Saving through mutual funds has been on the rise in the recent past especially among people who have aims at growing their wealth but do not want to take high risks. The prospect of a mutual fund market in the UAE has been opened to cater to each business need in the market.
For example, if you are a practitioner who invests in mutual funds or just a layman who is practicing this area, it is good to know how mutual funds work in the UAE.
This blog will help you gain more information about mutual funds UAE, the advantages of investing in mutual funds UAE, different categories of mutual funds as well as how to invest in mutual funds at the moment.
What Are Mutual Funds?
A mutual fund is a type of investment whereby people contribute their money together for purchasing investment securities such as stocks and bonds, amongst others. Operated by individuals with fund management skills, mutual funds let the individual investor invest in assets that he or she could not easily obtain. It is due to this diversification that risk is distributed and therefore the returns might improve as time goes by.
Why Investing in Mutual Funds in UAE?
The following are the merits of investing in mutual funds, especially in a fluctuating market like the one experienced in the UAE.
Here are some key benefits:
Diversification: Mutual funds buy different securities thus cutting risks that are associated with investment in one security.
Professional Management: Judging from the experienced fund managers, the selection and management of the fund’s portfolio therefore reduces the amount of time and energy that investors would otherwise use.
Accessibility: This proved to be a fact given that there are mutual funds in UAE that are designed for the small investor and those that cater to the large investor as well.
Liquidity: This means that most mutual funds enable investors to purchase and sell shares at any business day and this is an advantage if one wants to invest in the business world.
Cost Efficiency: The expenses involved in managing mutual funds are shared among all the ticket holders thus making it cheaper for investors to invest in a mutual fund as a diversified portfolio.
The Types Of Mutual Funds in the UAE
Thus, the UAE presents its investors with an extensive list of mutual funds depending on the investment plan and risk profile.
Here are the main types of mutual funds available:
Equity Funds: These funds main role is to invest in stock and its suitable for long term investment purpose. These can be more risky but the profit that you can get is normally higher than that of the lower risk shares.
Bond Funds: Other types of mutual funds are called fixed-income funds that invest in government or corporate bonds. Standard funds are relatively less dangerous than the equity funds and offer income in a steady manner.
Balanced Funds: A little involved portion of money is invested in the organized stock market which is categorized in equities while some part of money is invested in bonds and this is not very risky as compared to investment in equities. It is suitable for middle return and low risk those Investors who need some extra return from the market with added risk.
Money Market Funds: Such funds pay for short-term and high quality money market instruments such as Treasury bills and Certificates of deposits. Some of them have relatively lower risks and this makes them suitable for those who prefer low risks investment.
Shariah-Compliant Funds: For those investors who wish to invest under the guideline of Shariah then they can invest in mutual fund companies which offer shariah compliant mutual funds. These funds do not invest in companies that are known to be prohibited in Islamic law such as production of alcohol, gambling and anything related to interest rates.
How to Invest in Mutual Funds in the UAE
Mutual fund investment in UAE is not a complicated affair and is explained below. Here’s how you can get started:
Here’s how you can get started:
Determine Your Investment Goals: The first thing that any investor is expected to comprehend before entering the market is one’s investment objective, tolerance to risk, and time horizon. This will enable you to select the most suitable type of mutual fund.
Choose a Fund: After understanding investment goals you have to invest in a mutual fund that is in relevance to the set goals. Things which should be paid attention to are the accomplishments of the fund, the fees charged, and the track record of the fund manager.
Open an Investment Account: It is always advised to acquire mutual funds through banks or brokers or more directly from the fund houses in the UAE. To invest in funds, you will need to open an investment account that will enable you to purchase and sell the shares of the funds.
Start Investing: When one opens an account, this means that he or she can now invest in the mutual fund by buying the shares into it. The investor should always invest in the plan frequently, perhaps through Systematic Investment Plan (SIP) so as to capture the benefits of dollar-cost averaging strategy.
Monitor Your Investment: Take time and look at mutual fund performance, subsequently, maintain this objective by making necessary adjustments on the mutual fund as per the financial objective at hand.
How To Be Aware Of The Risk When Investing in Mutual Funds
While mutual funds offer several benefits, it’s important to be aware of the risks involved:
Market Risk: Mutual funds’ worth can increase and decrease as a result of the movement in the stock or bond market.
Interest Rate Risk: It is primarily designed for bond funds because changes in interest rate affect the worth of such investment, typically.
Credit Risk: Some level of danger exists whereby the issuer of bonds in a bond fund may fail to honor its obligations.
Liquidity Risk: It is possible for such funds to restrict when you can sell shares which results in possible liquidity challenges.
Conclusion
Mutual funds is one of the ways to diversify one’s investment portfolio and is a suitable method of attaining one’s financial objectives while taking advantage of professional services in the UAE. Interest: It means that with many types of funds to choose from, investors can easily find mutual funds that they feel comfortable with given their risk profiles and/ or investment goals.
Still, one must be cautious and know all the pros and cons and perhaps, seek an expert opinion of the financial planner. Now you know that there are certain limitations to investing in mutual funds in the UAE, but with the right decisions, you can trigger the most with the given product.
Frequently Asked Questions About Mutual Funds In UAE (FAQ’s)
Q: Are non-residents allowed to invest in mutual funds in the UAE?
A: Yes, residents are also free to invest in the mutual fund via the UAE market. Most of the global and regional banks together with those investment companies provide their services to the foreigners.
Q: Is there a minimum investment amount that is allowed when it comes to the mutual funds in the UAE?
A: Here it is possible to state that the minimum investment amount differs from fund provider to fund provider. Some of the funds may have low requirements that an investor needs to put in while others may need the investor to deposit more capital.
Q: : What are the costs related to the mutual fund?
A: Most mutual funds come with certain management fees whereby the fund manager is paid depending on the size of the fund. There may also be other costs and charges which include entry or exit fees, depending on the fund.
Q: What is needed to be implemented in order to monitor the performance of your mutual fund?
A: Majority of the fund suppliers provide internet portals through which you can monitor the performance of your investment. Further, the reports on the performance of the funds are often found to be presented and issued at intervals.
Q: Can you also lose money in mutual funds?
A: Yes, unlike other forms of investments people are also bound to lose their money in mutual funds. Your investment can either gain or lose its worth in ratio to the fluctuations in the market.
