Dividend purification for ETF investors: a simple step-by-step guide
You've chosen a halal ETF. You're receiving dividends. But are you purifying them correctly? Most investors aren't — not because they're negligent, but because nobody explained it clearly. This post fixes that.
RECAP: WHY PURIFICATION IS NEEDED
A halal ETF holds companies that pass Shariah screening. But screening isn't binary perfection — some companies have minor non-compliant revenue (e.g., a tech company earning small amounts of interest on its cash). The screens allow companies where this is below 5% of total revenue.
However, you as the investor are still receiving a proportional share of that impure income when dividends are paid. The obligation is to identify that impure amount and donate it to charity. This is purification.
STEP 1: FIND YOUR ETF'S PURIFICATION RATIO
The purification ratio tells you what percentage of your dividend income is impure and must be donated.
Where to find it:
SPUS: SP Funds publishes the annual purification ratio on their website (spfunds.com). Usually in the range of 1-3% of dividends.
HLAL: Wahed publishes purification information in their fund documentation.
HIWS: HSBC has historically been the least transparent about this. Check the HSBC Global Asset Management website for the fund factsheet. If you cannot find a specific ratio, use 3% as a conservative estimate, or email HSBC Amanah directly to request the data.
MWIM: Invesco — check the fund's annual report or contact Invesco investor relations. As a newer fund, documentation is still developing.
Zoya: Check the ETF's profile in Zoya — they sometimes publish or estimate purification ratios.
Musaffa: Better source for ETF purification data — their platform often shows purification estimates.
STEP 2: CALCULATE YOUR PURIFICATION AMOUNT
Formula: Total dividends received × purification ratio = amount to donate
Example 1 — Distribution (Inc) shares:
You received £600 in dividends from HIWS this year.
Purification ratio is 2.5%.
Amount to donate: £600 × 0.025 = £15
Example 2 — Accumulation (Acc) shares:
You hold accumulation shares — dividends are reinvested, not paid to you.
Your brokerage annual statement shows "equalisation" or "accumulated income" of £400.
Purification ratio is 2%.
Amount to donate: £400 × 0.02 = £8
STEP 3: DONATE TO CHARITY
Donate the calculated amount to any legitimate charitable cause. There is no requirement for it to be an Islamic charity — a food bank, hospice, or community fund all qualify.
Some people prefer to round up slightly for peace of mind.
STEP 4: RECORD KEEPING
Keep a simple note each year:
- ETF name
- Dividend income
- Purification ratio used
- Amount donated
- Charity donated to
This takes 10 minutes annually and gives you complete peace of mind.
WHAT IF YOU'VE BEEN HOLDING AN ETF FOR YEARS WITHOUT PURIFYING?
Step 1: Estimate your total dividend income since you started holding (check your brokerage statements or platform history).
Step 2: Apply a conservative purification ratio (use 3% if you don't know the exact historical rates).
Step 3: Calculate the total and donate it.
There is no need for guilt — now you know, now you act. Scholars generally treat this as something to correct going forward once you become aware.
GROWTH ETFs AND DIVIDEND REINVESTMENT
If you reinvest dividends automatically (DRIP), you still need to purify. The dividend was received even if it was immediately reinvested. Track the notional income from your brokerage statements.
WHAT ABOUT CAPITAL GAINS?
Capital gains (profit from selling shares at a higher price than you paid) do NOT require purification. Purification applies only to income distributions (dividends). Capital gains are clean.
Is purification something you've been tracking, or is this new information? Let me know where you're at and I'll help you catch up if needed.
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Dividend purification for ETF investors: a simple step-by-step guide
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