I was looking to start a DAF and saw that many people recommended the Fidelity route. Could anyone clarify how I would be able to invest in a halal way through Fidelity or Charityvest? I didn’t really find options for halal funds. Does anyone have experience with Azzad’s DAF?
Thank you all very much
Wassalamu Alaikum,
Uzer
Asalamu alaikum,
There’s no fully halal investments in any of these mainstream DAFs including Fidelity which I use.
Instead of investing there, I just immediately donate from my core position which is set to money market, so it doesn’t get a chance to remain invested. I make the intention of donating Zakat in advance, also donation notes can let you specify that for the receiving charity.
If you use a DAF this way, just as a convenience of converting stock to cash to donate immediately, then Fidelity works very well to do this all through their website. You won’t pay any fees if you don’t leave investments sitting in there.
I heard of Azzad DAF but their funds tend to be higher on fees and I expect their DAF has added fees over that. ETFs like SPUS have lower fees and little taxable distributions, so I don’t see the benefit of keeping such investments in the DAF vs leaving it in your control till ready to donate.
Jazzak Allahu khair
This is brilliant and I’m just a little disappointed that none of the professionals I spoke to about DAFs mentioned this.
I guess the major disadvantage here is if I needed to donate a windfall (to decrease tax bracket)(which I won’t be doing) or if I was contributing monthly (which I am).
For things like automatic orphan support and monthly donations this wouldn’t work out without extensive micromanagement correct?
You’re right the scheme I follow won’t work for something that needs to be donated monthly. If you kept an invested balance there is an option to make recurring donations (it would automatically sell just what’s needed).
If you’re donating for a monthly pledge with cash, the charity would have to confirm they can accept DAF money instead. Since you can’t predict the exact value of the proceeds, it would only make sense if you donated more than one month’s worth in stock at a time, and ask the charity to use that balance over time. But you’d need to remember to donate stock batches regularly to refill their balance, if they said they support doing that.
This is all assuming you have long-term-held stocks that have gained value and you’re looking to avoid paying tax on those gains.
Thank you. You’ve been too helpful and now you’re going to get a bunch of continuous questions.
First, I don’t have a bunch of long term stocks. I have been prioritizing retirement funds and paying down the halal mortgage. I decided to pursue this route now that my yearly zakah appears to be significant enough that a deduction is likely beneficial insha-Allah.
Would it work if I just contributed a set amount of cash monthly to the DAF and set up the DAF to disburse those donations monthly? Or do you think that would be too complex and the risk of something left behind and accruing interest is high enough that I may as well get an Islamic DAF and make life simpler?
I’ll try to reach out to these charities and see if they’ll accept lump sum donations for these projects I’m trying to support but I just don’t have as much bandwidth as I used to on following through on all this work.
Thank you again!
Wa iyyakum, happy to help. To reiterate and keep it simple, the DAF helps with donating long term gained stock to avoid paying taxes on those gains. It’s completely independent of the aspect of deducting charity from taxes, which you can get whether using a DAF or donating cash directly to charities, if you cross the standard deduction threshold.
It is possible to bunch all donations meant for two (or more) years for greater tax benefits (again independent of using a DAF):
Schwab Charitable Bunching and Tax Savings Calculator | Schwab Charitable.