9d • 🌍 ETFs & Funds
ETF purification: What it is, why it matters, and exactly how to do it
Most people who hold halal ETFs have never done purification. Some don't know it exists. Here's everything you need to know.
WHAT IS PURIFICATION?
When you own a halal ETF, the fund holds shares in hundreds of companies. Most of these are fully compliant. But some may have a small amount of revenue from non-compliant sources — for example, a technology company that earns minor interest on its cash deposits, or a supermarket chain that sells a small amount of alcohol alongside its main grocery business.
Shariah scholars allow investment in such companies (as long as the non-compliant revenue is below 5% of total revenue) on the condition that investors "purify" the proportional share of impure income by donating it to charity.
This is not a punishment. It is a cleansing mechanism that allows Muslims to participate in the broader economy while maintaining integrity.
WHY IT MATTERS
If you hold a halal ETF and collect dividends without purifying, a small portion of what you received was technically impure income. Most scholars consider purification obligatory, not optional.
The good news: the amounts are usually tiny — typically 1-3% of dividends received. On £1,000 in annual dividends, that might be £10-30 to donate.
HOW TO CALCULATE YOUR PURIFICATION AMOUNT
Step 1: Find your ETF's purification ratio.
- For SPUS: Check the SP Funds website or the annual fund report. They publish this.
- For HLAL: Check Wahed's website or annual report.
- For HIWS/MWIM: This is where it gets harder. HSBC has historically been opaque about publishing purification ratios for HIWS. If you can't find it, use a conservative estimate of 3% or contact the fund provider directly.
- Zoya and Musaffa often show purification ratios for major ETFs in their research sections.
Step 2: Calculate your purification amount.
Formula: Total dividends received × purification ratio = amount to donate
Example: You received £500 in dividends from HIWS. Purification ratio is 2%. You donate £500 × 0.02 = £10 to charity.
Step 3: Donate to any legitimate charity.
There is no requirement to donate to a specifically Islamic charity. A food bank, hospital fund, or community charity all count.
WHAT IF YOU'VE NEVER DONE IT?
Don't panic. Estimate your total dividends received since you started holding the ETF, apply a conservative ratio (3% if you don't know the exact figure), and donate the total. Consider it cleared and move forward with proper tracking from here.
WHAT ABOUT GROWTH/ACCUMULATION SHARES?
If you hold accumulation (Acc) shares instead of distribution (Inc/Dist) shares, dividends are reinvested rather than paid out. You still need to track the notional dividend income and purify it. Your brokerage statement or ETF annual report will show the "equalisation" or "accumulated income" figure.
BUILDING A HABIT
The simplest approach: at the end of each tax year, check your dividend income, calculate purification at whatever ratio applies, and make one donation. It takes 10 minutes a year.
Some investors use Musaffa's portfolio tracker which calculates purification automatically.
Do you currently track purification? Or is this the first time you're hearing about it? Share below — it's a topic most people haven't been taught clearly.
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ETF purification: What it is, why it matters, and exactly how to do it
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