The Fund Characteristics, Fees, and Expenses Structure Between Conventional and Islamic Mutual Fund

Abstract

Shariah principle is notoriously known as the key feature underlying the function of assets management in Islamic financial institutions. The underlined principle highly requires fund managers to consistently manage the fund portfolio in accordance to a legitimate set of rules. As a result, Islamic mutual fund may have distinguishable characteristics, and more importantly, the fund fees and expenses structure. This article studies the fund characteristics, fees, and expenses structure between conventional and Islamic mutual fund. We also describe how the fees, expenses, and return can be explained by fund characteristics accordingly. A dataset comprises 252 open-end mutual funds in Malaysian industry offered within the period 2008 to 2015 is employed to present empirical evidence. Our results describe a significant difference in fees and expenses structure led by Islamic funds. High diversification explains Islamic funds while strong positive growth is associated with the traditional funds, supporting the relation between fees and expenses and fund performance. The declining trend of fees corroborates the idea of a favourable economies of scale contradictory to the rising expenses structure. Nevertheless, Islamic funds present an excessive fees and expenses in offering high and low quality portfolio management.