How tax-burden affects performance of mutual funds? Comparative analysis of conventional vs Shariah compliant mutual funds
Muhammad Navid Iqbal, Falik Shear, Hajar Farnoudkia, Rimsha Shahid, Hesan Zahid, Muhammad HashimPurpose
This study contributes to the existing literature by examining the impact of tax burden on mutual fund performance and comparing its effects across conventional and Shariah-compliant mutual funds.
Design/methodology/approach
The authors analyzed data from 285 conventional and Shariah compliant open-ended mutual funds spanning the years 2015–2022. Using panel data analysis, the authors investigate whether the impact of the tax burden varies across different types of funds, including conventional and Shariah-compliant mutual funds. The authors run K-Wallis test to determine statistically significant differences in the medians of mutual funds returns.
Findings
The findings reveal significant differences in the performance of Islamic and conventional funds. Specifically, the intensity of the tax burden prompts investors to switch between mutual fund markets. The results indicate that the tax burden is significantly negatively associated with the performance of both conventional and Shariah-compliant mutual funds. In addition, investors in Shariah-compliant mutual funds are more sensitive to the cost of the tax burden compared to their counterparts in conventional funds.
Research limitations/implications
This study is limited to the analysis of data up to 2022. The future researchers may opt for the latest available data for the latest results. Second, this study analyzed the tax burden cost as the main independent variable but new researchers may analyze the factors that affect tax burden like the experience of fund managers, their style of selecting stocks and their professional qualification. Finally, a comparative performance analysis of mutual fund markets yields mixed results, highlighting new research opportunities for future studies.
Originality/value
This paper fills the gap untouched in previous studies about evidencing tax-burden impact on different mutual funds performance.