What is a Mutual Fund?
A Mutual Fund is the easiest and an affordable way to wealth creation. By investing in mutual funds you can create a diversified investment portfolio without having to directly manage the securities or other market-linked investments.
It is an investment vehicle where funds from multiple investors like you are pooled together to collectively invest in a diversified portfolio of stocks, bonds, or other securities.
The pooling of the funds and the management of the portfolio is handled by an Asset Management Company(AMC) and a team of professional fund managers.
In simple words, A mutual fund is a bucket of investments. Each bucket may hold a few or many investments like shares and/or bonds. So, when you buy a mutual fund, you are buying a collection of investments.
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Why Invest in Mutual Funds in UAE?
“Mutual funds were created to make investing easy, so consumers wouldn’t have to be burdened with picking individual stocks.” - Scott Cook
Investing in mutual funds in UAE offers numerous advantages:
- Wealth Growth: Achieve medium- and long-term financial goals.
- Currency Hedging: Mitigate the risk of currency depreciation by investing in USD and other currencies.
- Beat Inflation: Stay ahead of rising costs by earning higher returns.
- Liquidity: Redeem your investment when needed without significant delays.
- Professional Management: Leverage the expertise of experienced fund managers.
- Diversification: Reduce risk by investing across asset classes and geographies.
- Affordability: Start with low investment amounts.
- Tax Efficiency: Benefit from the tax advantages of mutual fund structures.
Types of Mutual Funds in UAE
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Equity Funds
- Focus: Stocks of listed companies.
- Categories: Small-cap, mid-cap, large-cap, growth-oriented, value-based.
- Image Source: https://www.jrbcj.org
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Bond Funds
- Focus: Government and corporate bonds.
- Objective: Generate steady income through interest payments.
- Source: Investopedia
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Commodity Funds
- Focus: Precious metals like gold and silver, or resources like oil and gas.
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Money Market Funds
- Focus: Short-term investments like treasury bills or bank deposits.
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Balanced (Hybrid) Funds
- Focus: A mix of equity and bonds to balance risk and returns.
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Target Date Funds
- Focus: Optimized to meet financial goals within a specific time frame.
Book a Discovery Call to discuss your investment goals and I will help you select the best options for your needs.
How do Mutual Funds work?
Every mutual fund has a specific objective/goal. Through this statement, the fund manager states the purpose, scope, and management style of the fund.
For Eg: BGF World Technology Fund
"The Fund aims to maximise the return on your investment through a combination of capital growth and income on the Fund’s assets. The Fund invests globally at least 70% of its total assets in the shares of companies the main business of which is in the technology sector."
Based on the Fund Objective the manager may invest in one or more asset classes to create a portfolio. The portfolio is split into shares owned by investors according to their investment. The price of each share in a mutual fund is called its NAV or Net Asset Value.
The AMC calculates the NAV at the end of each trading day. It reflects the total value of the portfolio, minus the charges and liabilities of the fund.
The NAV of the fund fluctuates almost every trading day depending on the value of its underlying asset( Stocks / Bonds etc...)
How do Mutual funds Generate Returns?
Mutual funds can generate returns for you through various mechanisms, and the performance of the funds is closely tied to the performance of the underlying assets within the fund's portfolio.
Here are the primary ways by which mutual funds generate returns:
1. Capital Gains:
- Price Appreciation: When the market value of the assets held by the mutual fund increases, it leads to capital gains. This occurs when the prices of stocks, bonds, or other assets in the portfolio rise over time.
- Selling Assets at a Profit: Mutual funds may sell assets within the portfolio at a higher price than their purchase cost, realizing a capital gain.
2. Dividend Income:
- Stock Dividends: If the mutual fund holds stocks, it may receive dividends from the companies in which it has invested. These dividends are often distributed to investors as income or reinvested to compound the value of your investment.
- Interest Income: For mutual funds holding bonds, interest income is generated when the bonds pay interest. This income is typically distributed to investors or reinvested.
3. Interest Income:
Fixed-Income Securities: Mutual funds, particularly bond funds, generate returns through interest income earned on the fixed-interest securities held in the portfolio. The interest paid by governments, corporations, or other entities contributes to the fund's income.4. Derivative Instruments:
Mutual funds may use derivative instruments such as options and futures contracts. Gains or losses from these derivatives can impact the fund's returns. While derivatives can enhance returns, they also introduce additional risks and complexities.
Understanding Risks and Considerations
It's important to note that mutual fund returns are subject to market fluctuations, and there are risks involved.
The performance of a mutual fund depends on the skill of the fund manager, economic conditions, and the behavior of the financial markets. You should carefully consider your investment goals, risk tolerance, and the fund's strategy before investing in a mutual fund.
You may consult a professional financial planner or investment advisor to help you select suitable mutual funds that align with your goals and personal situations.
Top Mutual Funds in the UAE
Choose from the widest range of mutual funds across multiple asset classes, geographies, and industries.
The following are some of the leading Asset Management companies you can select from to build a robust investment portfolio;
- BlackRock. - World's largest and Strongest Asset Management company with 8.676 trillion USD assets under management as of 2020
- The Vanguard Group. The second-largest Asset Management company with 7.1 trillion USD assets under management as of 2020
- Fidelity. AUM: $3.319 trillion.
- Allianz. AUM: $2.530 trillion.
- JPMorgan Chase. AUM: $2.511 trillion.
- Goldman Sachs. AUM $2.050 trillion.
How to invest in mutual funds in the UAE?
Follow these steps to start investing:
- Define Your Goals: Determine your short-, medium-, and long-term objectives.
- Choose a Fund Type: Decide between equity, bond, or hybrid funds based on your goals.
- Select a Platform: Invest through providers like MetLife, Zurich, or platforms like Interactive Brokers and Ardan Wealth.
- Start Investing: Begin with an SIP for regular contributions or a lump-sum investment.
- Monitor and Rebalance: Review your portfolio every six months to stay aligned with market conditions.
Looking to invest in the Top Mutual Funds in UAE - Click Here To Book a Discovery Call Now.
Frequently Asked Questions
1. What asset classes can I choose from?
You can build a well-diversified investment portfolio by including funds from the following asset classes;
- Equities
- Bonds
- Commodity - Gold, Silver, Oil, and other teals and Minerals
- Money Market
- REIT - Real Estate Investment Trusts
- Multi-asset or Hybrid Funds
- Managed Investment Strategies
2. Are there Islamic or halal mutual funds?
Yes, there are Islamic mutual funds that comply with Shariah principles. These funds avoid investments in industries like alcohol, gambling, or interest-based financial services.
Instead, they focus on halal asset classes such as equities and sukuk (Islamic bonds). I can guide you in selecting Shariah-compliant funds that align with your financial objectives.
3. Will you help me manage my investment?
Yes, I will help you build and manage your portfolio. We will review your investment every 3/6 months and rebalance it or make other necessary changes in light of market movements.
3. How are you compensated?
Fee-based and commission-based compensation models exist. Depending on your investment goals and solutions shortlisted the compensation model will be applicable.
You will receive a written confirmation of the charges to help you understand the compensation model after our initial meeting.
Your Goals Deserve a Plan That Works
Investing is about more than growing your money—it’s about reaching what matters most to you, like early retirement, securing your family’s future, or building a passive income stream.
👉 Book a free Discovery Call today, and let’s create a plan to achieve your financial goals. Schedule Your Call Now