Purification is the least understood part of compliant investing, and the part clients ask about most once they see it on a statement. It is worth setting out plainly what it is, how the number is produced, and why it is different every quarter.

What purification is

Screening removes companies whose primary business is not permissible. It does not produce a universe where every dollar of revenue is pure. A compliant industrial company may hold deposits that earn interest, or run a small ancillary line that would not pass on its own. AAOIFI standards tolerate that residue within defined limits, on the condition that the corresponding share of income is not kept.

Purification is the mechanism for not keeping it. The attributable share of dividend income is calculated and donated. What remains is yours.

How the ratio is calculated

For each holding, the board establishes the proportion of that company’s income derived from non-compliant sources, using its most recent published financial statements. That proportion is applied to the dividends the fund received from the company. Aggregating across all holdings produces a single ratio expressed as a percentage of dividend income.

Why it changes every quarter

  • Company revenue mix shifts, so the non-compliant share of income moves with it.
  • Companies report on their own schedules, so the underlying figures update at different times.
  • Portfolio composition changes as positions are added or removed.
  • The mix of which holdings actually paid dividends in the period changes the weighting.

A moving ratio is a sign the calculation is being done against current data rather than carried forward. A number that never changed would be the thing to question.

What you need to do

The portal reports your purification figure each quarter, calculated on the dividends your account actually received. The donation is yours to make, and it is not a charge levied by Compassionate Capital. If you want help with the mechanics, or with selecting a recipient, raise it with your advisor.