EXAMINING THE RELATIONSHIP BETWEEN FUND SIZE AND FUND PERFORMANCE OF MUTUAL FUNDS IN PAKISTAN

Abstract

This study aims to evaluate the performance of Islamic vs conventional equity funds over seven years, from 2012 to 2018, to provide insights for small investors seeking investment opportunities in the capital market. The study utilizes the FAMA French 3-factor model as a measurement tool to evaluate the performance of mutual funds. The dataset consists of daily data from 35 Pakistani open-ended equity mutual funds traded in the MUFAP. Among these funds, 22 are considered conventional equity funds, while 14 are Islamic equity funds. The findings reveal that the FAMA French 3-factor model yields favorable results for two factors considered. Specifically, HML and Market factors demonstrate positive outcomes, indicating promising performance. However, the SMB factor does not yield the desired results. These contrasting outcomes suggest differences between Islamic and conventional equity funds, most notably in their performance as measured by the FAMA French 3-factor model. The implications of these findings are significant for both investors and fund managers, as they highlight the need for a careful evaluation of fund characteristics and performance metrics when making investment decisions. Therefore, it is recommended that investors consider these factors in their decision-making process to optimize their investment outcomes.