Would you lend money to a friend who has a gambling problem? Probably not. Then let’s take it a step further.

Would you invest in a company that actively profits from your friend’s addiction?

This is at the heart of values-based investing. The focus is shifting from returns alone to responsibility and adherence to one’s moral standards.

Faith-Based Investing is Gaining Momentum

In faith-based investing, you allocate your capital in accordance with religious or ethical beliefs. In India, it’s primarily through Islamic finance principles, or Shariah-compliant frameworks.

Launched in 2010 in India, this is still an admittedly niche segment. However, it has grown in recent years, from roughly ₹1,000 crore AUM (assets under management) in 2019 to over ₹4,000 crore AUM in 2026. This shows a clear and rising demand for values-aligned portfolios.

An example is Shariah compliant mutual funds. Globally, the Islamic Financial Services Board reported nearly 15% growth in Shariah-compliant assets in 2024, totalling $3.88 trillion.

As per Shariah law, Muslims are not allowed to invest where there is harm being caused physically, environmentally, or emotionally. So, companies involved in weapons, addictive substances such as tobacco and alcohol, any form of gambling, pork products, etc., are excluded from the investment options.

Then there’s the question of interest. Muslims cannot take Riba or interest. But it’s virtually impossible to find companies that do not benefit from interest income, which is why the interest income threshold is roughly 3% of the company’s total income.

Additionally, companies that take on large amounts of debt are also eliminated from consideration. Islamic finance encourages investors to become partners rather than creditors. If a company is heavily indebted, it is viewed as relying too much on interest-based financing methods. Further, when investors avoid these types of companies, they create opportunities to invest in companies that are financially healthier.

While one can invest in stocks directly, there are a few Shariah-compliant mutual funds, certified by Rating Intelligence Partners, S&P, and the Shariah Supervisory Board. Additionally, these funds are open to all investors, irrespective of religion and beliefs.

For stocks, there is the Nifty 50 Shariah Index, which offers investors Shariah-compliant options.

Beyond Islam: ESG

Faith-based investing has also expanded into environmental, social, and governance frameworks.

ESG funds invest in companies with a good ESG record. There is regulatory support as well, with SEBI introducing Business Responsibility and Sustainability Reporting (BRSR) and later, BRSR Core, demanding greater corporate accountability for social and environmental impacts.

Meanwhile, ESG-focused ETFs’ AUM has seen a significant increase from ₹2,700 crore in 2019 to over ₹11,000 crore in 2025, confirming the broadening scope of values-based investing beyond religious lines.

Risks in Faith-Based Investing

When you invest in mutual funds, the overall investment opportunities are naturally limited, thereby concentrating your funds in specific sectors. Because diversification is limited, the risk exposure is high.

Considering this is still a niche segment, liquidity can also be a challenge.

However, these concerns are secondary for the faith-based investor. Primarily, the investment must be made in accordance with moral frameworks before thinking about optimisation.

The Bottom Line

From its religious roots, ethical investing has now become broader, with ESG principles governing where the funds are allocated. Principally, it fulfils the morality checklist and allows for wealth to grow. However, there could be challenges with liquidity and risk in terms of asset allocation. Having said that, the fundamentals remain the same: manage your risk and invest sensibly for long-term wealth creation.

(DISCLAIMER: The information in this article does not necessarily reflect the views of The Global Hues. We make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability or completeness of any information in this article.)

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