Malaysia is a global leader in Islamic finance, boasting the third-largest amount of Islamic financial assets in the world, valued at US$650 billion. In Malaysia, many conventional banks offer a wide range of products and services dedicated to Islamic finance.
In 2017, the Employees Provident Fund (EPF) introduced a Shariah savings option for its members. Every employee in Malaysia is required to contribute a percentage of their monthly salary to the government-managed fund, which then invests the savings to provide dividends to contributors.
While conventional savings is the default option for EPF members, you can choose to switch to Shariah savings. This option is open to all members, regardless of religious background or race. It’s important to note that once you switch to Shariah savings, you cannot revert to conventional savings.
EPF’s Conventional Vs Shariah Savings
Although the EPF’s conventional and shariah savings share the same investment objective of helping Malaysians save for their retirement, there are some notable differences between the two savings options.
The investment portfolios for EPF’s conventional and Shariah savings are separate with independent asset allocation strategies.
Investments
One of the main differences between conventional and Shariah savings is that EPF’s Shariah savings is managed and invested according to the principles of shariah in the Quran. Specifically, it ensures that members’ funds are not utilised for investments involving alcohol, gambling, adult entertainment and military weapons.
Shariah savings also safeguard members’ funds from being used for purposes that conflict with Shariah principles such as interest profiting and uncertainties in contracts, which are commonly found in investments in conventional banking and insurance.
This provides a means for members to build retirement savings that are compliant to the principles of shariah, which is especially important for the purposes of fulfilling hajj or umrah.
Fund Size
As of September 2023, EPF has a total investment asset of RM1,092.32 billion. Conventional savings accounted for 61% of the total investment asset while Shariah savings made up 39% of the assets.
Conventional savings has a significantly larger fund size compared to Shariah savings. This may be due to conventional savings being the default option and is more established compared to Shariah savings.
Performance
The EPF invests in a diversified portfolio of stocks, bonds, real estate and money market instruments within the country and overseas.
The fund recorded an income of RM19.20 billion as of March 2024. Income from equities accounted for the largest percentage of total distributable income at 68%, followed by fixed income instruments at 27%.
The EPF conventional savings delivered an annual dividend of 5.5% for year 2023. In the past five years, the conventional savings has delivered an average dividend of 5.52%
The Shariah savings delivered an annual dividend of 5.4% for year 2023. In the past five years, the Shariah savings has delivered an average dividend of 5.14%.
| Savings | Dividends for 2023 | Average Dividends from 2019 –2023 |
| Conventional | 5.5% | 5.52% |
| Shariah | 5.4% | 5.14% |
Dividends
The EPF pays out annual dividend for both conventional and Shariah savings on January 1 every year. The government is required to provide a minimum guaranteed dividend of 2.5% p.a. for conventional savings, under the EPF Act 1991.
The dividend for Shariah savings will be based on the actual performance of the Shariah investments, with no guarantee of a 2.5% minimum dividend.
Historically, the EPF have paid out dividends above 2.5% for both conventional and Shariah savings in the past seven years.
| Year/Dividend (p.a.) | Conventional Savings | Shariah Savings |
| 2023 | 5.50% | 5.40% |
| 2022 | 5.35% | 4.75% |
| 2021 | 6.10% | 5.65% |
| 2020 | 5.20% | 4.90% |
| 2019 | 5.45% | 5.00% |
| 2018 | 6.15% | 5.90% |
| 2017 | 6.90% | 6.40% |
Source: EPF
Read Also: Understanding The Tabung Haji Fund, And How It Helps Malaysians Save For Hajj Pilgrimage
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