What are mutual funds?

So, when you invest in a mutual fund, you're buying a small piece of the entire fund. This gives you a share in everything it owns, such as stocks in companies and bonds.

In this article, we'll look at:

How do mutual funds work?

What are the main types of mutual funds?

What are the pros and cons of mutual funds?

Are mutual funds right for you?

How to invest in mutual funds in the UAE

Pre-investment checklist

Frequently asked questions

Mutual funds give you access to many assets at once, which makes it easy to diversify your investments. For busy professionals and families, mutual funds can save you the time of having to research and pick individual equities and bonds for an investment portfolio yourself.

Some mutual funds are passively managed. These aim to match the performance of a market index, like the ADX General Index.

Other funds are actively managed. Here, a professional fund manager builds a portfolio of investments with the goal of outperforming a specific benchmark.

You can earn returns from mutual funds in the following ways:

Funds usually focus on certain types of assets to help investors reach their goals. Here are 4 common categories:

These invest in company shares on the stock market. They might follow a stock market index, focus on a specific sector, or choose a theme, like companies that pay regular dividends.

As the name suggests, these funds invest in bonds. They come with different levels of risk and potential reward.

These funds invest in short-term, lower-risk securities from governments and corporations. They are often seen as a relatively safe option.

These invest in a mix of 2 or more types to offer even more diversification. The fund manager may change the mix based on their view of the market.

We may not offer all of the above mutual funds. Please see our funds search on HSBC WorldTrader.

Explore: Bonds vs mutual funds

Like any investment, mutual funds have benefits and drawbacks. It's good to understand both sides.

To decide if mutual funds are a good fit, think about your personal finances, your ideal investment plan, and how you feel about risk.

If you think mutual funds could be a good choice for you, remember to look at the management fees. Small charges can add up and make a big difference over time.

Think about whether an actively managed fund is worth the extra cost, or if a lower-cost tracker fund could meet your needs. You should also consider the type of fund.

All investments carry risk, and you could get back less than you put in. That's why many investors recommend planning to invest for the medium to long term, which is about 5 to 10 years. This should give your investment time to recover from any short-term dips in value.

Before you make an investment, it's a good idea to read the fund's Product Factsheet and Key Investor Information Document (KIID). These documents explain what the mutual fund invests in, its strategy, and its risk level.

It's also wise to build an emergency fund before you start investing. Having 3 to 6 months' worth of income set aside can help you handle unexpected costs without needing to sell your investments.

Often the most challenging part of investing in mutual funds is choosing one that's right for you. You'll want to compare different funds to make sure you are getting good value for your money after fees.

We can help you explore a wide range of funds and asset classes. This includes ways to complement your existing portfolio, switch between funds, and decide how much and how often to invest (conditions apply PDF, 155KB).

If you're interested in investing in the UAE, we can help you with that too. New regulations from the UAE Securities and Commodities Authority (SCA) came into effect on 1 April 2024. Here's what you need to know:

According to the SCA, a professional investor (PI) is someone who has at least AED 4 million in net assets, meets the SCA's eligibility criteria and has been classified as a PI, and understands investment risks.

A retail investor is anyone who does not meet the criteria for a PI, or who meets the PI criteria but opts to be a retail client.

To find out more about the regulatory changes, please read our mutual funds FAQs (PDF, 155KB). You can also speak to one of our advisors or seek independent financial advice.

Mutual funds offer a straightforward way to invest in a diverse range of assets, like equities and bonds. This can help investors spread risk, save time, and access professional fund management.

Consider the above checklist before making any decisions. If you're unsure where to start, our advisors are here to guide you through this process.

How can I track and manage my mutual funds?

You can easily manage your investments using HSBC WorldTrader. It allows you to track your portfolio, buy new funds, and manage your assets securely from your mobile device.

What is the difference between a mutual fund and an exchange traded fund (ETF)?

Both options pool investor money to buy a mix of assets, but an exchange traded fund can be traded on an exchange throughout the day like an individual stock. Mutual funds are typically priced and traded only once at the end of the trading day.