birla had completely discarded the hotel business as they were against meat and wine, generally, important ingredients of hotel catering. It was also reported a few years ago that a huge amount of Gulf remittance was being used in construction of houses with no or few inhabitants and the rest was deposited in banks accruing vast amount of interest that remained un-withdrawn as the majority of depositors did not believe in taking interest.

There are still a large number of people who refrain from investment in public companies on various religious and ethical grounds. India is a country of multi-religions. Respect of all religions, and coexistence is our greatest characteristic. Pious life and value-based society is the cherished objective of every religion, and need of the hour in our country. Vices like gambling, intoxication, prostitution, fraud and cheating, deception in weight and measures, etc. are disapproved by all religions – Islam, Christianity, Hinduism, Buddhism, Jainism, Sikhism, etc.

There is no doubt that religious precepts play a very important role in consumption behavior, economic decision making and choice of investment in projects. It was on this ground that about hundred years ago Justice M. G. Ranade criticized the British classical economics which seemingly treats man as economic animal.

Gandhiji had a purely ethical approach to economic matters. Once he declared, "I must confess that I do not draw a sharp or any distinction between economics and ethics."

The path breaking Indian economist J.K. Mehta equally emphasized the role of ethics in economic behavior. The famous Nobel laureate Amartya Sen argues that welfare economics can be highly enriched by paying more explicit attention to ethics.

The late Professor V.K.R.V. Rao once observed, "The fact is that man does not live by bread alone, not even when the bread is covered by butter and smeared with jam. He needs something more to make living worthwhile."

Very often one sacrifices an economically very profitable course of action which is in conflict of once religious belief as it is clear from the two instances quoted at the outset. Thus, a huge amount of resources is wasted which needs to be tapped with suitable strategy, proper planning and through provision of suitable avenues of investment. One such scheme may be initiative of Ethical Unit Trust (EUT). By Ethical Unit Trust we mean mutual fund that follows certain religio-ethical rules while it decides its investment portfolio.

It may be noted that such investment trusts already exist in England and in some other Western countries. They specialize in seeking profits for investors while conforming to certain ethical criteria. When clients invest in such funds, they can be sure that none of the monies will be invested in companies which engage in the arms trade, gambling, interests, manufacture or/and distribution of either alcohol or tobacco. They combine ethical and equity investments successfully.

It is sometimes suggested that the restrictions that are imposed by ethical investment may result in weaker performance. This does not seem to be the case if we examine existing ethical unit trusts and funds which include M & G Chari-fund Buckmaster and Moore (a fund management subsidiary of Credit Suisse, launched the Fellowship Trust in July 1986 on the same ethical basis), the Centralnoard of Finance of the Church of England Investment Funds, the Charities Official Investment Funds and the Buckmaster Funds. They all have outperformed the Retail Price Index F and T Index and a number of successful funds.

The determination of whether an investment is ethical or unethical is made by the fund managers, based on information received from various professional bodies, social workers, religious leaders and other specially constituted committees of reference.

The concept and principle of EUT is not alien to contemporary Western markets. In India where we have a variety of mutual funds, addition of a EUT will be in order

At present the deteriorating condition of our society and moral decay is a matter of great concern for our swiftly vanishing first generation of Indian politics and social workers. EUT will be a step in the direction of promoting ethical values in our socio-economic life.

The Indian Ethical Unit Trust must avoid, as a rule, investment in any socially or religiously undesirable products, such as environment polluting units, breweries, interest bearing instruments, hotels, animal food processing, etc. The best avenue of investment for EUT will be the equity based instruments in the core sector areas of steel, cement, power, fertilizers, petrochemicals telecommunication, electronic, oil and gas, agrochemicals, textiles and various other allied industries, etc. The core sector is not only rewarding to investors but necessary for the development of the country as well.