Please help me with a question regarding Zakat on long term(15 year) plus investments. The investment is managed by a fund manager. The money would be invested in bonds and equities but not shares.The purpose of the investment is to generate income to live on. Is Zakat payable on the amount invested? If so on what proportion?Jazakallah.
Investments are zakatable according to the underlying assets within the investment. For example, if as part of your investment you own 1% of a particular company, you would pay zakat on 1% of the zakatable assets of that company. If the company is valued at 1 million pounds and the zakatable assets of the company (the cash, gold, silver, cash receivables, trade receivables etc) make up 20% of the company then the zakatable assets are worth £200,000. If you own 1% of the company then 1% of the £200,000 will be considered your ownership which is £20,000. Hence, you will pay zakat of 2.5% on the £20,000. This is just an example to help understand how zakat would be calculated. In order to determine the ratio of zakatable assets you would need to look at the companies balance sheet.
Investment in bonds are unlawful as they are deemed interest based transactions. Any return made from this investment must be disposed of by giving in charity without expectation of reward. The entire capital invested will be zakatable. You should take yourself out of unlawful investments as soon as possible.
Ifta Research Fellow
Checked & Approved by:
Mufti Abdul Rahman Mangera
Mufti Zubair Patel