Muslims and non-Muslims alike have been signing up for the syariah-compliant Employee Provident Fund (EPF) accounts, and one wonders if contributors are merely using one of the few ways they have by using syariah guidelines to ensure EPF does not just invest into anything and everything.
Starting from August 8, EPF contributors can start applying to transfer their contributions and existing funds to the syariah-compliant KWSP-i account.
The new account will be managed and invested according to syariah principles.
With the creation of the KWSP-i account, Section 27 of the EPF Act 1991 will be amended to enable two dividend rates to be announced to EPF contributors, one each for the conventional and another for the syariah-compliant account.
In-line with syariah principles, the dividend for the KWSP-i account will be declared at any rate, by the Board depending on the actual performance of the investment made.
EPF Chief Executive Officer Datuk Shahril Ridza Ridzuan explains that the Simpanan Syariah is a new savings option for members who wish to convert their current conventional EPF savings to one managed and invested in accordance with syariah principles.
Says Shahril, the EPF has allocated an initial fund of RM100 billion, which is equivalent to about 15% of the EPF’s total investment assets of RM681.71 billion as at end March 2016.
He adds that the Simpanan Syariah was not EPF’s first venture into Islamic investments as more than RM295 billion of EPF’s total investment assets were already syariah-compliant.
According to Shahril, as of now, conventional products may have advantages as it can be invested in banking stocks that garners high returns.
“But currently there are existing shares that are Islamic law compliant which can generate stock return that is high.
“During the initial stages, there could be difference in terms of dividend rates between the syariah-compliant and conventional investment but it can be balanced out over a long term investment period.
“Moreover, there are more increasing assets that are syariah-compliant that investments can be channeled to,” he says.
The Syariah Compliant KWSP-i investment will start January 2017 with an allocation of RM100 billion where around 15% from EPF investment asset total number totalled RM681.71 billion as of March 30, 2016.
Finance experts explain that one of the difference between conventional and the syariah-compliant KWSP-i Investment is that the conventional investment channels are not restricted by Syariah laws.
This means that for example, investments could be channeled to industries that may not be Syariah law compliant, for instance the gaming industries.
With the Simpanan Syariah, contributors who are particular and want to ensure that their investments are channeled to syariah-compliant industries will no longer have to worry about this.
Shahril adds that, the syariah investment products will not guarantee similar dividend like conventional product because it will depend fully towards investment performance made.
The current contribution process and enforcement process will remain the same but in compliance with syariah principles, the dividend rate for Simpanan Syariah will be based on portfolio performance of the syariah-compliant investments and will not have any guaranteed minimum dividend.
“A Syariah Advisory Committee (SAC) has been formed to oversee the operational, investment and governance aspects of Simpanan Syariah.
“The SAC will also recognise syariah investment products as regulated or approved by Bank Negara Malaysia and the Securities Commission Malaysia,” he says.
Applications for the Simpanan Syariah will be on a first-come, first-served basis. To be eligible for the syariah-compliant savings option, members must submit their applications by Dec 23, subject to availability under the RM100 billion fund.
As this is a first, one needs to wait and see if EPF’s syariah savings accounts will give the returns and keep those who switched their peace of mind.
Soo Wern Jun