Zakat on stocks, shares, funds and ETFs

Zakat on stocks and shares depends on why you bought them. Shares bought to sell for a profit are trade goods, so zakat is 2.5% of their full market value on your zakat date. Shares held for the long term, for dividends or growth, are a part-ownership of a company, so in the Hanafi view taught by Mufti Taqi Usmani you pay only on your share of the company's zakatable assets: its cash, the money owed to it and its stock for sale. Its buildings, machines and brand are not zakatable. Mutual funds and ETFs follow the same rule as the shares inside them.

Trading or long term?

Working out the zakatable share of a company

1. From the latest balance sheet, add up the company's cash and short-term investments, its receivables (money owed to it), and its inventory (stock it holds for sale).
2. Divide by the number of shares. That is the zakatable amount behind each share.
3. Multiply by the number of shares you own, and take 2.5%.

Say a company has $2,000 million in cash, $1,500 million in receivables and $500 million in inventory: $4,000 million in all. It has 1,000 million shares, so each share carries $4 of zakatable assets. With the share at $50, that is 8% of its price. You own 100 shares worth $5,000, so the zakatable part is $400 and the zakat $10. The helper in step 2 does this sum. Some methods also take off the company's short-term debts first; ask your scholar if you want to follow one of them.

The 25% approximation

Finding the figure for every company in a fund is hard. The National Zakat Foundation in the UK recommends counting 25% of the market value of long-term shares as an approximation, so the zakat is 2.5% of 25%, about 0.625% of the value. It came from a review of the FTSE 100, where 66 companies had net zakatable assets below 25% (the other 34 were not Shariah compliant).² It is an approximation for listed shares only, not a ruling and not for a private company, and a company or fund with a lot of cash can be well above 25%. Use the company's real figure where you can.

Mutual funds, index funds and ETFs

A fund is a basket. A share or index fund held long term follows the long-term rule, using the fund's own breakdown or the approximation. A fund you trade in and out of is counted at full value. Money market, cash and bond funds are cash and debts owed to you, so their full value is zakatable. Interest earned on them is not your wealth: give it away without hoping for reward, and see riba in Islam.

Gold ETFs

Gold is zakatable whatever your intention, so an ETF or fund that holds physical gold for you is counted at its full market value, like gold you own; see zakat on gold. SeekersGuidance (Hanafi) warns that many conventional gold ETFs may not be permissible to hold, because the gold is not allocated to you, and suggests funds backed by physical, allocated gold held in safekeeping.⁴

A worked example

Ayesha has $8,000 in shares she trades, a $20,000 index fund she is keeping for the long term, a $3,000 gold ETF and $2,000 in a money market fund. With the 25% approximation, her zakatable total is $8,000 + $5,000 + $3,000 + $2,000 = $18,000, and her zakat is $450. If her fund publishes a zakatable share of 30%, it is $8,000 + $6,000 + $3,000 + $2,000 = $19,000: $475. Counting everything at full value, $33,000: $825.

Dividends, crypto and retirement accounts

Dividends that have been paid to you are cash: add what you still hold to your other wealth. If a company's income is partly from haram business, scholars also ask you to give away that part of the dividend, which is separate from zakat. Crypto is a newer question and scholars still differ on holding it at all, so it is not covered here; the zakat calculator has a line for it. Shares inside a 401(k), IRA or pension are covered on zakat on 401k and pensions.

Your zakat date

Value your holdings on the same day each year, your zakat date, at the price on that day. Shares bought during the year do not need a year of their own: they join the wealth you already own above the nisab. Add the result to the rest of your zakat in the zakat calculator.

1. SeekersGuidance, "Rulings Related to Zakat on Shares" (Hanafi), answered by Salman Younas and approved by Shaykh Faraz Rabbani, citing Mufti Muhammad Taqi Usmani, Contemporary Fatawa, "How to Calculate Zakah on a Business?", and Ibn Abidin, Radd al-Muhtar.
2. National Zakat Foundation (nzf.org.uk), on zakat on shares and the 25% proxy, approved by Mufti Amjad, August 2023. AAOIFI, Shari'ah Standard 35 on zakah.
3. Zakat Foundation of America, "Calculate Zakat on Stocks and Investments", zakat.org, summarising Yusuf al-Qaradawi, Fiqh al-Zakah.
4. SeekersGuidance, "Is It Permissible to Invest in Gold/Silver ETFs?" (Hanafi), Shaykh Faraz A. Khan, approved by Shaykh Faraz Rabbani.

The rulings on this page are pending review by the scholars on our team.