Types of Investment Funds in UAE
Updated on Friday 07th June 2024
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The United Arab Emirates (UAE) is one of the top investment destinations in the world. Foreign businessmen interested in how to start a fund in the UAE may choose from numerous investment vehicles, designed to address the needs of various types of investors. Investment funds registered in the UAE can be registered as open-ended or closed-ended vehicles, each category offering different investment advantages.
Main categories of UAE investment funds
The regulatory framework applicable in UAE offers the following types of investment vehicles: mutual funds, equity mutual funds, fixed income mutual funds, hybrid mutual funds, exchange traded funds and hedge funds. A common way to start an investment project in this country is by registering a hedge fund.
Mutual funds in the UAE
Mutual funds in the UAE are regulated under the Decision No. (9/R.M) of 2016 - Concerning the Regulations as to Mutual Funds, available for onshore investment funds. Mutual funds registered in this jurisdiction can be set up as open-ended or closed-ended vehicles, which refer to the rights investors have in issuing shares or bonds.
One of the ways on how to start an investment fund in UAE is to incorporate it in the Dubai International Financial Centre; this investment destination is suitable for the registration of a mutual fund.
UAE mutual funds have increased in popularity due to the fact that they enable investors’ access to a diversified portfolio. They can also choose between passively and actively managed funds, in accordance with their needs.
The main ways to obtain money through mutual funds are:
An equally attractive destination from a taxation point of view is also the Cayman Islands. There, you can opt for a Cayman SPC (segregated portfolio company) to set up a mutual fund.
If you want to know how to start an investment fund in the UAE or any other Middle Eastern destination, we also have other articles on this subject.
Mutual funds can be divided into:
It is important to note that starting in the spring of 2024, the Securities and Commodities Authority enabled a new rule related to the promotion of foreign mutual funds in the UAE. Such funds can only be promoted through private placement and can target professional investors only. Public offerings are allowed to retail investors with funds registered in the UAE. A professional investor must own net assets worth a minimum of AED 4 million.
Our local affiliates can offer more information on the new regulations applicable to mutual funds in the UAE. They are also at your service if you are interested in starting a hedge fund.
Does UAE have a passporting law?
One of the ways on how to start an investment fund in UAE is to incorporate it in the Dubai International Financial Centre; this investment destination is suitable for the registration of a mutual fund.
Characteristics of mutual funds in the UAE
UAE mutual funds have increased in popularity due to the fact that they enable investors’ access to a diversified portfolio. They can also choose between passively and actively managed funds, in accordance with their needs.
The main ways to obtain money through mutual funds are:
- capital gains, when the price of the respective fund’s assets increases;
- dividend income and bond interests, that can be taken out or reinvested.
An equally attractive destination from a taxation point of view is also the Cayman Islands. There, you can opt for a Cayman SPC (segregated portfolio company) to set up a mutual fund.
If you want to know how to start an investment fund in the UAE or any other Middle Eastern destination, we also have other articles on this subject.
Categorization of UAE-based mutual funds
Mutual funds can be divided into:
- stock funds used to invest in equity on the stock exchange, as their name says, which depend on a market index or a specific investment sector;
- bond funds, used for bond investments, and carry great risks, but can also come with higher earnings because of the variety of assets it can invest in;
- money market funds, which rely on securities investments and they are safe as the respective securities are issued by governments or companies;
- multi-asset funds that rely on a diversified portfolio of assets.
It is important to note that starting in the spring of 2024, the Securities and Commodities Authority enabled a new rule related to the promotion of foreign mutual funds in the UAE. Such funds can only be promoted through private placement and can target professional investors only. Public offerings are allowed to retail investors with funds registered in the UAE. A professional investor must own net assets worth a minimum of AED 4 million.
Our local affiliates can offer more information on the new regulations applicable to mutual funds in the UAE. They are also at your service if you are interested in starting a hedge fund.
Does UAE have a passporting law?
Yes, UAE has recently introduced a passporting legislation. The decision was established in 2019, as a consequence of a public consultation on the matter which took place in November 2018. The new passporting regulation became applicable starting with March 2018 and it is recognized by all financial regulators available in the UAE, namely the Emirates Securities and Commodities Authority (ESCA), the Financial Services Regulatory Authority and the Dubai Financial Services Authority. Under the new regulations, the following will apply:
- investment managers that are regulated by one of the three financial institutions will be able to market or sell the investment funds at the level of the entire country;
- the advantage of the law is that the investors based in a financial center of the country will not need further approval from the authority of another UAE financial center;
- the purpose of the new legislation is to stimulate the investment market available in this country;
- the agreement that was signed between the main financial regulators of the UAE regulates onshore investment funds;
- it also has the purpose of improving the licensing procedures necessary for UAE funds.
Why start an open-ended fund in UAE?
An open-ended fund in UAE is characterized by the fact that it can be set up with a variable capital. The open-ended fund is also known as an open-ended mutual fund; this type of vehicle can have its units listed and traded on a given market, but it is necessary to obtain a prior approval for this operation from ESCA.
Those interested in how to start a fund in UAE as an open-ended vehicle will have to obtain a license from ESCA in order to be recognized as a corporate structure in this country. The same applies to a closed-ended fund, the difference being that the structure is registered with a fixed capital.
Those interested in how to start a fund in UAE as an open-ended vehicle will have to obtain a license from ESCA in order to be recognized as a corporate structure in this country. The same applies to a closed-ended fund, the difference being that the structure is registered with a fixed capital.
What are the main documents for starting a UAE fund?
The registration documents necessary for a UAE fund, regardless if it is set up as a open-ended structure or as a closed-ended vehicle, are the same. The documentation necessary is rather extensive and it is advisable to seek professional representation during the registration of the fund, considering that the documents have to be submitted in an Arabic version. Some of the required documents are presented below:
- a completed application form required for the issuance of the license;
- the prospectus and the Key Investor Information Document (KIID);
- information on the selected legal entity for the fund, as well as information on its corporate structure;
- presentation of the legal responsibilities of the applicant and the fund’s internal procedures;
- the fund’s prospectus, its main statutory document, must be written in Arabic and must contain information on all the aspects of the fund.
What does a prospectus contain in UAE?
The prospectus represents a document that has to be drawn upon the registration of a UAE fund. It must provide a set of details regarding the fund; for example, it needs to provide information on the persons who have set up the fund, as well as their qualities and experience in the financial sector. It must also state the purpose of the fund, its name or the minimum capital. It should provide clear information on the following:
- the corporate bodies of the fund and its internal structure;
- the selected investment policies and the associated risks with carrying the respective investment scheme;
- the manner in which the assessment of the risks was done;
- the classes of investors who are allowed to invest in the respective fund;
- if the fund will invest in other countries, the investors must also provide information on the tax system applicable in the given jurisdictions;
- the policies established for the distribution of profits, dividends and other types of incomes;
- in the case in which the vehicle operates as an umbrella-fund, the prospectus must also mention details on the policies of such sub-funds.
Hedge funds in the UAE
Another type of investment fund that can be incorporated in this country is the hedge fund. Investors interested in how to start a hedge fund in the UAE are required to incorporate the legal entity following the regulations imposed by the Emirates Securities and Commodities Authority (ESCA). As mentioned above, the country also incorporates the Dubai International Financial Centre, an economic free zone in which investment funds, which may also include a hedge fund startup, are regulated by a different institution, the Dubai Financial Services Authority.
Tax advantages of investment funds in the UAE
Both investors and managers can benefit from various tax advantages available under qualifying schemes in the UAE. Most types of investment funds, including mutual ones, can apply for corporate tax exemptions. Similar benefits apply to non-resident investors who will not be taxed in the UAE.
Asset management statistics in the UAE
According to recent information:
- the asset management sector in the UAE is expected to reach USD 253.4 billion by the end of 2024;
- the financial advisory services sector is also projected to grow to USD 249 billion;
- by 2028, the total market volume of the wealth management market is expected to reach USD 357.4 billion.
Also, investors must know that regardless of the investment vehicle chosen for incorporation, the fund will need an approval issued by ESCA. Amongst the requirements, investors have to set up a capital of minimum AED 10 million. Foreign investors are invited to contact our team of affiliates in UAE for more details on this subject.