The last few years have been difficult for Islamic funds, with firms pulling out as they were hurt by the global financial crisis and as slumping equity markets reduced investor interest.
The number of Islamic mutual funds globally reached 786 this year, up from 687 in 2012 and double the number in 2007, the study showed.
The sector is still dominated by Malaysia, Saudi Arabia and Luxembourg, which host a combined 71 percent of all funds, while Indonesia saw the largest number of launches this year at 17.
According to Lipper data, Islamic mutual funds now hold about $46 billion of assets under management, up from $41 billion at the end of 2012, recovering from a low of $36 billion in 2010.
Islamic money market funds are now the largest segment, overtaking equity funds for the first time, the study showed. They now hold $20.1 billion in assets after net inflows of $3.2 billion in 2013, while equity funds hold $19.7 billion after net inflows of $1.5 billion this year.
Islamic fund managers screen their portfolios according to religious guidelines such as bans on tobacco, alcohol and gambling, in much the same way as socially responsible funds.
But unlike their ethical counterparts in Western markets, they still struggle with a lack of scale; 346 of them have less than $10 million in assets under management. Only 80 funds have more than $100 million in assets, and the ten largest Islamic funds represent over 44 percent of assets.
The sector is thus a work in process: a survey of fund managers conducted for the study found that most still considered their product ranges to be in the development, infancy or growth stages.
They remain cautious about launching new funds, instead focusing on growing existing ones, with two-thirds of those surveyed not expecting to launch new funds next year.
Those that plan new launches will focus their funds on equities and Islamic bonds (sukuk). Most new funds will be domestic in nature, with only 20 percent of managers who plan new launches expecting to register their funds offshore.
The study said pensions, fund passports making it easier to attract investors across national boundaries, and appeals to ethical investors were areas of opportunity for Islamic fund managers, although such efforts were in their early stages.