Islamic Mutual Funds' Performance in Saudi Arabia

This paper investigates one of the most important issues raised in the Islamic mutual fund literature: Does investing in Islamic mutual funds come at any cost? This chapter is an empirical study in which we assess the performance and risk factors of Saudi Islamic mutual funds relative to Saudi conventional mutual funds for the period from July 2004 to January 2010. Findings from this paper suggest that the risk-return profile of Saudi mutual fund portfolios depends on the geographical focuses of these fund portfolios. Investors might benefit by considering investments that adhere to the precepts of the Shariah law (i.e., locally focused funds that invest in assets located only in Saudi Arabia). On the other hand, it seems that investors might incur a cost by considering investments that adhere to the Shariah law (i.e., Arab- and/or internationally focused funds that invest in assets located in countries other than Saudi Arabia).