Mutual funds in the UAE

A mutual fund is an investment vehicle created and designed by an asset management company that collects money from several investors and invests it in a basket of assets such as stocks, bonds, etc. Every share that investors buy in a mutual fund indicates their ownership in that fund. The total of the company’s holdings is known as the portfolio, which is organized to suit the investment objectives of the issuer.

Mutual funds are run by expert managers who allocate different assets and choose the best mix of assets to ensure high returns. Mutual funds allow each shareholder to share proportionately in profits and losses, and overall performance is tracked depending on the change in the fund’s total market value.

Many investors want to know what goes on behind the scenes when they buy shares in a mutual fund.

The Board of Directors monitors the funds invested and makes decisions based on the interests of the shareholders. Besides, many other agents are also involved in fund management such as transfer agents, accountants and auditors, who are paid for their work in managing the fund.

The fund manager invests in one or more asset classes to build a portfolio in line with the fund’s objectives. The fund is divided into shares that are sold to investors, and the price of the mutual fund’s shares is referred to as net asset value.

At the end of each business day, the fund management company determines its net asset value (NAV), which represents the net value of the portfolio after factoring in the fund fees.

Mutual funds are divided into five main categories. Each type has different features, rewards, and risks.

Stock Funds: There are many types of stocks, such as income funds (stocks that pay good dividends), growth funds (stocks with higher financial returns), sector funds (stocks of certain industries), and index funds (stocks of all companies).

Bond Funds: Bond funds are funds that hold debt and fixed income financial instruments. This option is more stable and secure. There are different types of bonds such as corporate, government, municipal and short-term bonds.

Money Market Funds: Money market funds refer to short-term debt that is secured by corporate and commercial bank debt, certificates of deposit, and government securities.

Commodity Funds: Commodity funds invest money in commodities such as gold, silver, gas and oil.

Target date funds: Target date funds consist of a mixture of securities such as bonds, stocks and some other types of investments such as short-term debt in an attempt to achieve investment goals within the required time frame

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The fund’s asset management company charges a fee to cover operating costs which may include:

When you buy a share of a mutual fund, you will pay a commission referred to as the sales fee. Likewise, when you sell your shares within a specified time frame, you will have to pay a redemption fee. These costs vary from one investment fund to another, so you need to read the information about the fund carefully before choosing.

All mutual funds have a fee called an “expense ratio,” or sometimes called an “operating expense” or “management fee,” that is deducted monthly, quarterly, or annually. To find out how often these fees are incurred, you should study the fund well and rely on your financial advisor before making your investment decision.

Diversification: A mutual fund offers instant asset diversification, and a well-diversified portfolio is proven to outperform a single-asset portfolio, whatever the economic conditions.

Fund Management by Experts: A team of qualified and experienced financial experts will handle the assets on your behalf.

Liquidity: You have the ability to sell your mutual funds within a limited time without a large gap between the bid price and the actual market value.

Investors usually follow one of these methods to start their investment in mutual funds:

If you have previous trading and investment experience, you can invest in mutual funds in the UAE by opening a brokerage account with the following brokers:

Saxo Bank: A popular Danish investment bank, offering a wide range of products including stocks, bonds, structured securities, mutual funds and ETFs. But you should know that the minimum investment required by Saxo Bank is as high as $10,000.

Swissquote: A popular Swiss investment bank, it offers a wide range of products including CFDs, stocks, bonds, structured securities, mutual funds and ETFs.

There are many banks in the UAE that enable you to invest in mutual funds such as HSBC, ADCB and Emirates NBD.

If you do not have enough time to research and monitor the news and markets, you can hire a financial advisor. All you have to do is explain to them your goals and your risk appetite, and they will create a suitable mutual fund portfolio for you, in addition to that they will review it periodically with you.

Whether you are new to investing or do not have the experience or time to choose from the millions of investment options available, investing in mutual funds is the right one for you. But always make sure you choose the best fund, whether through research, or by getting help from your financial advisor.

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