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Frequently Asked Questions

What are Exchange Traded Funds, how and when they started?

ETFs are investment funds divided into equal units that are traded on the exchange during trading time. ETFs enjoy advantages of both mutual funds and stocks at the same time without any major disadvantages.

ETFs entered global markets for the first time in 1989 through the Canadian market followed by the U.S. in 1993. Since then ETF have enjoyed rapid growth, the ETF asset under management (AUM) have increased from $72 billion in 2001 to $700 billion by the end of 2009 in the U.S. market alone.

How can investors buy Exchange Traded Funds ETFs?

Investors can buy and sell ETF units throughout the exchange trading time. The units can also be created / redeemed through the market maker or any other authorized party.

What are the differences between exchange traded funds (ETFs) and mutual funds?

CATEGORY ETFS MUTUAL FUNDS
Transparency More Less
Flexibility More Less
Cost Less More
Diversification More More

What are the benefits of investing in the Exchange Traded Funds ETFs?

In general, the investors could gain from the increase in the value of the underlying assets of the ETF in addition to any dividends paid.

Who will be the provider of the Exchange Traded Funds (ETFs)?

Authorized participants having Asset Management license issued by the Capital Market Authority.

Are the Exchange Traded Funds (ETFs) limited to stocks only?

No, ETFs are not limited to the stocks only they may also include other instruments or commodities such as gold and silver. However, in the initial phase of this product, ETFs will be limited to Saudi equities only.

Are there any limits to the ownership of the Exchange Traded Funds (ETFs)?

No, it is subject to ETF available volume in the stock market.

Is there any upper or lower limits on the number of Exchange Traded Funds (ETFs) units that an investor can buy or sell?

Minimum ETFunits that an investor can purchase over the exchange is one unit, whereas creation of ETF units would be as per ETF terms and conditions.

Do the Exchange Traded Funds (ETFs) investors get dividends in-kind or in cash?

This is decided according to the policy of ETF as disclosed in the prospectus.

Are there any commissions or other administrative expenses borne by the buyer or seller of these units?

The cost of buying and selling the Exchange Traded Funds (ETFs) units is 15.5 basis points per trade value.

Does the unit price of the Exchange Traded Funds (ETFs) equal the stock prices of the underlying constituent of the ETF?

One must clearly distinguish between the trading price of the ETF units which is subject to supply and demand and the value of net assets (NAV) of the unit which represents the market value of assets consisting of the ETF unit. Often buying and selling of ETF units happen at a price very close to the value of net assets.

Is there a relationship between the Exchange Traded Funds (ETFs) performance and the performance of the underlying stocks of the ETF?

Yes, there is a direct relationship between the performances of the ETF NAV and the value of underlying assets. Whenever the underlying stocks market value increases the ETF NAV increases.

Would the Exchange Traded Funds (ETFs) prospectus be available before the ETF starts trading on the primary and secondary markets?

Yes, The Fund Manager, as per Capital Market Authority regulations particularly ETF regulations, is obliged to provide the ETF prospectus and the terms and conditions an adequate period ahead of the ETF trading.

How would the Exchange Traded Funds (ETFs) units be priced in the secondary market?

The ETF will be priced at NAV upon listing on the secondary market, then going forward ETF unit price will be determined by the market forces (supply and demand).

When does the Exchange Traded Funds (ETFs) expire and be delisted from the market?

Upon redemption of all ETF units by the Fund Manager.

Can an authorized participant issue more than one the Exchange Traded Funds (ETFs) at a time or at different times?

Yes, an authorized participant can issue more than one ETF, at the same time, based on different styles or strategies.

Can an authorized participant issue ETFs consisting of local and international shares?

Yes, after the approval of Capital Market Authority (CMA).

Would the transfer process be available between the customer's portfolios?

Yes, with the same terms and conditions of the transfer of shares.

Would the Exchange Traded Funds (ETFs) owners have the right to attend assemblies and vote?

ETFs are managed completely and directly by the fund manager and subject to the Investment Fund Regulations issued by the Capital Market Authority (CMA), therefore no general assembly is arranged for these funds.

Would all categories and nationalities be allowed to invest in the Exchange Traded Funds (ETFs)?

Yes, ETFs will be available to all categories of investors who are registered to trade in the exchange.

What are the risks that investors may face by investing in Exchange Traded Funds (ETFs)?

The risks that investors may face by investing in ETF are the same as that of investing in securities. However, due to benefits of diversification, risks of investing in ETF may be less.

What are the most popular international markets for the Exchange Traded Funds (ETFs)?

ETFs are generally traded in the international markets however ETFs are traded more actively in the United States, Canada and Germany.