EOSB Saving Scheme: Which funds are better - Shariah or Conventional ?

The UAE’s voluntary Alternative End-of-Service Benefits (EOSB) Savings Scheme, established under Cabinet Resolution No. 96 of 2023, has redefined how gratuity is funded and administered in the private sector. Rather than accruing as an unfunded liability on the employer’s balance sheet, monthly contributions are now channelled into regulated investment funds held on behalf of employees. And it’s the employees themselves who choose which fund their investments are paid into.

Hence, HR managers and Business Leaders are often asked the question: Which funds are best, Shariah or conventional ones? In today’s article we examine this question in detail:

What the Regulation says

First of all, let’s check the legal framework. Cabinet Resolution No. 96 of 2023 does clearly mandate that every EOSB provider must provide for a Shariah compliant option. Article 8 states that every Fund Manager should provide:

• A Capital Guarantee Portfolio — a risk-free option that preserves capital, and is the mandatory default for unskilled workers (please see our earlier article on the topic of Capital guarantee funds here)

• Investment Funds compliant with Shariah — explicitly required, not optional.

Fund Managers may also provide Risk-based investment portfolios — carrying varying degrees of financial risk in proportion to expected return.

The Resolution’s Appendix reinforces this, listing among the fund manager’s additional obligations the duty to “provide an investment policy option that complies with the provisions of Islamic Sharia” (UAE Legislation Portal). The practical implication for HR is unambiguous: Every authorised provider has to provide a Shariah-compliant investment option.

The Four Approved Providers and Their Shariah Funds

Right. Having checked the legal basis, let’s look at what happens in practice. What do Fund Managers actually offer? At present, there are four licensed providers for Mainland EOSB schemes: Lunate (Ghaf Benefits), Daman Investments, National Bonds, and First Abu Dhabi Bank (FAB). And indeed, each of them, in compliance with Resolution 96, offers at least one Shariah-compliant fund.

Provider	Shariah-Compliant EOSB Fund(s)
Ghaf Benefits (Lunate)	Ghaf Benefits Shariah Compliant Capital Protection Sub-Fund; Ghaf Benefits Shariah Compliant Global Conservative Sub-Fund; Ghaf Benefits Shariah Compliant Global Balanced Sub-Fund
Daman Investments	Daman Investments Shari’ah Compliant Capital Protection Fund (launched). Conservative, Moderate and Aggressive Shariah risk-based funds announced.
National Bonds	National Bonds Capital Protected Shari’a Compliant Fund
FAB Asset Management	FAB Islamic End of Service Benefit Fund with Capital Protection (launched). Additional Shariah-compliant risk-based options announced.

(For further information please check the fund manager & fund pages on the GratuityAdviser website)

It is worth noting that Ghaf Benefits is currently the only provider with a full Shariah offering across all three risk levels — capital protection, conservative, and balanced — giving employees the widest spectrum of Shariah-compliant options under a single plan. FAB and Daman currently offer Shariah capital-protection funds, with risk-based Shariah options announced. National Bonds, a long-established Islamic savings institution, offers a single capital-protected Shariah fund.

However, please bear in mind that for all Fund Managers the fund offering is still very much “work in progress” – please check back on our website for latest developments and new funds being launched.

Key Differences Between Shariah and Conventional Funds

So far so good. Now let’s dive in to understand the differences between the different types of funds. What are the real differences between Shariah and Conventional funds?

• Permissible Holdings: Shariah funds exclude businesses engaged in alcohol, pork, gambling, conventional banking and insurance, adult entertainment, and weapons. They also screen out companies whose interest income or leverage exceeds defined thresholds. Conventional funds apply no such filters.

• How Returns Are Generated Conventional funds rely on interest-bearing instruments — bonds, treasury bills, fixed deposits. Shariah funds replace these with Sukuk (asset-backed Islamic certificates), Wakala (agency) deposits, and Mudarabah (profit-sharing) arrangements. The capital-protection Shariah funds, for example, typically rely on Wakala deposits with UAE banks and government-backed Sukuk in place of conventional fixed deposits.

• Governance and Oversight Every Shariah fund must be supervised by an independent Shariah Supervisory Board that certifies the fund’s structure and reviews it on an ongoing basis. FAB’s Islamic fund is approved by the FAB Internal Shariah Committee; National Bonds is overseen by Minhaj Advisory; Lunate and Daman operate equivalent boards. Conventional funds are subject only to standard SCA regulation.

• Purification of Income If incidental non-compliant income enters a Shariah fund — through corporate actions or unavoidable exposures — Shariah governance requires that portion to be donated to charity. This “purification” process has no parallel in conventional funds.

The Questions Employees Will Actually Ask

Noting these key differences, let’s now move our attention to what this means in practice. Employees rarely ask HR about Sukuk structures or screening thresholds. They ask practical, personal questions. HR should be prepared with concise, accurate answers. For example, employees may ask:

“Do I have to choose the Shariah fund because I am Muslim?” No. The choice is entirely personal. Many Muslim employees opt for conventional funds, and non-Muslim employees sometimes prefer Shariah funds for their ethical screening and lower exposure to certain assets.

“Will I earn less if I choose Shariah?” Not necessarily. The available long-horizon evidence, summarised in Section 5, shows broadly comparable returns.

“Can I switch later if I change my mind?” Yes. Cabinet Resolution 96 permits employees to change their investment option, subject to each fund manager’s switching procedures and timelines.

“Is my capital still protected if I go Shariah?” Yes — if the employee selects a capital-protection Shariah fund. All four providers offer one. Risk-based Shariah funds, like their conventional counterparts, carry market risk.

“Who actually verifies that the fund is Shariah-compliant?” Each provider’s Shariah Supervisory Board issues periodic certification, and the Securities and Commodities Authority (SCA) regulates the fund structure under Cabinet Resolution 96.

Performance: What the Evidence Tells Us

Some employees will not care greatly about which type of fund they choose – as long as the fund is good value, and offers attractive return. Hence the question – which EOSB fund type is superior, from a purely performance point of view?

This is tricky to answer as EOSB funds themselves are too new to provide a meaningful track record. To set employee expectations responsibly, HR teams can reference the broader Shariah investment universe, which has been studied for more than two decades.

The consistent finding across this research is that Shariah-compliant indices have, over long horizons, performed broadly in line with conventional benchmarks.

• The S&P 500 Shariah Index delivered an annualised total return of 10.2% over the 15 years ending July 2019, compared with 9.1% for the standard S&P 500 (Capital for Life).

• Research from MSCI and S&P Dow Jones Indices indicates Shariah indices have “historically performed in line with conventional markets and in some periods outperformed them, largely due to lower exposure to excessive leverage and speculative risk” (Funding Souq).

• On the fixed-income side, Fitch Ratings reports that Sukuk and conventional bond pricing remain highly correlated, with comparable yields across the GCC.

  
  

The honest message HR can deliver to employees is this: Shariah compliance is unlikely to result in a worse financial outcome over the long term. It tilts the portfolio toward certain sectors (technology, healthcare, industrials) and away from others (financials, highly leveraged consumer firms). This produces different short-term behaviour but historically comparable long-term outcomes.

Conclusion: What does this mean for HR Managers & Business Leaders?

The EOSB Savings Scheme is, at its core, an employee-communication challenge as much as a financial one. HR teams are not investment advisers — and should not act as such — but they are the trusted first point of contact for employees making a decision that will shape their savings for years to come.

Three messages, delivered consistently, will serve every workforce well:

• A Shariah option is legally guaranteed. Cabinet Resolution 96 obliges every approved provider to offer one. Employees never have to compromise on faith to participate.

• The long-term evidence is reassuring. Independent research from S&P, MSCI, and Fitch shows Shariah and conventional benchmarks track each other closely over time.

• The decision is reversible. Employees may switch options as their circumstances or convictions evolve.

With Ghaf Benefits, Daman, National Bonds, and FAB now all live, employees have genuine, regulator-supervised, comparable choices. The HR function’s role is not to choose for them, but to ensure each employee understands what is on the menu, what their rights are, and where to find authoritative information.

HR Managers & Business leaders are encouraged to check out the eLearning programs offered by GratuityAdviser that have the aim to boost employees’ financial literacy. Please check regularly our site for new content in this regard.