• In The Name Of Allah, The Most Beneficent, The Most Merciful

Q6. How do we treat money invested in shares of stock for the evaluation of Zakat?

Though owning a share of stock of any business is like having a share in the ownership of the business; we have categorized it as “Personal wealth”. Therefore, the lower of the value of stock at the beginning and the end of the year should be added in the category of “Personal wealth”. This is categorized as “Personal wealth” because of two reasons.

  1. For the most people who own stock it is held as a saving with expectations that it will grow in value over time. In fact it is readily traded for money. Considering it as a readily redeemable asset, we have treated it as another form of saving. Therefore, we suggest using its fair market value in calculating Zakat.
  2. Calculating Zakat on stock treating it as a share in ownership is normally not very convenient. There are literally millions of shares owned by general public. A stockholder will need to know his/her share of cash on hand, profit, and inventory, in order to use those values in the calculation of Zakat. This information is ordinarily very difficult to obtain, unless it is a partnership of a few people. Therefore, we did not treat stocks as a business partnership.

If one has acquired stock in a business with the intention of long term investment, he/she can calculate his/her share of Zakat as a partner in business owning a fraction of the business depending upon the number of shares owned. In this case the owner of stock needs to figure out the percentage of ownership his/her stock represents, and calculate Zakat on the zakatable assets of the business, as explained in the answer to Q7.