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I wish to participate in global equity Markets. What are my options?

I wish to participate in global equity Markets. What are my options?

Equity or stock markets have clearly been the flavor of the season for most part of the current year. The risk-on trend globally which has had little to fear, barring the more recent geo-political tensions, has seen global equity indices swell to multi-year highs. The Dow Jones Industrial Average, one of the key US markets benchmarks, has returned nearly 21% over the last year (October 2016 – September 2017). However, these returns are not without risks. Historically, equities rank high on both axes of the risk-return quadrant, thus making it an asset for those with a high risk appetite. So are you keen to participate in some of these global markets? Thankfully, the advent of technology has made it easier for a retail investor to participate in global equity markets, while being based here in the UAE.

Online trading platforms allow you this comfort, offering convenience and simplicity. Citibank’s E-Brokerage platform, for example, is an online trading service that provides you with instant access to capital markets in the US, UK, Japan, Canada, France, Germany and Switzerland.

As a retail investor, you have two ways to invest in equities. One is the direct purchase of stocks for listed companies, in an electronic form, referred to as dematerialization. The alternative is holding equities indirectly by investing in mutual funds. Both have their pros and cons and it is always advisable to see which fits in ideally to match your risk-return objectives.

Direct Equity

This involves buying and selling of listed shares on a stock exchange via an authorized broker. Demand-supply dynamics dictate price trends during trading hours. As a participant you can either trade or invest. Trading generally involves a shorter duration which can extend from being intra-day to a few days. Investing on the other hand is a longer term process with the objective of wealth building.

You can also opt for trading via the use of derivatives. Deriving its value from an underlying asset, this instrument allows you to leverage your position using strategies across contracts including futures, options and swaps.

Mutual Funds

An alternative to direct equity, a mutual fund is typically a professionally managed portfolio of stocks (and/or bonds). By investing in multiple stocks, it diversifies the risks associated with direct equity. As an investor, you buy units of the mutual fund, representing a portion of the holdings. Mutual funds may be constructed to be thematic, regional or global and diversified; thus offering an investor with a wide range of options based on the investment objectives. To know the list of mutual funds you can opt for via Citibank, click here. Also offered is the option to invest in the same via the Systematic Investment Plan route.

Exchange Traded Fund (ETF)

An ETF is a tradeable security that tracks an underlying index, commodity or the likes. Unlike a mutual fund, it trades like a common stock on an exchange. Based on the same demand-supply dynamics as direct equity, its price changes through the trading hours unlike a mutual fund, which has a daily price referred to as Net Asset Value (NAV). An ETF blends the workings of direct equity and mutual funds. While it offers the diversification as in a fund, it offers trading options as is the case with direct equity.

These are some of the common options you have to invest and participate in equity. To reiterate, the option you choose must take into account the inherent nature of equity as an asset class and how well it suits your risk-return objectives.

Content exclusive to Citi by Wealth Monitor. The views expressed here are those of the authors and do not necessarily represent or reflect the views of Citibank UAE. The information in this website does not constitute investment advice or an offer to invest or to provide management services and is subject to amendment without notice.