Abstract:
Mutual Funds play a vital role in the development of both the developed as well as developing
countries. It has the funds to support the objectivity of both the short term as well as long term
investors. In the late 90’s, mutual fund industry evaluated a lot due to bullish trend followed by
the Stock and the Bond market. Many new forms of the mutual funds were introduced and now
the investor has vast majority of categories in which he or she can invest by comparing his own
analysis of needs and demand with the cash out flow timing of the funds. Islamic mutual funds
are the platform where investor invests to earn out a halal return on strict guidelines as prescribed
by Islamic shariah. The return earned by the companies should not be on fixed bases with respect
to face value but it should be on pro rata basis; where nothing is confirmed, neither on principal
nor on return. Conventional Funds are allowed to organize their asset spectrum even if the
respective company is involved in interest bearing liabilities and interest bearing income like the
commercial banks and financial institutions. Mutual fund industry in Pakistan is growing at an
immense rate due to which Total assets of mutual fund industry increased to Rs.332.883 Billion
during the second quarter of financial year 2012-13. Pakistani mutual fund Industry’s total assets
are increasing at a rate of 1.07% quarter after quarter. Open ended funds also increased by .60%.
Closed ended Mutual funds are also increased by 4.35%. With the immense increase in the
number of mutual funds in Pakistan, Investors seem difficult to differentiate which mode of
investment is more economical and profitable i.e. either Islamic Funds or Conventional Funds.
Present study addresses the question of whether the Islamic Income Funds out Perform the
Conventional Income Funds on a Risk Adjusted bases. We have collected a three year data from
2010-2012 of Five Islamic and Five Conventional Income Funds of Pakistan and compare the
performance by Using Sharpe Ratio, Information Ratio, Jensen Alpha, Tryenor Ratio and Net
Selectivity. The result of these models concludes that Islamic Income Funds Outperforms the
conventional Income Funds on a Risk Adjusted bases.
