Islamic and Christian investors are increasingly well served with financial products from funds to mortgages designed to meet their ethical and spiritual beliefs.

But fund managers have largely ignored the needs of more than a billion people in the world, mainly in Asia, who follow religions in which the concept of Dharma – the law that orders the universe – plays an important role. Most of these potential investors are Hindus and Buddhists, but Sikhs and Jains are also included.

Dow Jones Indexes hopes to change that. After two years of development, in January it launched what it believes is the first family of Dharma indices, in partnership with UK-based consultants Dharma Investments. There are five indices: a global one and one each for the US, India, the UK and Japan. The non-American benchmarks are calculated in dollar and local currency terms.


Dow Jones hopes to repeat the success of the Islamic benchmark business it pioneered nine years ago – it says there are now more than 75 licensees who manage more than $7 billion in assets linked to Dow Jones Islamic benchmarks.

Sumeet Nihalani, senior sales director at Dow Jones Indexes for Asia-Pacific and the Middle East, who is based in Singapore, expects the first fund based on a Dow Jones Dharma index to be announced shortly. “The interest is substantial,” Nihalani says. “We are in talks with a few people in the US, the UK and India, and there’s very preliminary interest in Japan and some interest in Thailand.”

India is an obvious market with big potential for Dharma funds. It is the biggest Hindu nation in the world, and rapid economic growth has accelerated interest in mutual funds. Wealthy individuals control $350 billion of assets, according to research by Capgemini and Merrill Lynch. In addition, they estimate 150,000 Indian millionaires live outside their homeland.

Creating a religious-based benchmark is simple in concept: you take the companies listed on the world’s stock markets and exclude those doing things your target market finds unacceptable. The remainder are the index constituents.

But it is complicated in practice. For a start, there are problems defining Dharma. It can be difficult to translate the concept accurately into English, let alone provide a clear list of objective criteria to rule potential investments in or out.


One definition by the philosopher Rishi Kanada seems popular. “That which leads to the attainment of Abhyudaya (prosperity in this world) and Nihsreyasa (total cessation of pain and attainment of eternal bliss hereafter) is Dharma,” he wrote.

Dow Jones and Dharma Investments’ first step was to consult theologians and scholars to see if the concept of Dharmic investing made any sense. The result was a 15-page overview of Dharmic ethical values along with practical guidelines for interpretation in the context of investment.

Out of that initiative, a council of academics was formed with members from Harvard, Oxford, London and many other leading universities in India, Thailand, Japan and other countries.

These 25 advisers provide guidance on principles for the indices’ methodology. Then there is a 14-member supervisory committee to interpret the principles and create and implement the screening criteria. Finally, there is a religious council of eight clerics who ratify and endorse the guidelines and methodology.

The index universe for the Dow Jones Dharma Indexes is defined as the top 5,000 components of the Dow Jones Wilshire Global Total Market Index as measured by float-adjusted market capitalisation, and all components in the Dow Jones Wilshire India Index.

There are some fairly clear examples of companies that are quickly excluded – the usual suspects to anyone familiar with the world of socially responsible investing.

“Alcohol is out, and so is any kind of meat processing because that involves the taking of life,” Nihalani says. Defence companies are similarly disqualified. “Pharmaceuticals are out because of animal testing, birth control drugs and abortion drugs.”

But financial stocks are in. Unlike Islam, Dharmic religions have no strict rules on usury. “In fact, the banking sector is in the index,” Nihalani says.

There are also positive screens to look for companies with policies on the environment, labour relations and human rights. The idea is to find companies that have worked to better the welfare of the world and the good of society.

The result is a total of 3,519 suitable companies worldwide, including 990 in the US, 491 in Japan and 249 in India.

Backtesting the Dharma Global Index from the end of 2002 shows a return of 115.01 per cent in dollar terms, says Dow Jones, compared with 106.62 per cent for its World index over the same period.