Managing Halal and Haram Investment in The Case of EPF's Malaysia

The main objective of this paper is to know the investment of EPF (Employee’s Provident Fund) which are including halal and haram investment and the solution that EPF can be taken for manage their investment according Islamic Finance principles. As a provident fund, the EPF has attempted to operate as a portfolio investor and not as a promoter or a major shareholder in individual business. The EPF should be taking portfolio risk and not business risk based on the time-tested principles of portfolio management. Also the skills and resources at its disposal are better at managing portfolios (either directly or indirectly through fund managers) than at managing a diverse range of operating business. However, as domestic financial markets are under-developed and given the restrictions on international diversification, the EPF has been facing a serious constraint on the extent to which it has been able to invest in direct loans is due, for instance, to the inadequate supply of marketable securities. This increases the reliance of the EPF in an investing model that is based on market prices or contracts and hence on a system which may not be arm-length or transparent. This paper will discuss about the managing halal and haram investment in EPF since the board of director EPF was announced that EPF include both halal and haram elements, the public were quite concerned regarding their position in the investment. As a simple guide, Muslim contributors have not sinned as they do not have an option regarding the pension fund which it is the country’s law and compulsory for every worker. From the Syariah point of view, we need to analyse the relationship between contributors and EPF. Hence, we need to find out the new instruments in Islamic Capital Market such as Gold Account which is relevant or not to replace the fund into gold after contributors become retired. This studies use a qualitative methods since the information provided from the secondary data for instance books, article journal, internet, newspaper, and from library. As we know, the EPF’s contributors are of various age groups. As a conclusions, EPF should come out with the separate investment plan for at least three broad age groups ; one for young, a second for the middle – aged and a third for the old. To come out with separate investment plans for different age groups, the fund has to be reorganised. To ease the transition, choice can be given to the individual contributors to decide on which plan or what mix of plans they wish to opt for. The fund management under each plan can be contracted out to external fund managers for actively managed funds. On the other hand, the fund for passive management can be managed in-house, where necessary , by engaging external consultants to assist the EPF on such matters as the choice or construction of the benchmark or on how best the rebalancing of the portfolio can be effected.