What is Investment Fund?
An investment fund is a pooled investment vehicle that gathers capital from multiple investors and invests it in a defined asset class (equities, sukuk, real estate, private equity, or money markets) under a written fund constitution and the oversight of a regulator.
How It Works
- Net asset value (NAV) calculated by dividing total fund assets minus liabilities by units outstanding.
- Investors buy and redeem units at NAV (open-ended) or trade on an exchange (closed-ended).
- Fund manager charges a management fee plus a performance fee.
- Income (dividends, sukuk profit) and capital gains distributed or reinvested per fund policy.
Saudi Context
Saudi public and private investment funds are licensed and regulated by the CMA, with detailed disclosure requirements covering fund managers, custodians, and fund constitutions. Saudi REITs (real estate investment funds) listed on Tadawul gained popularity post-2017, offering Sharia-compliant exposure to commercial property.
Example
A Saudi investor buys 1,000 units in a CMA-licensed Saudi equity fund at NAV of SAR 12.50, investing SAR 12,500. If NAV rises to SAR 14.20 over the year, the investment is worth SAR 14,200 (a 13.6% return).