SEO: Investors Prefer Indirect Investment in Capital Market

EghtesadOnline: Three hundred investment funds operate in Iran’s stock market with about 10.2 million investors, an official with the Securities and Exchange Organization said.

News ID: ۷۸۶۷۱۷

19 July 2021

“These investors have opted for indirect investment in the capital market”, Mesiam Fadaee, the SEO deputy for supervising financial institutions, was quoted as saying by the Securities and Exchange News Agency.

The official recommended investing in such funds for investors lacking enough financial literacy. Investment fees are also lower in indirect investment.

“Most investors cannot [professionally] analyze the share market and due to higher trading costs in direct investment in shares, investment in these funds are recommended,” Fadaee said.

He reiterated that investment funds are managed by financial professionals certified by the regulator.

Risk takers are more inclined to invest in equity funds, which normally have annual returns similar to gains in the Tehran Stock Exchange, he said.

This is while informed investors normally go for fixed income funds as they have a minimum 20% return a year.

Market observers say there is anxiety about unprecedented increase in the number of neophyte investors in recent months. While the entry of newcomers translates into fresh liquidity flowing in the stock market, they have been blamed for displaying herd behavior, causing steep volatility in the bourse.

Economists and stakeholders have made known that the share market is the function of expertise and newcomers should abstain from direct investment in stocks. They have stressed that investment funds and asset managers should handle trade on their behalf.

To encourage indirect investment the SEO recently said it would cut investment fees for funds that have high returns for investors.

Accordingly, trading fees will vary based on funds’ performance.  As per current procedures investment funds charge a fixed 2% on trade value of the fund regardless of the return.

The SEO plans to allow the fund managers to charge higher fees if the stock portfolio under their management is making greater profit.

Fees would increase proportionate to percentage of growth in the benchmark of TSE, the TEDPIX.  The new trading fees are expected to come into effect soon and will only cover deals handled by stock funds.

Total assets held by investment funds is said to be 5,137 trillion rials ($21.4 billion). Fixed income funds account for the lion’s share holding 3,658 trillion rials ($15.4b) in their portfolios. Funds operated by market making companies manage 871 trillion rials ($3.6b) while equity funds hold 563 trillion rials ($2.3b).