Comparing the determinants of fund flows in domestically managed Malaysian Islamic and conventional equity funds

This paper aims to provide an empirical evidence on the fund flows-past return performance relationship by also considering the management expense ratio, the portfolio turnover, the fund size and the fund age of Islamic equity funds (IEF) investors in comparison with conventional equity funds (CEF) investors.

By using panel data, the sample of Malaysian domestic managed equity funds is considered which comprises 20 individual funds from IEF and CEF from 2011 to 2013.

The results provide evidence that IEF investors have different factors when choosing funds in comparison with CEF investors. The study finds that the key factor influencing the fund flows of IEF is the management expense ratio, compared to the CEF which is fund size. This study also shows that all the fund characteristics of IEF and CEF are positively or negatively related to the fund flows.

The present study may be extended by considering other fund categories such as the money market fund, the balanced fund, the bond fund and the fixed income fund.

The empirical findings of this paper clearly call for fund managers and investors to review their investment policy. The results could also provide better information and guidance for investors as well policy makers on the factors that affect the fund flow for Malaysian Islamic funds and CEF.

This paper is among the earliest empirical evidence studies on the fund flows-past return performance relationship by focusing in a comparative manner on IEF investors and CEF investors in Malaysia.