An intro to ETFs in Dubai
The Middle East is a fast-growing region with universal growth in the real estate market, providing stable returns over time.
According to the State of Global Islamic Economy report for 2013/14, around US$100 billion was invested into Islamic finance globally.
A massive chunk of that money is expected to flow into Shariah-compliant funds and other sectors such as energy and infrastructure by 2022.
With this growing demand for Sharia-compliant investments, Dubai has recently launched its first Shariah Compliant Exchange Traded Fund (ETF) – also known as ETF-Linked Sukuk.
The ETF industry is now worth $2 trillion and captures one-third of all traded volume on stock markets worldwide.
You can gauge the significance of exchange-traded funds because they are listed on over 60 exchanges worldwide.
Exchange-traded funds are broadly classified into two categories: equity and fixed income.
Equity ETF and Fixed Income
- Equity ETFs invest in companies with value derived from publicly traded stocks.
- Fixed-income ETFs pool fund assets to provide investors with regular cash flows.
One of the most well-known examples of an Exchange Traded Fund would be gold bullion, where investors can buy units or shares in an investment fund that holds physical gold for them. Like a bank account, you deposit money into your account, and it stays there until you need to withdraw.
The share price tracks precisely how much gold each unit holder has; if the price of one unit becomes too high, then investors can sell their shares to take out their gold or buy more — effectively acting as a bank account.
Gold bullion ETF
Gold bullion ETFs are traded on the stock exchange, make money through management fees, and act like regular stocks (with your gold held in safekeeping for you by an external custodian).
ETFs offer retail investors an alternative way of investing. Instead of buying individual shares across companies, ETFs allow people to purchase shares that track the performance of specific markets.
For example, if someone wanted to invest in the technology sector, they would typically need to find one or more tech companies in which they want to invest and keep watch over them every day.
Tech company ETF
By buying into an ETF that invests in different tech companies instead, someone can invest in many companies at once–while still tracking the overall performance of the technology sector by tracking an index.
ETFs are typically open-ended funds designed to track their respective indices’ returns. For example, if you buy into an ETF that tracks the S&P 500, you’re buying into a fund that attempts to mirror how well America’s most giant corporations are doing — tracked by an index called the S&P 500.
Prices for one share of this ETF is calculated by taking its assets and liabilities and dividing it all up between its shares (similar to banks).
Since there’s always a buyer for every seller on Wall Street, these prices don’t tend to vary much–and you can trade the value of these ETF shares back and forth almost like regular stocks (although the liquidity is far higher for ETFs).
ETFs are bought and sold just like any other stock on an exchange, but that does not mean they are risky.
ETFs provide a wide variety of investment opportunities at low costs, where investors can trade during market hours without owning or borrowing shares themselves.
There have been cases where some investors have lost money with ETFs due to fees, slippage, bad timing, or personal prejudice — but these mistakes were largely avoidable by following general rules for investing.
More importantly, there are many legitimate advantages to trading Exchange Traded Funds – particularly their efficiency in tracking specific markets.
The shares are meant to track 1/10thof one troy ounce of gold per share (each representing approximately 0.0955 Troy ounces).
The company has about $35 billion in assets underneath it–and anyone can invest by buying or selling shares throughout the day.
The price for these shares will fluctuate up or down depending on supply and demand–but investors can trade them just like other stocks during market hours.
Link here for more info.