Investing and Zakat
Zakat: The Third Pillar
Zakat is the third pillar of Islam and the cornerstone of its economic system. It represents "the first and foremost mechanism to implement economic justice," according to economist Dr. Monzer Kahf. As a religious duty and an obligation on all Muslims, it offers the donor the inner satisfaction of a duty accomplished. It induces a feeling of pleasure in giving up wealth by teaching that only those funds on which the due zakat has been paid are halal (legitimate) for appropriation or consumption.
Saturna Capital Corporation, investment adviser and administrator for Amana Mutual Funds Trust, hopes to see all members of the Islamic community prosper.
To help, we can calculate zakat donations on behalf of investors in affiliated accounts.
A well-known hadith states:
"There [are] no people, who do not pay zakat, left without being made to suffer by God through disasters, or famine or drought." Zakat is the right of the poor to the wealth of the rich, a right bestowed by the true Owner and Giver of wealth — Allah (Subhanahu wa ta'ala).
Nisab and Zakat
In order to distinguish the needy from the well off, a limit known as nisab was established by the Prophet (Salla Allahu Alayhi wa Sallam). According to Mahmoud Abu-Saud, the basic definition of nisab is the "amount which is sufficient to sustain the minimum average family for one year," an amount which is roughly equal to the definition of the "poverty line" in the United States. Essential needs are defined as things which one could not live without: food, clothing, shelter, transportation, health care, education, and the tools of one's profession. If your net worth surpasses the level of nisab, the excess is subject to zakat.
Who Receives Zakat?
Zakat funds should be distributed according to the categories of need outlined in the Qur'an (at-Tawba 9:60). These include:
- Those who are poor
- Those who are needy or destitute
- Those employed to administer zakat
- Those whose hearts are being reconciled
- Those held captive
- Those in debt
- Those who are stranded
- In the cause of God (fi sabilillah)
The last category, fi sabilillah, is broad enough to allow zakat funds to be used for the general welfare of the community. Under this category, considering the fact that our mosques and community centers promote Islam and in many ways act as dawah centers, a portion of one's zakat may be paid to these centers. Zakat funds may also be used for education of the people and for promotion of Islam and the ummah.
When is Zakat to Be Paid?
Zakat is incumbent upon all Muslims and is paid according to the lunar calendar. No zakat is due on wealth before one year from the date of acquisition, the most well-known hadith being:
"No zakat is due on wealth till one (full) year passes." Zakat can be paid any time of the year. Many prefer to pay during the holy months of Ramadan or Rajab while others prefer Muharram, the first month of the Hijri year. Assuming nisab has been met, and the investment is held for a full lunar year, most jurists agree that zakat can be paid in advance, during the month of Ramadan, or when there is a special need because of a calamity, sickness, or fi sabilillah.
An estimated monthly payment of zakat is encouraged. This not only helps to mitigate the obligation by spreading out the payments, but it also fulfills the purpose of zakat sooner rather than later. The final calculation and reconciliation of payments, however, can be done at the end of each lunar year.
Zakat and Investments
There are different rates of zakat that apply to different types of assets. According to Imam Malik, zakat is due on three types of assets only: "the produce of plowed land, gold and silver, and livestock." Contemporary Islamic jurists have extrapolated zakat rates for nearly all types of assets.
Zakat Methodology
Muslim scholars view stocks and similar investments as ownership in productive businesses whose assets include both zakatable items (such as cash, receivables, and inventory) and non‑zakatable items (such as buildings and equipment).
Saturna follows the guidance of the Fiqh Council of North America (FCNA) by applying a 2.5% asset‑based approach to equities. Under this approach, zakat is due on your share of a company’s zakatable assets, rather than on an assumed 10% of annual gains.
Zakat on Long-term Investments
Muslim scholars view stocks and similar investments as ownership in productive businesses whose assets include both zakatable items (such as cash, receivables, and inventory) and non‑zakatable items (such as buildings and equipment).
Thus the calculation is as follows:
Zakat | = | (Shares Owned — New Shares) | ÷ | Shares Outstanding | x | Current Assets | x | 2.5% |
- Shares Owned: How many shares you hold
- New Shares: Shares purchased within the given calendar year
- Shares Outstanding: The total number of shares issued and outstanding for that company or fund
- Current Assets: Short term, zakatable assets such as cash and cash equivalents, receivables, and inventory, typically shown as “Total current assets” on a balance sheet. (see example below)
If financial data is not available or if you hold shares in a brokerage account where balance sheet data is not accessible, 30% of the market value can be used for current assets in the formula above. This percentage approximates an average company’s current assets that are zakatable, rather than long-term fixed assets, and provides a practical and acceptable proxy for your share of its zakatable assets. Any cash you hold in brokerage will be assessed a zakat value of 2.5% of the total.
Zakat on Retirement Accounts
For zakat purposes, retirement accounts (such as 401(k), IRA, SEP‑IRA, and Roth IRA) are considered part of an investor’s overall net worth, as the contributor has eventual access to the funds, subject to plan rules and possible penalties.
Under the updated methodology, zakat on eligible retirement assets invested in equities and sukuk is estimated using the same principles:
- Equity components are treated under the 2.5% asset‑based method (with actual current assets or the 30% approximation).
- Sukuk components and cash are treated at 2.5% of market value.
Because individual circumstances vary, investors should consult with a qualified scholar or advisor regarding how to apply this methodology to their specific retirement accounts. Public trusts and qualifying charitable organizations remain generally not subject to zakat on their assets.
Zakat on Brokerage Accounts
Brokerage accounts can contain a mix of asset types, including mutual funds, individual stocks, sukuk, and cash. Accounts with Saturna Brokerage Services are automatically incorporated into the zakat estimation Saturna performs for affiliated accounts under your tax ID.
For qualifying holdings in these accounts:
- Equity holdings are estimated using the 2.5% asset‑based methodology (with 30% approximation).
- Sukuk holdings are estimated at 2.5% of market value.
- Cash and cash‑equivalent balances are treated as zakatable at 2.5% of their total value.
How We Estimate Zakat
We can send you a report advising you of the estimated zakat after the end of each calendar year. The report estimates zakat for any Saturna‑related account with your tax ID (including brokerage accounts held at Saturna Brokerage Services).
Saturna Capital calculates zakat only for your Saturna‑related accounts. Any other assets or liabilities you may have are not included in this calculation, and your total zakat should be based on your overall net worth, which may be different from what Saturna estimates.
Distributing Your Zakat
The amount of zakat you distribute remains your decision. You may redeem shares from an account that you specify, or transfer shares into a charity’s account, or use any other financial resource available to you.
Factor | Value Used |
| End-of-year balance | As shown on your statement |
| New investments | ($) value of new shares purchased within calendar year |
| Zakatable ratio* | Calculated at the fund level |
| Zakat rate | 2.5% |
| Estimated Zakat | (Balance — New investments) x Zakatable Assets ratio x 2.5% |
*Calculated at the end of 2025
Zakatable assets ratio used for 12/31/2025 (approximate):
Amana Income | Amana Growth | Amana Developing Word | Amana Participation | Other external holdings |
~20.09% | ~12.08% | ~30.77% | 100%* | 30% |