Purification is an essential aspect of Halal investing. It involves the donation of income earned from any unintended and unacceptable business activities by companies in which a shareholder is invested. Although Azzad follows strict guidelines when investing for clients, we advise them that it is possible to unintentionally earn small amounts of income that is deemed prohibited (e.g., interest income). It is important that clients give away this income in order to purify their accounts. Think of purification as carbon offsets for your investments.
To assist clients in determining these amounts so that they may take steps to cleanse their accounts of such money, we provide purification totals on a per share basis. Purification amounts are provided using the calculator below. Please note that figures for the Azzad Ethical Fund are available dating back to September 28, 2005. Data for the Azzad Wise Capital Fund is available since the Fund’s inception date.
Many publicly held companies derive a small portion of earnings from impermissible sources. This could be income an otherwise permissible investment like a technology firm has earned in an interest-bearing bank account. Or a secondary business activity like alcohol or adult entertainment offered by airlines or the hospitality industry. Shareholders should not intend to benefit from this income. Rather, they are advised to give it away in order to offset any harm stemming from the impermissible business activity. As such, purification totals are calculated for the companies held by the Azzad Funds.
Note: Purification is a cleansing process that accounts for the income of investments that may be generated from unlawful activities according to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Although Azzad follows strict Shari'ah-based AAOIFI guidelines when investing, we advise shareholders to cleanse any small quantities of illicit income that may have been earned by a company (such as interest). Account owners should eliminate such amounts by donating them to charity and should not benefit directly or indirectly from these donations. Azzad calculates purification and accrues it daily, using the following inputs*:
- Number of each security's shares
- Net income per share for each security
- Number of days held for each security
Azzad provides only purification calculation figures. It is the shareholder's responsibility to disburse the amount of purification to their preferred charities or recipients. Purification calculation figures are conservative estimates (khars, in Arabic) and may not be the exact amounts of income earned from business activities deemed to be inconsistent with Azzad's Ethical & Shari'ah Guidelines. Azzad shall not be liable for the inaccuracy of such amounts. Purification is not required to be paid from the exact account on which purification is assessed. It may be paid in kind from any money shareholders have in checking and/or savings accounts. Clients bear all liability for any taxes and/or penalties that may be incurred when money is withdrawn from an account.
Azzad Asset Management does not provide tax advice. Shareholders should consult with a tax advisor to discuss any tax consequences that may result from liquidating or distributing an account.
* AAOIFI Standard 21 (Section 3/4/4)