Growth in the mutual funds based on Islamic finance has become prominent over the past two decades, with numerous mutual funds originating from the various objectives being established. In recent times, hedge funds have hit the market, with country-based hedge funds emerging as well.
The focus on stocks from well-performing companies in the GCC and foreign countries has also emerged with each fund bearing a ‘screen’ to determine its suitability for investment according to Shariah laws (Wildcat Publishing, 2010). Companies that bear huge leverage levels especially with conventional debts are normally screened out. At the height of the financial crisis, stock prices crashed and the Islamic-financed mutual funds did indeed suffer losses. However, the losses were less severe than those experienced with the conventionally-financed companies, which were heavily ridden with interest-bearing debts at the backdrop of declining demand. Benefits of screening were clearly written in the success of the Islamic mutual funds, although when the stocks started to pick up, benefits to the investors were lesser than those accruing to conventional finance sources.
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