Islamic mutual funds: contracts, structures, screening and pricing mechanisms

Abubakar Suleiman, Burhan Uluyol and Metin Toprak

Abstract

Islamic mutual funds have grown considerably in the previous decade or so, accounting for about 15–20% of the mutual fund market in the last 15 years. The existing literature focuses mainly on the structures and contracts of Islamic mutual funds, but their pricing is mostly overlooked. This paper scrutinizes various Islamic mutual fund instruments; reviews the existing structures and contracts; demonstrates Islamic mutual fund mechanisms; assesses the critical issues of different types of Islamic mutual fund; and examines the contracts, structures, screening, pricing mechanisms and reasoning behind the mechanisms applied in screening and purification of both funds and shares. It evaluates the origin of each procedure and fills the gaps in the literature by aiming to harmonize and standardize the various benchmarks for screening and pricing of Islamic mutual funds.