Can I wait before selling a losing stock that turned non permissible

Investment Questions and Chats Stocks
#1

Can I wait before selling a losing stock that turned non permissible till it gets back to normal to get my capital?
If yes, what happens if it turned permissible during waiting? Do I need to do any kind of purification then?

Please guide about Profit
#2

Wasalam

May Allah bless you.
Yes you can wait until you can recoup the capital amount. However you must not benefit from any of the haram profit made during that time. Once you have sell those shares, you must give away any haram amount earned.
Similarly if during the waiting period, the stock becomes shariah compliant again, then you must work out the proportion of haram earnings, and discharge the amount as part of the cleansing process.

And Allah knows best!

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#3

Jazak Allah Khairan,

  1. Will the purification happen only when I sell the stock or can I do it once the price overcome the losses?

  2. How to calculate the proportion of the haram earnings then? Will it depend on which criteria broke the compliance (debt, income, cash,…etc). In my case it’s debt, so if debt is increase from 20% to 40% then got back to 20% before I sell, will I purify 10% of the profit then? And in general how is it for other people criteria breaking?

#4

  1. Once the shares become non compliant, the ideal is to get rid of the profit made as soon as possible otherwise if it is not possible you can do the cleansing process once you have sold the shares.

  2. There are many way to purify the non shariah compliant income. Some may be stricter than the other. Mufti Zubair Butt has mentioned one way in his fatwa: http://alqalam.org.uk/research-papers/investment-in-stocks-and-shares/
    @ibrahimkhan may share his method with you on this subject.

The easiest way for me is to look at the value of the shares on the day it becomes non compliant (this value might be the actual price or your capital amount: which ever is higher). Any profit made after the compliance day will be considered unlawful (haram). For example up to the day the stock became non compliant (1st of June), its value was @ £200/share. If one week later (7th of June) you sell this share for £250, then £50 is the haram amount which you will have to discharge towards charity.

On the other hand, if on the 7th of June you sold the share for £150, then you will not need to give away anything to purify your wealth. Because we know that up to the 1st of June, the share was valued @ £200 when it was still shariah compliant, so in effect you have not earned any haram income from that day until the day you sold it for £150.
This method would be applicable for any given scenario when:

  1. the stock has been considered non shariah compliant, and
  2. you are in the process of disposing them

And Allah knows best!

2 Likes
Two fold question on the 33% cap on interests bearing debt AND regarding Purification
How much % to purify from investing profits
#5

Jazakom ALLAH Khairan.

#6

This is our purification course here.

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#7

Salam Alaykoum,

Appologies, I beleive my previous message didnt go through
I have the same case, with the exception that I have trading fees. So when taking back my original capital, do I cover for my trading fees or take back only the stock price at the origin ?

Example:

  • I bought a share with 100£ + 8£ commision, so it costs me a total of 108£
  • I sell my stock for not being compliant. Shall I take back only the original 100£ (share cost), or cover for my total loss including commision which is 108 £ (share cost + fees) ?

Thank you and baraka alaho fik

#8

Assalaamu alaykum,

#9

Salam Alaikoum,

Further mose, may I include dividends earned from the same non compliant stock to reach for my original capital ? My idea is to reach for my capital and sell asap and not wait for the share to reach my buying price

Example:
I bought a share with 100£, earned a recent dividend of 5£
Now I sell the non-compliant share with 95£, and keep the dividend of 5£ to reach my original capital of 100£

What about if the dividend comes from another non-compliant stock ?

Thanks and Baraka Allah Fik

#10

Sorry but I am not sure I understand.

If you sell a non compliant share from company A. You will take back the initial capital amount i.e. £100.

If you sell it for £95 it means you are trading it at lost.
Even if you add £5 taken from company B, you are still incurring a lost when selling the share of company A.

Can you clarify what you mean please?

Investing in Airlines like IAG or Qatar Airways
#11

Salam Alaykoum,

My appologies for the wording, Imeant by the example as follows:

  • My non compliant stock A cost me 100 £ (capital)
  • I recently earned a non-compliant dividend of 5£ (which I should dispose anyway, but still in my brokerage account)
  • When selling my non-compliant stock a to recover my capital, can I sell it for 95 £ (because of low market) + recover 5 £ from the above non-compliant dividend I should dispose anyway ? This gives me back my original capital of 100£
  • If yes, is it necessary that the non-compliant dividend (above) be from Stock A (non-compliant), or can it be another non-compliant dividend from Stock B (non-compliant)

Thanks and Barak Alaho Fik

#12

My opinion is that no, you cannot recoup your capital amount for share A by adding the haram dividend amount earned from share B.

The rule of purification is that you must give away what you have earned. In your scenario (correct me if I am wrong) you have earned £5 haram money from share B, which you must give away.

Now, I understand that for share A you are entitled to receive your capital amount back, which is £100. If you managed to earn only £95 for it, you cannot offset the £5 lost with the £5 of share B. Because in the end, you did not give anything away.

And Allah knows best!

#13

Salm Alaykoum,

Thank you for your response.
What if the non-compliant dividend A comes from the same non-compliant stock A. Can I sell now non-compliant stock A (95£) and include non-compliant dividend A (5£) to reach my original capital for stock A (100£) ?

Thanks and barak allah fik

#14

Some are of the opinion that if you sell the share at lost, then you do not need to purify the amount that was earned through the haram source. In your example, if you paid £100 for stock A, and you sell it for £95, you can offset the lost with the £5 of haram money earned through stock A. The reason being is that, you are entitled to take your capital amount back which is £100.

I am also inclined towards this opinion. However, this does not mean that you could do the same with stock A and B, as mentioned in your first question. Each portfolio should be treated on its own. Otherwise, there is a fear that people will start to start to hedge halal investment by using haram ones.

And Allah knows best!

#15

Thank you for your support and barak Allah fik
My allah reward you with the best

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#16

AOA,
As per your post, If a halal share (e.g, 100$/Share) turned to be not-hahal, we need to sell stocks as soon as possible and it would be haram for me to get profit on that stock’s price during next 3 month time (e.g., 200 $/share)
But, another Muslim experts board platform says that I can keep this stock for 3 months and and no need for purification on that stock’s price. The blog post link: https://blog.islamicly.com/Guidance/rules-of-shariah-compliant-equity-trading
Kindly guide and give your view on that, as it is very confusing.
Kind Regards,

#17

Salam,

Sorry, but I’m not quite sure if I got it all correctly.

If I own a stock with a loss that just turned into non-sharia compliant, can I wait until I got my normal capital again and KEEP it?

Thanks.

#18

Wasalam

May Allah bless you.

Yes, because the capital which you have put in is your money and therefore you are entitled to recover it. Whether the profit you are making from the non compliant stock would not be halal for you to take.

And Allah knows best!

1 Like
#19

JazakAllah mufti Bilal

#20

Dear Brother AbdelRahman_Soliman,

Assalamu Alaikum.

I am new to this forum. I came across your query and I have some views to share on your concern.

  1. First of all as responded by some on your concern and by permitting it to hold till you recover your cost is what I feel as not right. As in Islamic investment we should be ready to bear loss as we are liable for both profit and loss in investment

  2. Secondly, what is the point of holding the stock when if we need to purge out the the gains over the period of time. As stated in e.g if we hold for 7 days from the day of non-compliance and if the stock gains 50 then we need to purge out this 50. Then what is the point of holding it.

  3. On the other hand, if the stock dips further by 50 in these 7 days then again we are losing further. So it is better to sell out immediately on the day when we come to know about its Shariah Compliance status.

  4. Regarding stock changing its Shariah status during the holding period is also not possible. Which implies you will continue to hold the stock for another 1 year. As any ratios for financial parameters will be based on Audited Annual Report and not the Quarterly Un Audited Report. We need to evaluate things based on Audited report and that comes once in a year.

So my views is to get out of the stock on an immediate basis. Furthermore, we should analyze the financial parameters before investing in to the stock. We should find out how far is the ratios from the tolerance level and whether it is possible to cross the tolerance level with the new Annual report.

Zaheer