25th June 2022
Business

ETFs in Dubai: What is it, and why you should invest in them in Dubai?

An ETF, or Exchange Traded Fund, is an investment fund traded on stock exchanges, much like stocks. ETFs are a popular choice for investors because they offer the potential for growth and income while being relatively low-risk and easy to buy and sell.

There are many different ETFs available, each with its investment strategy. For example, some ETFs track certain indexes (such as the SP 500), sector-specific ETFs (those focused on energy or tech stocks), and even bond ETFs.

The reasons why investors choose ETFs in Dubai

There are several great benefits to investing in ETFs. Let’s list some of the main reasons traders choose to invest in ETFs in Dubai.

Diversification

You’ll find that one of the primary reasons investors and traders invest in ETFs is that they offer easy diversification. By investing in an ETF that tracks a specific index or sector, you can instantly add a wide range of stocks (or other assets) to your portfolio. This diversification can help protect your portfolio from the volatility of any particular stock or asset class.

For example, let’s say you wanted to invest in the energy sector. Rather than picking individual energy stocks, you could invest in an energy ETF. It would expose you to a basket of energy stocks rather than just one. If one energy stock underperformed, it would likely be offset by the performance of the other energy stocks in the ETF.

Of course, you can also achieve diversification by investing in multiple individual stocks. However, this approach requires more time and effort to research and management. ETFs offer a more straightforward way to diversify your portfolio.

Cost-effectiveness

Another advantage of ETFs is that they are relatively cost-effective. When you buy shares of an ETF, you are also buying a small piece of every asset that the ETF tracks. It means that you get exposure to a wide range of assets without incurring the high costs of buying each one individually.

For example, let’s say you wanted to invest in the S&P 500 index. Rather than buying 500 different stocks (which would be very expensive), you could invest in an ETF that tracks the S&P 500. This would give you the same exposure to the underlying assets but at a much lower cost.

Liquidity

ETFs are also very liquid, meaning they can be bought and sold easily and quickly. It is because ETFs trade on stock exchanges, just like stocks. So, if you need to sell your ETF shares for any reason, you can do so without any difficulties.

This liquidity is one of the main reasons ETFs have become so popular in recent years. Investors appreciate buying and selling ETFs quickly and easily without having to worry about the hassle or costs associated with other types of investments.

Tax-efficiency

Another advantage of ETFs is that they tend to be relatively tax-efficient. It is because most ETFs are passively managed, meaning they are not actively traded. As a result, they generate fewer capital gains (taxed at a higher rate than dividends).

Of course, there are some actively-traded ETFs that do generate a lot of capital gains. However, these ETFs tend to be specialised and are only suitable for experienced investors. For the most part, ETFs offer a tax-efficient way to invest.

Conclusion

ETFs offer several benefits to investors, including diversification, cost-effectiveness, liquidity, and tax efficiency. If you’re looking for ways to diversify your portfolio and get exposure to different assets, investing in an ETF could be a good option. 

However, it’s essential to do your research and speak with a reputable and experienced online broker from the Saxo Dubai market before making any investment decisions. Trade on their demo account and practise different trading strategies before investing real money.