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Zakaah on mutual funds

Fatwaa ID: 1989

Question:
Assalaamu alaykum wrwb,

If someone has a mutual fund, for zakaah is 2.5% taken out as zakaah or more/less?

Jazaakumullaahu khayran

Answer:
In the Name of Allaah, the Most Gracious, the Most Merciful.
As-salaamu ‘alaykum wa-rahmatullaahi wa-barakaatuh.

We presume that the mutual fund in question is Shari’ah compliant. If it is not, then the following answer may not apply to it. It is haraam to invest in a Shari’ah non-compliant mutual fund. The gains therefrom are haraam and one is placing his life in the path of misery and regret.

Nevertheless, there are various types of mutual funds. The zakaah assessment of a mutual fund is dependent on the makeup of the fund portfolio as well as the time strategy of the investments.

If the investments in the portfolio are short term, i.e., buy to sell, then the entire portfolio will be zakaatable. You will take out 2.5% of the entire portfolio value as zakaah on your zakaah anniversary.

If the portfolio consists of equities and they are long term, i.e., buy to hold, then zakaah will only be due on the zakaatable assets. If it is difficult to determine the exact ratio of zakaatable assets, then a proxy of 25% can be applied for those portfolios that consist of equities only. So in this case, you would pay 2.5% of 25% of the portfolio value. If you wish to pay 2.5% of the entire portfolio value, that should be permissible and your rewards will be great.

If the portfolio consists of real estate, commodities or other assets, then the zakaah of that will be assessed based on their class as done in normal cases. If the details above do not satisfy your situation, you may revert to us with further details.

It should be noted that the profits or capital gains that are not reinvested but given to the shareholders will be treated like any other income. Whatever is remaining of it on one’s zakaah date will be added to the total calculation. 2.5% of the total will be given as zakaah.

In your query, you asked about the percentage due for zakaah. The ratio when discharging zakaah in all cases is 2.5%, unless one uses the Gregorian calendar in which case it would be adjusted to 2.577%. The details provided above is in regards to what is subject to zakaah.

And Allaah Ta’aala knows best.
Mufti Muajul I. Chowdhury
Darul Iftaa New York
https://askthemufti.us/

06/04/1445 AH – 12/18/2023 CE | AML1-8638

وصل اللهم وسلم وبارك على سيدنا محمد وعلى ءاله وصحبه أجمعين

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