Salam Mufti sahabs,
The shariah screeners don’t go down to the derivatives and hedging level which are non-compliant assets. How can we purify the derivatives/hedging related income (given as other income/net finance income in the income statement).
You mentioned that the holder of such financial instruments will have right to the capital as the contract is void. Therefore, not all of the income needs purification. Only the gain. If I gain 100$ from an investment, how do I purify the income from derivatives/hedging? An example would be great!
Also, the shariah screens developed by various boards don’t seem to account for derivatives/hedging? Is that correct? And if yes, am I being too particular about this issue?
Many thanks for your continuous support and guidance.
Wasalam
May Allah bless you.
If it’s a shariah compliant company, then the fund manager should advice whether they will do the purification before distributing the dividends, or they might advice the investors to personally perform the purification.
The example you have mentioned is correct, if you have £500 invested in derivatives, if after selling them you receive £600, then £500 is your capital which you can keep. £100 is the haram income which must be donated.
As far as I am aware, DJIM Indices, FTSE Shariah Global Equity Index, MSCI Islamic Index Series, Russell-IdealRatings Islamic Index, SAC-SC Malaysia and S&P Shariah indices all of them include interest-bearing securities in their financial screening. This would also include derivatives instruments.
@Mohsin_from_IFG might also shed some lights on this issue.
And Allah knows best!
Jazakallah khair, Mufti Billal.
Its not a mutual fund, so there is no fund manager as such. I am talking about companies such as Nike and Sanofi whose base business is shariah compliant.
You mentioned all these shariah indices and their inclusion of interest based security screening. So, the way they would purify these derivatives based income would be using the 5% rule, correct? That is if interest based income is more than 5%, we are not allowed to invest and it its less than 5%, you donate that percentage of income.