Some new index funds are being developed that will be based on a Dow Jones index that satisfies the strictures of Islamic investors.

A major investment company with broker/dealer operations has discussed with Dow Jones offering a fund connected to the index, said Rushdi Siddiqui, director of Dow Jones' Islamic Index Group. The fund is likely to be introduced in about two months, he said. In addition, two offshore index funds based on the index will be opened within a few weeks, Siddiqui said.

The Dow Jones Islamic Market Index, which includes 600 companies from 30 countries, was introduced on Feb. 9 in Bahrain, Siddiqui said.

Dow Jones established the index because of interest from mutual fund companies, and investment managers who have high-net-worth and institutional clients in the Persian Gulf area, Siddiqui said.

On May 14, Dow Jones added two sub-indexes which focus on U.S. companies exclusively - the Dow Jones Islamic US and Dow Jones Islamic Global Technology indexes. More sub-indexes will be introduced in the future, Siddiqui said.

A supervisory board of five Islamic scholars advises Dow Jones on which companies are suitable for being included in the index. They follow Islamic investing guidelines which prohibit investing in companies that engage in conventional financial services - including commercial and investment banks and insurance companies - and those that sell alcoholic beverages, pork products, or entertainment (which includes hotels, casinos, gambling, movies, music and pornography).

There is a strong potential market for the index fund, and for funds tailored to Islamic investors in general, Siddiqui said. He estimated that the assets of Muslim investors are between $80 billion and $100 billion worldwide.

The Miraj Global Equity Fund, an offshore mutual fund based in the island of Guernsey, is considering starting an index fund based on the DJIM, said Suleman, director and founder of the fund.

There are between 7 million and 10 million Muslims in the U.S., and they have a higher per capita income than the U.S. average, said Siddiqui. The U.S. per capita overall is $24,000 to $27,000 while for Muslims living in the U.S., it is between $35,000 and $45,000, he estimated. For that reason, the firm is planning to introduce a growth fund for U.S. investors in the fall, Suleman said.

The Amana Funds of Bellingham, Wash., two Islamic mutual funds in the U.S., had looked into starting an index fund, but probably will not do so, said Phelps McIlvaine, a spokesperson for the fund. If a large company is successful in starting a new index fund, it is unlikely Amana will try to compete with it, McIlvaine said.

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