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Financial CalculatorWhat are Mutual Funds
Mutual funds provide a simple and accessible way for investors to pool their money together and invest in a variety of assets like stocks, bonds, and other securities.
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Invest Just AED 2K/Month
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Qualified Policybazaar expert will assist you By allowing you to invest in a diverse portfolio under the supervision of qualified fund managers, these funds lower risk and give you access to markets that may be challenging for you to invest in on your own. This investment vehicle has become popular for retirement savings, offering both professional management and diversification. Let’s learn more about the best mutual funds in UAE, their returns, and how they work.
Definition of Mutual Funds
A mutual fund is a financial vehicle that pools money from multiple investors to buy a diversified portfolio of assets. These funds are designed to meet specific investment objectives—such as growth, income, or matching market indexes.
10 Years
4000 AED
How Mutual Funds in the UAE Work?
When you invest in a mutual fund, your money is combined with that of other investors, creating a large pool of capital. This pooled money is then invested in a range of assets according to the fund’s objectives.
For example, a growth-oriented mutual fund might invest in high-potential stocks, while an income-focused fund might hold bonds to provide steady returns.
Fund managers make investment decisions, choosing which assets to buy or sell, and track the performance of the portfolio.
Each investor holds "units" in the fund, which represent a portion of the total portfolio. The value of these units changes based on the performance of the assets within the fund.
The price per unit is called the Net Asset Value (NAV), which is calculated daily by dividing the total market value of the fund's assets by the total number of outstanding units
Why Invest in Mutual Funds?
Mutual funds in the UAE offer several key benefits for investors —
- Diversification: Mutual funds can spread risk across a variety of securities, industries, and even nations by combining the capital of numerous investors.
- Professional Management: Fund managers are experienced professionals who research market trends, select investments, and monitor the fund's performance. This helps investors make informed decisions without the need for personal research.
- Low Costs: Mutual funds benefit from economies of scale, meaning transaction costs are spread across all investors, making them more affordable compared to buying individual securities.
- Convenience: Investing in mutual funds is straightforward, as many financial institutions offer a variety of funds to choose from. This allows investors to select a fund that aligns with their investment goals.
Looking to boost your portfolio? Check out some of the best SIP options for NRIs available.
How Do You Earn Returns from Mutual Funds?
UAE Mutual funds returns are generated in three ways —
- Dividends and Interest: Mutual funds may earn income from dividends on stocks or interest from bonds in the fund’s portfolio. This income is passed along to shareholders.
- Capital Gains: If the fund sells securities that have increased in value, the profit, or capital gain, is distributed to investors, after accounting for any losses.
- Increase in Fund Share Value: As the value of the fund's assets appreciates, the value of the fund's shares increases. Investors can sell their shares for a profit when the value rises.
What are the Risks of Mutual Funds?
Mutual funds in UAE carry several risks, depending on the type of assets they hold —
- Market Risk: The value of the fund's securities may decline due to overall market downturns
- Interest Rate Risk: Funds that invest in bonds or other fixed-income securities may suffer if interest rates rise, as bond prices typically fall in such cases
- Management Risk: The success of the fund depends on the fund manager's decisions. Poor investment choices or strategy can result in lower returns or even losses
Each of these risks can affect the fund's performance. Therefore, it's important to carefully consider the type of mutual fund and its risks before investing
Active vs Index Funds
| Feature | Actively Managed Funds | Index Funds |
|---|---|---|
| Pros | Opportunity for outperformance | Low fees |
| Defensive measures, can respond to market changes | Transparency (holdings are clear based on the index) | |
| Tax management (harvesting losses to minimize taxes) | Tax efficiency (buy-and-hold strategy avoids large capital gains) | |
| Cons | Expensive (higher fees due to research and management costs) | Lack of flexibility (restricted to a specific index) |
| Active risk (potential for poor stock selection) | Performance constraints (won’t outperform the index) | |
| Underperformance (historically, many active funds underperform) | No downside protection (falls in line with the market index) |
Stocks vs ETFs vs Mutual Funds: Which is Better?
Here are the top investment options for you to compare and choose the right one —
| Feature | Stocks | ETFs (Exchange-Traded Funds) | Mutual Funds |
|---|---|---|---|
| Risk | Concentrated in one firm | Diversified pool of assets | Diversified pool of assets |
| Costs | Commission, bid-ask spread | Commission, premium/discount, expenditure ratio, and bid-ask spread | Early redemption costs, commission, sales load, and expense ratio |
| When to Trade | Market hours, prices always change | Market hours, prices continuously fluctuate | Trades filled once a day after market hours, priced once per day based on NAV |
| Tax Efficiency | Most control over capital gains | Less control over capital gains | Least control over capital gains |
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