How to Calculate Zakat on Stocks, and Mutual Funds

Wa Alaikum Assalam wa Rahmatullahi wa Barakatuh.

Here is a concise summary of the method you described for calculating Zakat on shares and mutual funds, based on the contemporary scholarly view you mentioned:

How to Calculate Zakat on Shares and Mutual Funds

Understand what is zakatable in a company

Not zakatable (fixed assets): buildings, land used by the business, machinery, equipment, vehicles, furniture, etc.
Zakatable assets:
Inventory and goods for sale
Raw materials and finished products
Liquid assets: cash, bank balances, receivables and similar items

Why we use an estimate instead of detailed balance sheets

In practice, it is difficult for most investors to examine each company’s financial statements.
Contemporary scholars therefore allow a simplified estimation method for minority shareholders who are not trading shares like a merchant but holding them as investments.

The 40% Rule (standard method)

Approximate assumption: about 40% of a typical company’s assets are zakatable, and 60% are non‑zakatable fixed assets.
So, for your total share portfolio:
Step 1: Take 40% of the current market value of your shares/mutual funds.
Step 2: Pay 2.5% Zakat on that 40%.
Mathematically, this is equivalent to paying 1% of your total portfolio value.

The 1% Shortcut (practical method)

Instead of two steps, you can directly:
Zakat on shares and mutual funds = 1% of the total current market value of all your shares and equity mutual funds combined.
This is based on: 2.5% × 40% = 1%.

Worked example (like Brother Ahmed)

Mutual funds: Rs 8,00,000
Shares: Rs 4,00,000
Total portfolio: Rs 12,00,000
Held for more than one lunar year above nisab.
Using shortcut: 1% of 12,00,000 = Rs 12,000 Zakat.

Important conditions and notes

Use the current market value of your shares/mutual funds on the Zakat due date, not the purchase price.
You must own at least the nisab amount and hold it for one full Islamic (lunar) year.
Add this 1% Zakat on shares/mutual funds to Zakat on your cash, gold, silver, business stock, and other zakatable assets.
If you are actively trading shares as business inventory (like a stock trader), some scholars say you should treat them like trade goods and pay Zakat on the full market value; in that case, you would not use the 40% rule. Ask a qualified scholar for your specific situation.
When in doubt, consult a local, reliable scholar or a trusted Islamic charity or foundation.

Practical steps for you
On your Zakat date, find the current market value of all your: