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An investment fund is a pool that collects the money of a large number of investors and invests it through a professional manager on their behalf for a fee. It is the easiest option for someone who wants to invest without picking stocks themselves or monitoring the market daily.
How Does an Investment Fund Work?
The Capital Market Authority defines a fund as a joint investment program in which investors collectively share in its profits, managed by a fund manager according to an investment policy written in its terms and conditions.
When you subscribe, you don’t buy a share in a company, but rather you buy units in the fund. Each unit represents an undivided interest in its assets. The manager uses the pooled money to invest in different assets based on the fund’s strategy, such as equities, sukuk, murabaha transactions, or real estate.
Fund Objectives: Income, Growth, or Balanced?
The Authority classifies fund objectives into three main categories:
- Income Fund: Focuses on assets that pay regular cash dividends.
- Growth Fund: Focuses on assets expected to appreciate in value, and cares little about dividends.
- Balanced Fund: Combines both objectives.
Types of Investment Funds by Asset Class
| Type | What does it invest in? | Risk Level |
|---|---|---|
| Money Market Funds (Murabaha) | Short-term securities and money market transactions | Low |
| Equity Funds | Local, Gulf, or global stocks | High |
| Real Estate Traded Funds (REITs) | Developed income-generating real estate | Medium |
Advantages of Investment Funds
- Professional Management: A dedicated team to monitor the market and select assets.
- Diversification at a Lower Cost: Your money is spread across dozens of assets with a small amount.
- Liquidity in Open-Ended Funds: You can redeem on dealing days.
Sources
- Capital Market Authority (Thameen Program): Educational Material on Investment Funds
- Capital Market Authority: Investment Funds Regulations
- Disclaimer: This content is educational and is not considered investment advice or a recommendation. Read the fund’s terms and conditions and its information memorandum, and consult a licensed professional before investing.
