An Analysis of Performance Evaluation of Mutual Funds Based on Fund Nature: A Case of Mutual Fund Market of Pakistan

Abstract

Pakistan is an emergent country with a developing mutual fund industry. In Pakistan Mutual Fund existed since 1964 capital market conveying certain advantages like risk diversification, assured returns and professional management for the retail investors. There have been lack of evidence on the performance and determinates of performance in the Mutual Fund market of Pakistan. This research is performed to provide comprehensive evidence on the performance measurement of the Islamic and Conventional mutual fund industry in Pakistan.

The research measured data of 102 mutual funds, which are divided into two isolated functional natures Islamic and conventional for the period of five years from 2010 to 2014. Performance of the funds is determined using performance measures of Sharpe measure, Treynor measure, Jenson’s Alpha and Information ratio. The performance of two segregations of the funds were measured and compared on yearly bases. Further, using Fama-French three-factor model along with an additional factor suggested by Carhart, the research measured abnormal returns on each of the fund and these abnormal returns were explained by fund characteristics of expense ratio, fund size, fund age and fund family size using cross sectional OLS estimation.

No significant performance differences that were found between Islamic and conventional funds. Treynor measure and Jenson’s Alpha presented in-consistent and insignificant performance measurements. The research also provided evidence of a negative influence of expense ratio on mutual fund performance in Pakistan. The research will explore the mutual fund industry for better understanding and recommends devising alternative performance measurements and methods consistent with local context.

Keywords: Mutual Funds Association of Pakistan, Asset Management Companies, Mutual Funds, Performance evaluation, Islamic and Conventional Mutual Funds.

DOI: 10.7176/EJBM/11-22-01

Publication date: August 31^st 2019