Do we have to sell it immediately if the stock becomes non-compliant?

#1

Do we have to sell a stock as soon as it becomes non-compliant? What if we’re now losing money because the stock price has plummeted, resulting in non-compliance? We could sell it at a loss and then purchase it back when the price rises, but this isn’t financially feasible.

If we are permitted to retain for a length of time, would any dividends that occur during that time period have to be totally purified?

#2

Wa alaykum salaam,

Shariah boards have differing views on this matter. The two main approaches are as follows:

  1. Divest immediately.
  2. Allow holding investment for a period like 90 days to see if it becomes compliant. Any dividend or earning in that period must be purified. If after that period it is still not Shariah compliant, then you must dissolve that position.

The second approach is reasonable given the current market conditions.

#3

I ever heard that the waiting period is not 90 days. Whenever it is, until the stock price reach its initial break even point of buying, it can be hold by the buyer. The justification will be “falakum ru’usu amwalikum” or you deserve your initial capital. in addition to this, as long as we do not execute selling, it is still potential loss. And also, the company that is excluded from shariah index can be included again in the sharia index for the next periods.

1 Like
#4

First option is to sell therm immediately and keep the profit. Sometimes a grade period or 90 days is also allowed ( this is because a stock which turned into non compliant, there are chances, it can become compliant again). So if it becomes non compliant and you sell it during the grace period of 90 days, you can keep its profit.

#5

Walaikum Mus Salam Brother
You have not clarified what do you mean by loss. Is this a " Loss of capital or loss/reduced profit".

  1. If you are in profit and it becomes prohibited, then sell it immediately.

  2. However if you are in loss then in that case, you can wait to be at break even, then you can sell it. A wait period of up to 90 days is given for any stock to be compliant.

  3. If you are in profit or even in loss and the stock becomes non compliant then you can keep it and see its movement during a 90 days (as it can become compliant again as stocks move from one category to other based upon screening criteria), But if 90 days are passed and still stock is non compliant then sale is must whether in profit or in loss.