Zakat on Shares and Mutual Funds

Open the Shares / mutual funds tile and enter the value of your portfolio and fund units on your zakat date, then add your bank balances. The calculator below opens with both ready.

Why are shares zakatable?

A share is part ownership of a company. Contemporary scholars of all schools agree that shares, like other wealth held for growth or sale, are subject to zakat. The International Islamic Fiqh Academy of the OIC issued a resolution on zakat on shares in 1988, and AAOIFI’s Shariah standard on zakat covers the same ground. What scholars discuss is how much of the share’s value is zakatable, and that depends on why you hold it.

Trader or investor: which are you?

• Trader: you buy shares to sell them at a profit, whether within days or months. The shares are your trade goods. Zakat is 2.5% of their full market value on your zakat date, exactly like stock in a shop. Most day traders and active PSX investors fall here.
• Long-term investor: you buy shares to keep and earn dividends, not to sell on price movements. Here scholars give two approaches, explained next.

Two methods for long-term shares

Method 1: your share of the company’s zakatable assets

A company owns buildings, machinery and other fixed assets that would not carry zakat if you owned them directly. On this view, which AAOIFI’s standard and many contemporary scholars give, and which is widely quoted from Mufti Muhammad Taqi Usmani in Pakistan, the long-term investor pays zakat only on his share of the company’s zakatable assets: cash, receivables, stock and raw materials. The steps are:

1. From the company’s latest balance sheet, add cash and bank balances, receivables, inventory and other zakatable current assets.
2. Divide by the number of shares to get the zakatable amount per share.
3. Multiply by the number of shares you own and pay 2.5% of the result.

Scholars who use this method differ on details, such as whether the company’s debts can be subtracted, and on what to do when the figures are hard to find. Some have suggested an estimate based on a share of market value; there is no single agreed percentage, so we do not give one.

Method 2: 2.5% of the market value

Many scholars and zakat bodies say the long-term investor may simply pay 2.5% of the market value, like a trader. It is easier, needs no balance sheet, and never underpays. If you are unsure which category you are in, or cannot get the company figures, this is the safer choice.

Worked example: a PSX portfolio

Usman follows the Hanafi madhab. On his zakat date he holds:

Holding	Market value	Why he holds it
Cement and bank shares he trades	Rs 6,00,000	To sell
1,000 shares of a fertiliser company	Rs 4,00,000	Long term, for dividends
Units in an Islamic equity fund	Rs 3,00,000	Long term
Cash in his brokerage account	Rs 50,000	Waiting to invest
Bank balance	Rs 2,00,000	Savings

• Using 2.5% of market value for everything: Rs 6,00,000 + Rs 4,00,000 + Rs 3,00,000 + Rs 50,000 + Rs 2,00,000 = Rs 15,50,000. Zakat = Rs 38,750.
• Using Method 1 for the fertiliser shares: suppose the latest accounts show zakatable assets of Rs 150 per share. His 1,000 shares give Rs 1,50,000 instead of Rs 4,00,000. The total becomes Rs 13,00,000 and zakat is Rs 32,500. (Rs 150 is an example figure for illustration only.)

Cash in the brokerage account is plain money and is always counted in full. Coins and tokens bought to sell on follow the same trade-goods rule; see zakat on crypto. A full-time trader running a business can use the business zakat calculator, and anyone can total everything in the Pakistan zakat calculator. Dividends you have received and still have on your zakat date are part of your cash.

Mutual funds, including Islamic funds

A unit in a mutual fund is a share of everything the fund holds. Value it at the fund’s net asset value (NAV) per unit on your zakat date, or the redemption price you would actually receive.

• Money market, income and sukuk funds hold mostly cash-like assets, so count the full value.
• Equity funds follow the share rules: full value if you hold them to sell; for long-term units, a scholar may allow the zakatable-assets method, but full value is the simpler and safer choice.
• Islamic funds are not exempt from zakat because they are shariah-compliant. Being halal affects how the fund invests, not whether you owe zakat on it.
• Pension funds (VPS) you cannot withdraw from freely raise a separate question; see zakat on provident fund for how scholars treat money you cannot yet reach.

Is zakat deducted from dividends in Pakistan?

Under the Zakat and Ushr Ordinance 1980, zakat may be deducted at source on dividends and on some fund payouts for Muslim holders who have not filed a CZ-50 declaration. Rules and practice have changed over time, so check your dividend warrant, your broker’s or CDC statement, or the fund’s account statement for any zakat deducted. Whatever was deducted counts towards your zakat: enter it under Already paid. A deduction on dividends is not the full zakat on your shares, so you still need to calculate the rest. The bank zakat deduction guide explains CZ-50.

If you hold shares in a company that pays zakat on behalf of its shareholders, some scholars say the shareholder need not pay again on those shares. Most listed companies in Pakistan do not do this, so assume you have to pay yourself unless you have clear confirmation.

What does each madhab say about zakat on shares?

Shares did not exist when the classical schools were formed, so the rulings below are contemporary scholars applying each school’s rules on trade goods. The school you follow mainly changes the treatment of debts and the nisab.

• Hanafi: shares held to sell are trade goods at market value. For long-term holdings, many Pakistani Hanafi scholars allow the zakatable-assets method. Debts due now are subtracted; silver nisab. See the Hanafi calculator.
• Shafi’i: scholars apply the trade goods rule to shares bought for sale. Debts are not subtracted in the relied-upon view. Authorities in Malaysia and Singapore publish their own guidance on shares, which Shafi’i readers there usually follow.
• Maliki: the rules for trade goods apply. The Maliki school distinguishes the active trader, who values his stock every year, from the buy-and-wait investor, who pays once when he sells; how that applies to shares is a question for a Maliki scholar, so ask before relying on it.
• Hanbali: trade goods at market value; many contemporary Hanbali scholars accept the zakatable-assets method for long-term holdings. Debts are subtracted.
• Ahl-e-Hadith: scholars following the Saudi Permanent Committee treat shares held for trade as trade goods at market value. For long-term holdings, Saudi scholars have given differing answers. Debts are not subtracted; the lower nisab applies.
• Shia (Ayatollah Sistani): there is no zakat on shares or cash. Shares bought from income on which khums has not been paid, and still held on your khums date, generally come under khums. Use the khums calculator and confirm with your marja’s office.

Before you count anything, make sure the company itself is shariah-compliant if that matters to you; zakat is a separate question from whether an investment is halal. This page explains well-known views to help you calculate; it is not a fatwa. Ask a qualified scholar about your portfolio.

Frequently asked questions