Finance

Part 1-Dissertation proposal
Introduction and Background

Banks are financial intermediaries that accept channels and deposits the deposits into borrowing and lending activities. It is an important part of our financial system and the financial markets are also controlled by them. The fundamental part of banks is to join or connect those people who are seeking capital (people who want a loan for their business or to meet their needs) to the people who have capital (depositors or investors).

Coming over to the history of banking, the first banks we most probably and possibly the ancient worlds temples. They were the securest places to save precious stuff suck as gold and silver. Also History shows us that in Greek temples of ancient Greece were indulged in conducting financial activities such as providing loans, deposits, credits etc. Be it the Jews or the Muslims banking were one thing that almost every race adopted because it was a basic necessity of life. By 1100s the need to finance the crusades was risen and in 1200s there was a rising need of international and long distance trade in large amounts of manufactured goods and agriculture commodities. The banking took a huge step when the London Royal Exchange came into being in 1565. At that time the term banks were only given to the offices and not the current meaning that it has today. And then in 1609 The Amsterdam exchange bank (Amsterdamsche Wisselban) came into being which made this city the center of finance of the world. In 17th century the offices of banks were located near the centers of trade. Groups and individuals had the right to participate by purchasing bills on credit from these banking offices. Now a little fast forward in the banking history to the time when capital market services and global banking was prevalent in 1980s and 1990s which was due the fact that there was a great increment in demand from manufacturers, customers, suppliers and information centers around the globe. And by the end of 2000 a world record level of financial transactions with a 10.5 trillion market value and the top 10 banks had a share of 80 or more. However nowadays the banking system is extremely complicated and sophisticated but the usurious and hidden mechanism is the same.

The banking industry has been revolutionized during the past years. Now there are three trends which have changed the course of banking and aroused the interest of public. He thinks that the local industries are merging with big corporations and the retail stores are turning into chain stores. Now during the past seven or eight years there was a failure of 4925 banks out of 30812 operating. This questioned the systems soundness. The indispensible failure of the system is when the funds entrusted to it act as a safe repository, these funds are used for investment by the banks within certain limits but the funds must be eventually returned to the depositors. Now this system and its soundness is being criticized because of the dismaying and shocking fact that around about one sixth of US banks are hanging with losses to their depositors. The second thing is that the phenomenon of independent local banking is almost extinct and it broke down in almost one fourth of US banks. Branch banking restriction causes some of them to bring into existence chains and at the same time threatens to become systems. And finally there comes the mergers in bank which starts a new financial era. Now these are the things which are the main reasons of attraction. In the last part the bank failures are caused by reduction and also because of the mergers there is absorption of banks. Now in a nutshell these three movements the systems weakness which was showed by the failure of many banks, the tendency if the banks to be unified by group banking or chaining and the scenario of mergers. Now all of these three trends are related and have their commencement in the incorporation and making a mark in the industry and business. (Bernhald Ostrolenk, May 6 2010)

There is a lengthened chronological association with the growth and development of traditional commercial banking practice and religious conviction. As Brown and Skully (2007) have put it, some of the earliest economic transactions commenced with the storage of gold in religious temples which expanded at a swift pace, thereby, allowing the ancient Greeks to make credit notes which were acknowledged throughout Greece. Islamic banks and financial organizations are operating in accordance with the facilitations and decrees of the Islamic Shariah law, which denies benefits by means of any form of usury. Islamic banks function on the basis of sharing profits and losses with their clientele which is in contrast with the conventional banking systems, whose chief task is to intermediate by lending money at higher rates of interest than paid by the bank on funds which are set down by the borrowers, thereby, obtaining gains from the margin between the two. What is more, Islamic banks operate in facilitating money transactions as well as exchanges, whereas, the conventional banks function on the products that are purchased or sold with the use of interest as well as time. More to it, the Islamic religion forbids trade of money for money, however, allows money to be put to work, and then take part in the profits or losses which are realized (Alford, 2003) which is the base of Islamic funds.  Recognized and strict banking has now been existent for nearly a thousand years, with Islamic Banking being associatively a new phenomenon as the first Islamic Bank, Mit Ghamr Local Savings Bank of Egypt, which was established in the year 1963 (Brown and Skully, 2007).  However, even then, the actual development of Islamic finance did not commence until the late twentieth century when the Middle East nations went through a giant rise in surplus funds. Since that time, the Muslim investment has extensively spread all throughout Europe and Asia, while Islamic finance is yet to expand. The straight Islamic financing approaches and methods such as with the Islamic bonds are gaining huge prominence in the West similarly as the Islamic based funds management has done so far.

With time passing by, there has been an increased demand for Islamic Banking provisions all across the Muslim world, chiefly, in the dearth of benefits. In order to function, Islamic bank system became dependent upon the work of Islamic law. Hence, since that time, Islamic banking has prosperously spread all over the world, as it operated according to this pattern, and as a result, became one of the largest established bank systems set to compete with the conventional banks (Iqbal and Molyneux, 2004). Eventually, according to Khan and Ahmed (2001), Islamic Banks possess a number of products which are compatible with the Islamic Law, such as Murabha, Musharaka, and Mudaraba (Khan and Ahmed, 2001).

In 1981 the Gulf Cooperation Council (GCC) was formed in Dubai joining all six countries (Saudi Arabia, United Arab Emirates, Qatar, Oman, Kuwait and Bahrain) to reach a cooperative frame work in all fields (GCC.org). Each of the GCC nations is autonomous in terms of currency and administration. It is predictable that the entire population of this region is nearly 34 million, and the principal religion in all the nations of the Gulf Cooperation Council is Islam. The GCC nations are affluent in natural reserves, for example, oil and natural gas. The Gulf States have developed into the largest reliant export hubs for oil which is a key requirement in the global market (Saif, 2009).

Lets have a look on the history of mutual funds. Now on March 21, 1924 Massachusetts Investors Trust which was found which is now known as MFS Investment Management. At that time the closed-end funds of the entire industry had a representation of about 10 million. Now in 1929 the crash of the stock market was a major obstruction in the the mutual funds growth. Certain policies were laid down by the Congress in response to this crash. The laws clearly stated that a fund has to be registered with SEC (Securities and Exchange Commission of US) and it also offered likely investors with a bright prospectus which contained the necessary disclosures about the securities, fund manager and the fund itself. Now with rehabilitated confidence in the financial market, the effectiveness of mutual funds increased and blossomed. In the late 1960s there were 48 billion assets with 270 funds.

In 1975 the Internal Revenue Code changed which allowed IRAs (Individual Retirement Accounts) to be opened by the individuals. This was a very important factor in the growth of mutual funds. Now there are 2015 mutual funds as of October 2007 which belong to ICI(Investment Company Institute) with combined value so assets estimating to more that 12.356 billion. And the mutual funds amounted to 26 trillion in the early 2008. Vanguard 500 Index Fund is one of the biggest and largest mutual funds in the world with an estimate of 100 billion assets or even more.(Wikipedia.org, mutual funds)

Aims and Objectives of the Study

The focus of this study will be on Islamic mutual funds originated in the GCC countries. This paper aims to find if there is a significant difference in performance between the funds located in each GCC country with its respective market benchmark. Furthermore, the study aims to find if the Islamic funds in GCC countries outperform or underperform international Islamic indices. The final aim of the study is to find if the Islamic funds are riskier or more safe that the relevant benchmarks. Furthermore, the study aims to find if the Islamic funds in GCC countries outperform or underperform international Islamic indices. Another aim ofthestudy is tofind ifthereturnsofthesefunds were gained through increasing the risk or it was done through experienced fund managers. Furthermore, this study will examine the impact of the financial crisis ontheIslamicfundsandcompare is withthe impact of the crisis on the relevant markets. Finally this study willdiscusstheviabilityofinvestingin theIslamic mutual funds in the end of the dissertation.
Research Methodology and Data

The research methodology for this study is based on the similar variables which have been taken up by studies carried out in the past on fund performance. In this dissertation, the basic Capital Asset Pricing Model (CAPM) will be used to measure the Islamic funds performance in the GCC region by comparing each country Islamic funds with their relative market index.  Coefficient of determination and t-statistics will be applied in the process by regressing the monthly excess gain (loss) of the fund with the market monthly excess gain (loss). The same methodology will be applied for all the GCC Islamic funds but with a non-regional Islamic index like Dow Jones Islamic Market. Now we also use the Carhart model because it was found that more than half of the portfolios of our Islamic equity funds are expected to underperform than the equity market benchmarks.  However at national level a slight tilt towards growth is shown by the Islamic funds.

The data for this research will be provided from secondary data providers. The market indexes and risk free data will be acquired from DataStream and this secondary data is provided through the university laps. The remaining data regarding the Islamic fund in the GCC countries will be acquired from and will also provide by the university.    

Structure of the Dissertation
This dissertation centralizes on performance of the Islamic funds in GCC region, and has been segmented into seven chapters. The structure of this dissertation is as follows

Chapter 1
The first chapter comprises of an introduction to the research, and also introduced the research questions. The significance of understanding the performance of Islamic funds in the GCC is discussed and enlightened.

Chapter 2
The second chapter provides with an overview of the Islamic Banks, conventional mutual funds and Islamic funds. This is inclusive of a general idea of the history along with the challenges they confront, and what are the fundamental rules and regulations. More to it, this section prefaces some of the most significant Islamic funds types.

Chapter 3
The third section of this dissertation offers a basic concept of the economic life in the GCC, prior to the presentation of the banking industry, and the financial markets in the GCC, followed by the comparison of the evaluation.

Chapter 4
This chapter offers a summary of the studies and researches that have been carried out on the performance of funds. The evaluation is not restrained to Islamic funds, but will be on both the conventional fund and the Islamic funds.

Chapter 5
This section puts forward the data important for this study. Also, the attributes and features which will be brought into use in the analysis of the Islamic funds are thoroughly explained.

Chapter 6
Chapter 6 explains the results and conclusions of the research, thereby, displaying the findings.

Chapter 7
The last chapter confirms and discusses the outcomes of this research. In addition, it covers the section of references and bibliography that have been used.

THE PROPOSAL

CHAPTER 1

INTRODUCTION
This chapter basically comprises the introduction of our research and also we will discuss the research questions. We will also discuss and enlighten the importance of understanding the Islamic Funds performance in GCC. The research methodology used in this study is based on variables which are similar in one way or the other and which have been taken up by different studies in the past years on the performance of mutual funds. The focal point of the research will be on the Islamic Mutual Funds which are originated in the GCC countries. We aim to investigate if there is variation in returns between the Islamic funds, with respect to its relative market benchmark, located in the Gulf Countries. The research also aims to find that the Islamic International Indices are outperformed or underperformed by the Islamic funds in GCC. Moving on our main focus of discussion in the proposal will be whether the Islamic funds are safer and riskier than the relevant benchmarks. And also we will discuss if it does better than or worse than the International Islamic Indices. We will also study the fact that the returns the investors get on the funds is due the increasing risk or was done through the expertise or experience of the fund managers. We will also study the aftereffects of the crisis on the Gulf countries and how it affects the Islamic funds and also on the relevant markets. We also aim at discussing the feasibility of investing in Islamic funds.

Now I will shed some light on the methodology of the research i.e. what ratios and models will we use to compare and evaluate the data. We are using the CAPM (Capital Assets Pricing Model) which will measure the performance of the funds in the GCC region by taking each Islamic fund with its relative index and comparing it. T-statistics and the Coefficient of determinant will also be used in the process by regressing the monthly gain (losses) of a fund to the monthly excess (gain or loss). We also used this methodology for the non-regional Islamic Index like Dow Jones Islamic Market and also for the GCC Islamic Funds.

The research methodology for this study is based on the similar variables which have been taken up by studies carried out in the past on fund performance. In this dissertation, the basic Capital Asset Pricing Model (CAPM) will be used to measure the Islamic funds performance in the GCC region by comparing each country Islamic funds with their relative market index.  We will also perform Carhart test on the and evaluate the performances of the GCC based Islamic fund on this basis. The same methodology will be applied for all the GCC Islamic funds but with a non-regional Islamic index like Dow Jones Islamic Market. The risk free data and market indexes are obtained from Datastream and by the University.

Now we also use the Carhart model because it was found that more than half of the portfolios of our Islami equity fuunds are expected to underperform than the equity market benchmarks.  However at national level a slight tilt towards growth is shown by the Islamic funds. And there is also the fact the Islamic funds of the same country asses their investment style and financial performance sufficiently. So to take in account ant to control for the regional and the global factors we develop a Carhart Model (three level) which consists 12 factors which are used to control for our Carhart three level model and for equity market at three levels
In the region or the same nation
In other nations of a particular region
All the regions of world

This model that we are using is very sophisticated and it leads to different results. Now this model that we are using is very sophisticated. Now only two fifth of the IEF portfolio is found to underperform international equity benchmarks whereas only one fourth outperforms them significantly.

Following are the questions on which our research will be based on
Is there any significant difference between the financial performances of equity market benchmark and the Islamic Equity Mutual Funds
Islamic Equity Funds prefer which investment styles
How to explain the national differences if they exist in IEFs financial performance

THE PERFORMANCE OF ISLAMIC FUNDS IN GULF
The industry of the Islamic Finance continues to build-up at a rapid pace. For Sharia an Islamic law based on Koran, there has been a double digit growth for the assets compliant with this law. Over the past ten years new territories have been explored by the Islamic financers both outside Arab and whitin their state. According to ( Muslims.net 18 march 2010) There are approximately 680 Islamic funds out of which 45 is in GCC. According to latest economic report there is a neighborhoods running assets of 70 billion US dollars. The 306 member states of Gulf who use Islamic Funding are said to witness a really fast-track producitivity which is because of the fact of increasing wealth.

As Ernst and Young puts it the assets of GCC Funds (Islamic) increased from 276 USD billion to736 USD billion in a span of one year. The report also indicated that the customer base of Islamic Funds in GCC has dramatically increased over the last decade. These funds basically respond to the needs and wants of an investor and they have a say in the wealth management field. 147 funds are acquired by Saudi Arabia which amounts to 19.6 and a massive 18 USD Billion.  While UAR has 55 funds which totals to 5.5 USD Billion in assets. Kuwait has 36 funds which has a value of USD 3 billion and finally Bahrain has 20 funds managing about one USD Billion.

Head of the GCC Equities, Mr Talal Al-Tawari, at GIC (Gulf Investment Corporation) stated that Gulf Primier Fund is the 1st of its kind in GCC. He thanked the team of GCC shares, the research team and also the impressive experience of the portfolio management experts. GCC Shares achieved an impressive 11.49 return. He also endorsed the fact that the economies of GCC are the most stable despite of the financia crisis across the globe. He attributed the success to various factors whch included their professional approach in seleting and evaluating opportunities for investing. Mr. Al-Tawari also applauded the brilliant performace of these funds and highlighted the fact that in 2009 there was a 34.3 growth. (ASDAs Public relations 2009) . According to ( Al-Babawia 5th feb 2010) The Markaz(Kuwait Financial Center) approces the fact that the GIC (Gulf Investment Corporation) is investing in GCC with a return of 24.6.

Given below is just an overview of the performance of Islamic Funds in GCC According to the Islamic Fnance News Guide 2008 The Amanah GCC Equity fund was on the top in 2007 with a return of 81.67 then was the Amanah Saudi International Fund which had 81.23 return in the market. Then we had GCC Al- Raeed Fund whose Fund manager was Samba and it had a return of 79.87 Next on number 4 we had the Al Rajihi Local Shares Fund which had a 7.98 return. On nmber 5 there was Bakheet Saudi Trading Equity Fund whose fund manager is Bakheet Investment Group  and had a return of 73.87. And by the sharp ratio The funds of Amwal Islamic Money Market which had a 2007 return on 7.59. The Boubuan Financial Fund  had a 2007 return of 6.48 and Boubuan Financial Fund KWD whose fund manager is boubyan had an impressive return of 7.16.

Chapter 2
The second chapter provides with an overview of the Islamic Banks, conventional mutual funds and Islamic funds. This is inclusive of a general idea of the history along with the challenges they confront, and what are the fundamental rules and regulations. More to it, this section prefaces some of the most significant Islamic funds types.

ISLAMIC BANKS
Islamic banks and financial institutions are operating in accordance with the provisions and the laws of Islamic Sharia law, which denies benefits via any form of usury. Islamic banks operate on the basis of sharing profits and losses with the client. This is contrary to conventional banks, whose main work is to intermediate by lending money at higher rates of interest than the bank pays on funds that are deposited by borrowers and deriving profits from the margin between the two. Moreover, Islamic banks operate in facilitating money transactions and exchanges. The traditional banks operate on the products bought and sold with the use of interest and time. Furthermore, the Islamic religion prohibits trade of money for money, but allows money to be put to work and then participate in the profits or losses that are realised (Alford, 2003).

Over time, there has been increased demand for Islamic banking services across the Muslim world, especially in the absence of benefits. In order to operate, Islamic banks in the system depend upon the work of Islamic law. The idea of Islamic banking in its present form began in 1963 in Egypt and was conceived by Dr. Ahmed Al-Najar, who introduced the idea of the savings bank in Germany. Since that time, Islamic banking has successfully spread all over the world based on this template and has become one of the largest bank systems prevalent and now competes with conventional banks (Iqbal and Molyneux, 2004). Finally, Islamic banks have a number of products that are compatible with Islamic law, such as Murabha and Musharaka and Mudaraba (Khan and Ahmed, 2001).

The GCC countries are comprised of Saudi Arabia, Oman, United Arab Emirates, Bahrain, Qatar and Kuwait. The GCC was established in 1981 with the aim of coordinating the various areas of social, political and economic relations between these countries. Each of the GCC countries are independent 6
of each other in terms of government and currency. It is estimated that the total population of the region is approximately 34 million people, and the predominant religion in all countries of the Gulf Cooperation Council is Islam. The GCC countries are rich in natural resources such as oil which was discovered in 1940 and natural gas. The Gulf States have the largest reserves of oil in the world and they have become heavily reliant on exports of oil needed by the global market (Saif, 2009).

CONVENTIAL MUTUAL FUNDS AND ISLAMIC FUNDS
According to (investopedia.com,Mutual Fund,2010),a mutual fund is An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the funds capital and attempt to produce capital gains and income for the funds investors. A mutual funds portfolio is structured and maintained to match the investment objectives stated in its prospectus. Conventional funds have many types but the main types are Equity fund, Money fund, Hedge fund, Market fund, Bond fund and Hybrid fund. Mutual funds are called open end Investment Company since the shares number outstanding can be changed. With the various funds types a large number of investors have become more interesting in them because they believe that these funds are managed by professionals and these funds have lower risk because of the diversity of the financial instruments invested in by these funds (Saidov, 2007).

Now they say that forewarned is forearmed so it is extremely important and very essential to perform a mutual fund research before investing in mutual funds. A drawback in mutual funds is that is not insured or guaranteed by the FUDC so it is a possibility that you might loose some money. While comparision of these funds it should be noted that the past performances of funds should not be set a criteria and can never be an indicator for future performance. So there is a great deal of risk involved if you invest on the basis if past performance. (Multiplyyourwealth.com, mutual-funds).

Islamic funds on the other hand are Sharia compliant. Like conventional funds, Islamic funds also have various types of funds but the main types are Mudarabah fund, Murabaha fund, Ijarah fund and the last main type of Islamic fund is a mixture of these funds (Zai, 2008). To be a Sharia compliant the fund should not contain any assets deals with or profit from Riba or Gharar or any Haram (forbidden) like pork, alcohol, gambling and weapons. Since the funds invest in multinational companies stocks it became hard to find a fully compliant asset to invest in. for that reason, some scholars allowed Islamic funds to invest in these non-fully compliant assets as long as the revenue from these Haram operation is very small (Hoepner, Rammal,  Rezec, 2010). A report from (eurekahedge.com) in January about the islamic funds world wide indicates that the sharia compliant financial instruments have separated geographically and also the asset classes have been increasing rapidly. The report estimates the assets managed under Islamic funds to worth around 70bn and the number of these Sharia compliant funds is about 680 funds worldwide.

Now despite of their advantages, as (mutual-investor.com) puts it Mutual Funds have their short comings soch as huge costs are incurred in commissions and fees.  Now even in the past the mutual funds have underperformed in the history so most of the Non Muslims but Index Funds i.e. a  fund which keeps a track on the major market index. And also there is one drawback that you dont have any idea that where you money is being invested. For example Islamically prohibited activities (Tobaccos, Banks, Alcohol etc) can be done from a Muslims investment without him knowing that what is being done with his money.

Now coming over to the disadvantages of Islamic Banking, According to (Healy consultants) the first one is rather an advantage to the Muslims but not for the Muslims is that the Investments made only sustain the acticitivities that arent forbidden by Islam. For example ( Banks lending money to another bank would not be allowed as there is inclusion of interest rates, or trade in alcohol and tobaccos) are not allowed. Now it is a known fact that money defines the value of something it doestn have any value itself so therefore there shouldnt be any increament for a money that is simply being stored in a bank, via fixed payments, or by leding it to someone else.
Following are some of the fundamental rules and regulations

Shariah compliant The funds should be Shaiah compliant.
Invest  in ethical issues As I talked above that investment can only be done in activities whih are not forbidden in Islam.

Governed by shariah council The overall investing is governed by a shariah council which oversees the activities performed by the funds.

Any income declared by shriah as haram is expensed out So technically you cant do anything against the shariah or it will be regarded as haram.

Any investing in interest related activities is also prohibited.
The risks and rewards are equally shared by the investor and the user of capital.
Following are some of the types of Islamic Funds

Mudarabah Fund
On the basis of equal sharing of rewards and risks the Mudarabah funds can be invested in any specific business.

Equity Fund
Now over here the profits and losses are deduced through gains one get by buying the shares and then selling when the prices of their shares are high. Profits are also obtained through dividends. Now the Shrariah Experts say that if the organization is in comformity with the Shariah i.e. the company does not indulge in any forbidden activities then these shares can be sold and held without any fear of being haram.

Murabaha Fund
Mufti Taqi Usmani regards the current sale adopted by various financial institutions as mode of financing. He believes that they buy something for the betterment of the clients and sell it at a profit margin which is agteed. Now if this kind of sale is to be undertaken by the funds then that funds should be a closed ended one and non-negitiable in the market.

Ijarah Fund
Mufti Taqi Usmani says that the organizations which deal in the leasing assets as per the Shariah principles and the funds involved in this case are the Ijarah Funds. Users charge the rentals and the ownership of the assets is under the Fund.
Mixed Fund

Mufti Taqi Usmani believes that there is another type of fund i.e. Mixed Funds in which there is subscription of equities, investments, commodities and leasing. This type of fund should be a closed end fund.

Chapter 3
The third section of this dissertation offers a basic concept of the economic life in the GCC, prior to the presentation of the banking industry, and the financial markets in the GCC, followed by the comparison of the evaluation.
GCC countries

This study investigates the profitability of conventional and Islamic banks in the GCC region. It is essential to study banking and its work in the Gulf region, because there are many challenges faced, and issues arising when foreign partners enter into the ownership of these banks. First this chapter gives an overview of the GCC and then it offers an economic overview of the GCC countries. This chapter also looks at banking in the GCC region and discusses the total assets collectively between GCC countries. At the end it presents an overview of the financial markets in the GCC.

Overview of GCC
The GCC was established in 1981 and aims to co-ordinate policies in the various activities be that economic, political or social in the Gulf region. It is based on the activation of the inter-relationship between these countries and seeks to unify and deepen relations. The Council also aims to strengthen the relations of social, educational and cultural relations. The members of the GCC states are six countries the Kingdom of Saudi Arabia, Kuwait, the Kingdom of Bahrain, the United Arab Emirates, Oman and Qatar.

In 1940, the discovery of oil in the Gulf region propelled the area to become the richest region in the world in terms of oil wealth as well as the presence of other natural resources such as natural gas. Finally, the oil is the primary resource on which the Gulf States exports are based.

Economic Background of the GCC
The governments of the GCC trade in oil as it is a royal government. Their economic experiences are rather stable and similar. In addition to that the general populations in the GCC do not bear any taxes to their governments. However, some duties are imposed upon the issuance of certain licenses or customs duties. The aim is to try to open the economy among the countries and to assist in the entry of foreign investors. Moreover, the GCC is seeking to develop other activities and open up to other economic areas such as agriculture, tourism and industry in order to reduce their dependence on the primary export of oil (Al-Jarrah, 2002).

Increased exports of GCC oil since 1970 has affected the trend of economic growth positively. To measure the size of the economy of a country it is conventional to use real GDP. In table 3.1 in the appendix, the movement of real GDP of the GCC countries in the last period until the present can be seen. Also, as can be observed, the movement of GDP during these years in the GCC particularly in the Qatar has been unusually pronounced. Finally, table 3.2 in the appendix illustrates GDP growth from the numerical side.

It is possible to calculate the GDP per capita after the apportionment of GDP by the number of people in the population. That shows how the average salary received by the people has changed over time. According to International Monetary Fund, World Economic Outlook Database, October 2008  Qatar recorded the highest value of GDP per capita with 67,921 and those people living in the United Arab Emirates enjoyed the second largest figures for GDP per capita with 38,804 and then Kuwait with 31,014. Bahrain was followed by Saudi Arabia and most recently Oman recorded the lowest with 14,013.

Some of the GCC countries lack natural resources and therefore they have to import these materials from other countries for example, food products. For this reason, the percentage of imports in the GCC countries is relatively high, which increases as exports of oil increase. For example, Saudi Arabia ranked first in terms of exports, while Bahrain exported the least. The United Arab Emirates ranked first among the GCC countries for the value of goods imported and Bahrain ranked as the last. This can at least in part be explained by both Saudi Arabia and the United Arab Emirates having large land areas and also big populations and Bahrain occupying only a relatively small land area and having a much smaller population.

GCC Banking
The British Bank of the Middle East was one of the first foreign banks to operate with branches in the GCC countries. There are now many other well-known foreign banks operating in the region and the main reason for their presence is the existence of high revenues from the oil trade. On the other hand, 21domestic banks dont have sufficient experience to compete with those foreign banks. In response, GCC governments agreed to limit the activity of foreign banks. For example, GCC governments committed foreign banks to follow the laws of their central banks. In addition to that, the Government of Saudi Arabia has limited the share that a foreign partner can take in a domestic institution to 40, and the rest must be local remain in local hands (Iqbal and Molyneux, 2005).

GCC currencies were linked to the US dollar during the period from around 1950 to 1970. The reason for this was that a large proportion of the proceeds from the oil trade were priced in US dollars. Another reason was that they did not have a common currency. However, steps are now underway for the GCC to establish a common single currency by 2010.

According to Al-Suhaimi (2001), banks working in the GCC countries have been affected by the crises experienced. These crises include the war that was fought between Iran and Iraq from 1980 until 1988. Second, in 1986 the price of oil fell significantly. Third, was the war that resulted when Iraq invaded Kuwait in 1990. More recently was the last war in Iraq that started in 2004 between the US-led coalition and Iraq. One consequence of these events was the rise in many non-performing loans.

The GCC has worked to coordinate and improve the banking system in the region, through their banking systems to link with other international banking systems. The indication is that, the GCC has been involved in gatherings with the World Bank, the Basel committee and the International Monetary Fund (IMF). The consolidation of banking systems is illustrated by the pictures by accepting opening open branches of Gulf banks in each country in the Gulf region and the other was the establishment of a national network of ATMs (Al-Jarrah 2002).

The Financial Markets in the GCC

22 Financial markets in the GCC region have only recently emerged compared to other financial markets in developed countries. For example, by comparing the size of the Saudi stock market, in 2006 the value of traded shares amounted to SR 1226, while the value for the American market was more than 13 trillion. The fact is that trade in financial markets in the GCC has only been initiated in recent years. Additionally, trade in these markets is another means of capital for bank loans. At the present, growth has allowed foreign investors to gain access to the GCC markets and this has especially been the case since some of the GCC policies were changed, accession to the World Trade Organisation (WTO) was granted and the signing of the Treaty of General Agreement on Tariffs and Trade (GATT).

Treasury bills, government bonds and Islamic Sukuk are commonly used in the GCC. They are used to financially support the large-scale projects such as airports, sports facilities and hospitals. For example, the Government of Qatar has issued Islamic Sukuk for the construction the Hamad Medical City (HMC).

In a nutshell, this chapter has presented an overview of the GCC countries. Firstly, it presented the region in economic terms, which indicated that the GCC has started to take steps to develop other sources of income and reduce its dependence on oil revenue, in order to improve the performance of the economy. This has been observed through the observation of exports-imports, GDP growth, real GDP and GDP per capita. Secondly, this chapter reviewed the first banks to have operated in the GCC and found that the banking sector has been affected by the wars that occurred since the early 1980s. Finally, financial markets in the GCC have been compared to other financial markets in developed countries. Also, it is explained how the GCC allows foreign investors to invest in the regions financial markets.

Chapter 4

This chapter offers a summary of the studies and researches that have been carried out on the performance of funds. The evaluation is not restrained to Islamic funds, but will be on both the conventional fund and the Islamic funds. The literature on funds performance is vast all over the world for different regions and countries and it was conducted for different time periods. On the other hand studies about Islamic fund performance are much fewer than the studies on conventional fund performance. Furthermore, studies on Islamic funds in the GCC region are even fewer than studies about Islamic funds in general. Now I will give some example from various studies that has been carried out in the past regarding the mutual funds and Islamic funds especially in the Gulf countries.
For example Saidov in 2007 conducted a study in the German mutual funds. The main purpose of his research was that by using seven different approaches he wanted to analyze critically the mutual funds that were invested exclusively in the German Stock Market. The approaches used by him were the CAPM Jensens alpha, and Carharat Model.  The study by taking the mutual funds from January 2001 to December 2006 investigated the results of performance measurement. And moreover Saidov also tried to fund the correlation between the fund rankings and also if the same funds are regarded worst or best performing funds because of the performance management over the same period of time. It was also found out that the Index funds did the worst in Germany.

Cuthbertson, Nitzsche,  OSullivan conducted a study in 2005 to determine whether there is luck or skill involved in the mutual funds performance. They used a very comprehensive set of data which consisted of the mutual funds if UK (both surviving and non-surviving) from April 1975 to December 2002. To differentiate between skill and luck they used a bootstrap methodology for individual funds.  A major issue in investing in funds is the eccentric risks of that fund which this methodology allows. Another important issue that is constantly bugging the investors is that they are very interested in identifying that which one are a very good performer and which one is a very bad performer because obviously an investor would want to think over and over again before investing anywhere. The basic study points of their research is the subsistence of the genuine picking ability of the among the UK mutual funds (that is performance which isnt due to good luck solely). Now they said that at the end of their performance scale (negative), the analysis rejects their hypothesis that funds which perform poorly are merely unlucky. Such funds depict and demonstrate bad skill. Temporal stability in portfolios performance alpha of loser and winner was indicated by Kalmansmoothed coefficients and Recursive estimation.

In 2008 Roman K and Raphie Hayat did a research on charachteristics of return and risk on the Islamic equity funds. As we all know that the IEFs (Islamic Equity Funds) differ drastically from the conventional equity funds because the Muslims limit their ability to invest in only certain companies which are not forbidden and are complied by the Shariah. So the Muslims do not generally invest in companies that receive or pay interest. This study talks about the performance and the returns on IEFs over the previous ten years. The results in their study showed that investing in Islamic equity funds is a safe choice and they at times significantly out- or under perform the Conventional as well as their Islamic benchmarks under market conditions. They also stated that in 2002 during the bear market, the conventional as well as other Islamic funds we out performed significantly by the Islamic Equity Funds. They also have a greater risk to return ratios.

In 2010 Hoepner, Rammal,  Rezec did research on the financial performance of Islamic funds and their investment styles.  They tried to pursue the first ever investigation on a large scale on Islamic funds which is the strongly growing fund type nowadays. They analyzed the investment style and the financial performance of 265 Equity funds (Islamic) from 29 countries. Investors from diverse regions invest in Islamic funds, so they developed a Carhart Model- three level which is conditional and this model is used to control the exposure to various regional, national and global equity markets as well as the investment styles. It is a widely known fact that in the Islamic financial market the Islamic funds are said to show superior learning than the conventional funds. As the Islamic funds in these markets show competition to equity benchmarks internationally, the Western nations funds with especially few Islamic assets tend to underperform significantly. Now the graph of the invest style of Islamic funds is directing towards growth stocks. A small and a clear cap preference are shown to the funds by the predominantly Muslim Economies.

In 2008 Sanjay Bose and Robert W. Mc Gee did analysis on the returns and risks of the Islamic mutual funds. We all know that the popularity of Islamic finance is increasing day by day. In this study they present a brief overview of the different types of Islamic Funds (investment) and also analyze the relative productivity and performance of each fund which is an attempt to talk about the investment avenue which has a potential high growth. This study basically begins with the identification of classification of various Islamic funds and then later there is a discussion on the fund structures. The paper ends with a list of challenges which are faced by the Islamic Funds and also the opportunities that are there for those people who understand the Islamic Funds.

Chapter 5
This section puts forward the data important for this study. Also, the attributes and features which will be brought into use in the analysis of the Islamic funds are thoroughly explained.

(failaka.com, the performance of Islamic equity funds) The table below shows the Net assets by different regions in the world and we can see that the GCC has the highest number of shares.

Then we see the number of funds, assets, shares and the average age of the funds taken from the Report the Performance of Islamic Equity.

GCC N of funds Assets (mm) Share  Average Age (yrs) Saudi-Arabia 26 4426,6 75 2,6 Kuwait 9 963,6 16 4 Bahrain 5 457,8 8 2,7 UAE 3 88,2 1 2,2 Ireland (HSBC) 1 0,5 0,01 1 Total 44 5936,7 100 2,5

As we can see that Saudi-Arabia is the most significant money market provider as it has the highest number of funds and 3 quarter of the market is under its control. Now Bahrain has ambitions to become an important financial hub in the Middle-east. Now as there isnt any heavy taxation in Bahrain so potential investors view it as a suitable haven. Now the number of IEFs during the past years has experienced an enormous growth as we can see from the table the 2-5 years is the average life of a fund.

Investment style and financial performance (CAPM and Carhart)

This table basically illustrates the Carhat model and the CAPM results for each portfolio of Islamic funds in GCC( Andreas H  2010

Country  Region CAPM
  pmodel
nat, p
p
nat, pCarhart Model
nat, p
nat, p
nat, p
 GCC Bahrainn

-0.0003

0.4156

-0.0028

0.6102

0.0552

-0.1173

0.0358 Kuwait-0.00190.5879 -0.00240.5813 0.07820.0255-0.0148Saudi Arabia-0.0248 0.8974 -0.0252 1.0249 0.16710.2014-0.0520UAE0.003010.7146 0.0083 0.8310 0.0496-0.1637 0.0334Qatar
 -0.0061

0.6924

-0.0059

0.6913

0.1931

-0.0792

0.0369

The research methodology for this study is based on the similar variables which have been taken up by studies carried out in the past on fund performance. In this dissertation, the basic Capital Asset Pricing Model (CAPM) will be used to measure the Islamic funds performance in the GCC region by comparing each country Islamic funds with their relative market index.  Coefficient of determination and t-statistics will be applied in the process by regressing the monthly excess gain (loss) of the fund with the market monthly excess gain (loss). The same methodology will be applied for all the GCC Islamic funds but with a non-regional Islamic index like Dow Jones Islamic Market. Now we also use the Carhart model because it was found that more than half of the portfolios of our Islami equity funds are expected to underperform than the equity market benchmarks.  However at national level a slight tilt towards growth is shown by the Islamic funds.

Table 3. National financial performance and investment style (CAPM and Carhart)

Country  Region CAPM
  pmodel
nat, p
p
nat, pCarhart Model
nat, p
nat, p
nat, pAdj R2 CAPMAdj R2 CarhartAfricaEgypt-0.0079 0.6468 -0.0075 0.6587 0.1768 -0.0781 0.05090.8420.852Morocco-0.0149 0.4179 -0.0136 0.4238 0.3521 0.2304 -0.08860.2200.320South Africa Asia Indonesia-0.0092

-0.00130.8348

0.3290 -0.0081

0.00050.8657

0.3579 0.2299

0.1200 0.0571

-0.1824 0.0465

0.04540.850

0.6110.865

0.648Singapore-0.00240.3019 -0.00030.3240 0.2939 -0.2351 0.0724 0.2670.371Malaysia-0.00340.3564 -0.0039 0.3289 -0.06660.0464-0.06820.4270.437Pakistan -0.004 0.4985 -0.0047 0.5096 0.0774 -0.0058 0.0303 0.720 0.714Australia Europe Luxembourg-0.0155

-0.0081 0.4260

0.6592 -0.0146

-0.0078 0.3598

0.6747 0.4764


-0.0094-0.2159

-0.0933 -0.3538

0.0412 0.124

0.6560.113

0.683Germany-0.0101 0.6523 -0.0088 0.7710 0.1209 -0.09850.1300 0.6950.726Ireland0.001360.4784 0.00010.5166 0.1109 -0.00570.01280.5620.570Liechtenstein-0.0078 0.4065 -0.0097 0.4122 0.8321 -0.3200 -0.8538 0.1040.345UK GCC Bahrain-0.0081

-0.00030.7038

0.4156 -0.0087

-0.00280.7014

0.6102 0.1158

0.0552-0.2092

-0.1173 -0.0615

0.0358 0.702

0.2940.728

0.465Kuwait-0.00190.5879 -0.00240.5813 0.07820.0255-0.01480.6530.648Saudi Arabia-0.0248 0.8974 -0.0252 1.0249 0.16710.2014-0.05200.4250.418UAE0.003010.7146 0.0083 0.8310 0.0496-0.1637 0.03340.8070.832Qatar
North America
US-0.0061

-0.0045 0.6924

0.8568 -0.0059

-0.0052 0.6913

0.8288 0.1931

0.1574 -0.0792

-0.0841 0.0369

0.0434 0.829

0.8400.813

0.855Canada-0.00290.7245 -0.0040 0.7669 0.02080.0429-0.02520.7320.736

CHAPTER 6

Chapter 6 explains the results and conclusions of the research, thereby, displaying the findings. The above findings have been proven to be consistent over a lengthy time period. The above findings are also independent of capital market restriction imposed by the respective government f the company from time to time.

From the above findings we could see that Islamic funds performances as measured by the CAPM and CHART model discussed above shows that Islamic Funds have significantly lower Japanese Alpha while they have o an average been unable to outperform the national market benchmark. Nearly all the funds have a beta of less than 1 thus indicating that portfolio managers also prefer international markets and plus the fact that Shariah fund prohibits investing using leverages.

CHAPTER 7
Now we compare and analyse the Investment style and the financial performance of the Islamic Equity Funds in GCC. We develop a Carhart Model three level (conditional) model to control a funds exposure to regional, global, national, investment styles and equity market simultaneously. Our Findings from this study does not give us the permission to conclude that the Islamic funds outperform or underperform the equity markets. However the Islamic funds of the 5 biggest Islamic Centres i.e. the GCC countries perform competitively or even outperform the benchmarks of international equity. On the Contrary the portfolios of Islamic funds of other nations underperform their benchmarks significantly because they have less developed Islamic services.

Our results have various implications. First of all because of nearness to the Islamic financial centres, the Islamic funds benefit. This allows the funds to develop more expertise. Secondly in Muslim economies the Islamic funds prosper. The higher utility i.e. the agents and consumers can boost the economies they receive from Shahriah . Thirdly the government have the right to boost the Islamic Funds attractiveness by developing financial markets.

The investment style of the Islamic funds are tilted towards growing investments which is the result from the under proportional leverage provided by the growth stocks. A small cap preference is shown by the funds of the predominantly Muslim economies. This is likely to lead to two routes for future research. First, that if sufficient data for Islamic funds host nations is acquired, this will reflect greater risk and the diversified organisations to invest in sectors that are forbidden by the Shariah. Next
Exploration of specific processes in depth because of with Islamic markets can support the Islamic Funds can improve our understanding of the financial services( Islamic) and also allow the government to grow effectively.

Part 2- LITERATURE REVIEW
Islamic Banking An Introduction
In this time and age, Islamic Banking system is believed to be one of the premium trades in the banking industry. The industry is comprehended to be 46 years old. We can define Islamic Banking as interest-free banking that works on the exchange of profits and losses. Hence, in this chapter we will talk about the origin and history of Islamic Banking. To start with, we will compare the services that are provided by Islamic Banks along with their activities in association to those of the conventional banking systems. Following it would be a study of the history of Islamic banking, while the last segment would comprise of the acceptance and prohibition of chores in Islamic Banking, followed by the examination of loan contracts in Islamic Banks.

2.1 Comparison of activities of Islamic with Conventional Banking
Conventional banks function to intercede between the depositors and borrowers. Banks lend money that is deposited by customers to the borrowers. Hence, the bank obtains revenue from the different between the amounts received from the borrowers as well as payments to the depositors. What is more, the banks bear expenses which will aid in attaining the functions of bank such as the payments of staff. Such functioning expenses are then reduced from the revenues earned. However, Islamic banking system takes up a different approach for the same. It is operated without taking any benefits, and is totally dependent upon the participation in profits or losses with its clientele. Moreover, it sustains its revenues from the investments it does throughout the fusion with the conventional banks so as to acquire an acceptable rate of return for depositors, however, should be agreed with the Islamic norms and policies. It is, as a result, quite lucid that the main disparity between the conventional and Islamic banking system is the way they make use of money. Where in conventional banks, money is essentially used for the purchase and sale of goods by way of interest, the Islamic banking system uses the money to smooth the progress of transactions and businesses.

The principles and regulations of Islamic Banking are obtained from the Quran and words of the Prophet Mohammad. According to the Quran, there are three major practices which have been outlawed, and hence, they should not be contracted with in Islamic Banking. These three practices are Riba, in other words, interest Maysir or Betting and Gharar or uncertainty. It is well-known amongst the Islamic territories that Riba is prohibited in Islam as it is referred to in the Quran. It is the increase on the loan, irrespective of whether it is a fixed or variable one, or for a short or long term. This is believed to have led to difficulties in the economy along with a lack of efficacy which may be as a result of the lenders suffering huge losses for having collected many of the funds. Also, for the reason that this enables a number of benefits to deal, it is believed to have led to the inflation of the debt pyramid in the world. On the other hand, Gharar or Uncertainty is strictly forbidden in Islam and is also referred to in the Quran. It is believed that Gharar will happen in case the seller is unaware of what he is selling, and the buyer of what he is purchasing. For that reason, there must be an exact provision and explanation in detail of what is being retailed or purchased, and the target is always to eradicate any ambiguities associated with it. The third and the last factor is Maysir or Betting, which is also strictly forbidden in Islam, which construes to gambling or speculation and betting. The reason for averting this activity is due to its mysterious behaviour, and the returns are not assuring re-entry. Hence, we can construe that all of these practices are prohibited and are not used in Islamic banking for specific advantages.

2.2 History of Islamic Banking
According to Iqbal and Molyneux (2005), particularly in the year 1963, the first Islamic Bank was founded by Dr. Ahmed Al-Najar who accomplished his learning in Germany. He worked for a number of conventional banks which operated quite well. Following that, he went on to become one of the most acknowledged leaders in the banking arena when he thought of a concept regarding Islamic banking from the savings banks in Germany. The notion of an Islamic banking sector rose up to be of tremendous interest after a hiked demand in that period, chiefly, from the Islamic countries, for the reason that it had the interest-free component. Post the huge success of the bank founded by Al-Najar, a second Islamic bank was introduced in the year 1971, called Nasser Social Bank in Egypt, which was patterned to provide loans to people as a charity foundation, relying on the basis of exchanging profits and losses, along with aiding the needy. After this concept was launched by the Islamic banks in 1975 in the Islamic humankind, the Dubai Islamic Bank was founded in the United Arab Emirates, along with The Islamic Development Bank established in Saudi Arabia (Wilson, 1990).

The AMF (2009) provides extensive information about the banks introduced thenceforth. In 2004, The Association of Islamic Banking and Islamic Banks declared that there were 267 Islamic banks in 48 countries round the globe, and that the size of assets as held by these banks was equal to nearly 260 billion. On the other hand, the Arab Monetary Fund also announced in 2008 that the number of Islamic banks in Arab as well as Muslim countries increased at a significant pace in the current years, and the value of assets functioned by these institutions in the Arab region had lengthened from six per cent in 2000 to 12.3 per cent in 2006. As a result, it can be seen that Islamic Banking is the swiftest developing banking sector for two main reasons

The increase in demand from the clientele to implement their money in accordance with the Islamic law.

Liquidity leading from the oil burst in the Gulf Cooperation Council as well as other countries.
As stated by the AMF, the total assets of Islamic banks in Saudi Arabia reached approximately 40 billion in the year 2006, while banks in the State of Kuwait and United Arab Emirates reached around 26 billion and 36 billion respectively (AMF, 2009). More to it, the spread of Islamic banking all over the countries of the world is not too selective for the Islamic nations. This is due to the fact that, as stated by Abdel-Majid (1981), beginning from all around the world, thereby, transcending the national restraints for uniting Muslims against a common pattern in the economy as well as politics considerably influences the world trade (Abdel-Majid, 1981), beginning from all around the world, thereby, transcending the national restraints for uniting Muslims against a common pattern in the economyas well aspolitics considerably influences the world trade.

2.3 Conventional and Islamic funds (History)

Now I will shed some light on the concept Mutual Funds. During the past decade various investors have been increasingly interested and turned to this concept i.e. mutual funding to meet their financial goals as well as to save for retirement. Now these funds present the benefits and advantages of professional management and diversification, however as is the case with any funds or investment choices a great deal of risk is involved. Taxes and fees can reduce the funds returns. To be on the safe side it is very essential that you understand and evaluate each and every risk involved in investing in mutual funds and also you should have a brief overview of the cons and pros of mutual funds.

A company which takes money from various different investors and with that funds they invest in bonds, stocks, capital or other assets or possibly other securities is called Mutual Funds. Portfolio is the name given to the combined holdings that are owned by the mutual funds. An important characteristic of mutual funds is that the investors who buy the funds, instead of getting shares from the investors they get the shares from the mutual funds itself. Now the shares of mutual funds are redeemable and the people who invest in it can, at any time, sell their shares. Another important aspect of mutual funds is that it creates and sells and creates shares to give a hope or accommodation to the new investors. And this is the sole reason why people and constantly selling their shares. The investment advisors usually manage the mutual funds investment portfolio.

Now they say that forewarned is forearmed so it is extremely important and very essential to perform a mutual fund research before investing in mutual funds. A drawback in mutual funds is that is not insured or guaranteed by the FUDC so it is a possibility that you might lose some money. While comparison of these funds it should be noted that the past performances of funds should not be set criteria and can never be an indicator for future performance. So there is a great deal of risk involved if you invest on the basis if past performance.

According to (investopedia.com,Mutual Fund,2010),a mutual fund is An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the funds capital and attempt to produce capital gains and income for the funds investors. A mutual funds portfolio is structured and maintained to match the investment objectives stated in its prospectus. Conventional funds have many types but the main types are Equity fund, Money fund, Hedge fund, Market fund, Bond fund and Hybrid fund. Mutual funds are called open end Investment Company since the shares number outstanding can be changed. With the various funds types a large number of investors have become more interesting in them because they believe that these funds are managed by professionals and these funds have lower risk because of the diversity of the financial instruments invested in by these funds (Saidov, 2007).

 Conventional funds and Islamic funds are the same except that Islamic funds are Sharia compliant. Like conventional funds, Islamic funds also have various types of funds but the main types are Mudarabah fund, Murabaha fund, Ijarah fund and the last main type of Islamic fund is a mixture of these funds (Zai, 2008). To be a Sharia compliant the fund should not contain any assets deals with or profit from Riba or Gharar or any Haram (forbidden) like pork, alcohol, gambling and weapons. Since the funds invest in multinational companies stocks it became hard to find a fully compliant asset to invest in. for that reason, some scholars allowed Islamic funds to invest in these non-fully compliant assets as long as the revenue from these Haram operation is very small (Hoepner, Rammal,  Rezec, 2010). A report from (eurekahedge.com) in January about the Islamic funds worldwide indicates that the sharia compliant financial instruments have separated geographically and also the asset classes have been increasing rapidly. The report estimates the assets managed under Islamic funds to worth around 70bn and the number of these Sharia compliant funds is about 680 funds worldwide.

2.4 Literature on Funds Performance

The literature on funds performance is vast all over the world for different regions and countries and it was conducted for different time periods. On the other hand studies about Islamic fund performance are much fewer than the studies on conventional fund performance. Furthermore, studies on Islamic funds in the GCC region are even fewer than studies about Islamic funds in general. An example of a conventional funds study is the Saidov (2007) paper where he concluded that in Germany the country funds perform the best and the growth funds came after it. On the other hand, index fund performed the worst among the German funds. In that study the researcher used seven measures to reach this conclusion. These measures were Jensens Alpha, Sharpes Ratio, Treynors Ratio,Famas Ratio,Sortino Ratio,Information Ratio,Fama French Three Factor Model and the normal CAPM. Another study was performed to find if the performance of a fund is resulting from skill or luck by (Cuthbertson, Nitzsche,  OSullivan, 2005). The study was executed on UK stocks and the outcome was that some of the best ranking funds shown genuine stock pricing skills. In 2008 Roman K and Raphie Hayat did a research on charachteristics of return and risk on the Islamic equity funds. As we all know that the IEFs (Islamic Equity Funds) differ drastically from the conventional equity funds because the Muslims limit their ability to invest in only certain companies which are not forbidden and are complied by the Shariah. So the Muslims do not generally invest in companies that receive or pay interest. This study talks about the performance and the returns on IEFs over the previous ten years. The results in their study showed that investing in Islamic equity funds is a safe choice and they at times significantly out- or underperform the Conventional as well as their Islamic benchmarks under market conditions. They also stated that in 2002 during the bear market, the conventional as well as other Islamic funds we out performed significantly by the Islamic Equity Funds. They also have a greater risk to return ratios.

Then Hoepner, Rammal,  Rezec, 2010 about Islamic mutual funds they could not conclude if the Islamic funds in different regions outperform or underperform their equity markets. In their study they stated that Islamic funds in GCC countries and Malaysia were competitive or even outperform the benchmarks. This study had a sample of 265 Islamic funds from twenty countries. CAPM and Carhart model, three level Carhart model and conditional three level Carhart model were the tests used in that research to answer there three aimed questions about the funds performing over or under the benchmark, style if investment preferred for those Islamic funds and how to explain if there are any national differences in the fund performance between those countries. (Sanjay Bose, Robert W. Mc Gee 2008) did analysis on the returns and risks of the Islamic mutual funds. We all know that the popularity of Islamic finance is increasing day by day. In this study they present a brief overview of the different types of Islamic Funds (investment) and also analyze the relative productivity and performance of each fund which is an attempt to talk about the investment avenue which has a potential high growth. This study basically begins with the identification of classification of various Islamic funds and then later there is a discussion on the fund structures. The paper ends with a list of challenges which are faced by the Islamic Funds and also the opportunities that are there for those people who understand the Islamic Funds.