Comparison between Islamic and General Equity Funds of Pakistan: Difference in Their Performances and Fund Flow Volatility

Abstract

This study aims to analyze the performance, assets volatility and fund flow performance relationship of Islamic and conventional equity funds. Islamic funds are different from conventional funds as they do not invest in those businesses whose operations or capital structure is against the Shariah (law) of Islam. We do not find any significant difference between the performances of Islamic and conventional funds and they both are unable to beat the market. Conventional funds witnessed more volatility in their asset size than Islamic funds. Islamic funds are more sensitive to lagged positive returns and less sensitive to lagged negative returns as compared to conventional funds. These results indicate that Islamic investors derive multi attribute function instead of just profit and risk optimization.