What is income purification?
Income purification is a process of cleansing your funds from any unintentional prohibited income. It is an essential element of halal investments. Shariah-compliant investments sometimes earn small amounts of non-permissible income.
It is therefore essential for ethically-minded investors to identify these non-permissible income and give them out in charity to purify their investments .
While Shari’ah compliant investment managers like Lotus Capital follow global best practices in managing clients’ investments, investments may nevertheless earn non-permissible income particularly when investing in equities.
For instance, investing in a sharia compliant cement stocks.
Typically, the cement company sells cement and receives cash into its bank account. Some of the cash in the company’s bank account may earn interest. The interest will form part of the distributable profit of the company or its net asset value. Therefore, an equity investor in the company will be required to payout out the proportionate interest income to his investment in charity.
In order to assist investors in the computation of the non-permissible income arising from their investment, Lotus Capital has provided a historic computation of the annual purification amounts for our Lotus Halal Investment Fund and Lotus Halal Equity ETF for the last five years. We have also computed the purification amounts for companies in the NSE Lotus Islamic Index for the last five years.
Our computation is guided by AAOIFI standards and is not independently verified. We believe that this information will assist clients in determining the amounts due to charity so they can take steps to pay it out.
We have provided the purification amounts on a per share basis. To determine how much is due to charity, simply multiply the purification amount in the relevant year by the total number of shares you owned in that year.
For Shariah complaint companies/investments, annual income purification amounts are usually very small. For instance, for a N10,000 investment in our Lotus Halal Investment Fund in 2018, only N10.18k is due to be paid in charity for the whole year in order to purify the investment.