That’s a great question and the answer depends on how you’re looking at that question.
I have a PhD in the Chemistry of Hair and have been working with development of hair products for more than 15 years. Based on my experience and scientific studies about the effect of coconut oil in hair, the coconut oil itself does not cause color fading. Below I explain why. If you’re associating the usage of coconut oil with fading of the hair color, below I also explain what the possible causes could be. I hope that it helps!
Oils in general can help significantly in protecting hair from damage. Depending on the chemical structure of the oil, it stays on the surface of the hair or penetrate to the hair shaft. (Investigation of penetration abilities of various oils into human hair fibers.) Applying oil on a regular basis can also increase lubrication of the hair, increase shine and help prevent hair breakage. So, with the oil application, the hair will be more protected against damage. But the degree of that benefit will depend on the oil that is used. (Brazilian oils and butters: the effect of different fatty acid chain composition on human hair physiochemical properties.)
The effect of coconut oil on hair has been studied (and compared to other oils) by different researchers. Coconut oil was found to reduce the protein loss of hair when used as a prewash and postwash grooming product. Effect of mineral oil, sunflower oil, and coconut oil on prevention of hair damage. Other oils didn’t have the same effect and the reason for that, as I explained before, is connected to the chemical structure of the coconut oil. Since coconut oil contains a high amount of lauric acid, it has a high affinity for hair proteins. That combined with a low molecular weight and a linear chain, makes possible to coconut oil diffuses inside the hair shaft. And on that way coconut oil brings the great benefits to hair that were mentioned before.
Now let’s talk about hair color fade. Colored hair or untreated hair (I mean hair in its natural color) can fade their color for many reasons. Among the most relevant are the repeated washes with aggressive shampoos and the prolonged exposure to sunlight. Hair color changes and protein damage caused by ultraviolet radiation.
So, let’s suppose you have a colored hair (you use hair dyes in a regular base) and that you apply coconut oil in your hair regularly as a leave-on treatment (on this explanation I’m considering you’re using pure coconut oil, not a hair product containing coconut oil), but you wash your hair frequently with a harsh shampoo or you are on vacations on the beach being exposed to the sunlight daily (or a combination of both). And you start to see your hair color is fading. The cause behind that fade is not the coconut oil but most likely the frequent washing with harsh shampoos or the prolonged exposure to the sunlight (especially in peak hours when the sun radiation is more intense), or a combination of both. As I mentioned before, harsh hair washing, and sunlight exposure are some of the factors that can lead to color fade, there are others. Anyway, I used these examples here to clarify that coconut oil itself does not fade the hair color. On the opposite, it’s a good treatment for the hair.