Purification of Income

Even Shariah-compliant stocks and mutual funds may generate a small percentage of income from non-permissible sources. Purification is the process of identifying and donating this impermissible portion to charity, ensuring that your investment returns remain halal.

This chapter will explain the methodology behind income purification, how Islamic fund managers in Pakistan calculate the purification ratio, and how you as an individual investor can perform purification on your own stock portfolio. You will learn the difference between dividend purification and capital gains purification, and why most scholars require purification of dividends but differ on capital gains.

Understanding purification gives you confidence that even when investing in broadly halal companies with minor non-compliant income streams, your wealth remains clean.