The Securities and Exchange Organization (SEO) has announced the articles of association for setting up guaranteed investment funds.
The funds are designed to encourage indirect investment by retail investors in the share market, according to the Securities and Exchange News Agency (SENA).
Guaranteed investment funds assure that all or part of the invested capital will be secure at a specific and a designated time.
The SEO has signed agreements in principle for setting up two such funds with the principal amount to be guaranteed by either a guarantor or owners of preferred equities of investment funds. The guarantor can be a third party, namely an insurance firm.
Preferred stock is a type of stock that offers different rights to shareholders than common stock. Preferred stock holders receive regular dividends and are repaid first in the event of a bankruptcy or merger.
Under the framework provided by the SEO, there is a floor and ceiling for return on investment in guaranteed funds. In case of a negative return and when investors suffer loss in the principal value of their investment, the investors are ensured about receiving their money at the end of the predetermined period agreed in advanced by the investor and fund managers.
When the guaranteed fund is rewarding and return on investment goes beyond the set ceiling, the excess profit is divided among ordinary investors and holders of preferred units based on previously agreed terms.
According to SENA, this type of investment is best suited for non-professional investors who seek to mitigate investment risks.
After the historic collapse of the share market in the summer of 2020, the stock market regulator stepped up efforts to encourage neophyte investors to invest indirectly in the equities market.
More recently it took measures to convince the newcomers to entrust their savings with asset managers and investment funds. Diversifying investment funds are among such measures.
Along with moves to encourage indirect investment, managers of the funds have been incentivized to improve efficiency and return on investment.
The SEO earlier said it would cut investment fees for funds that have high returns. Accordingly, trading fees vary based on the performance of the fund.
Based on available data, close to 80% of stock trade in Iran is handled directly by individual investors, most of them unprofessional and lacking proper financial literacy. Observers say a stable market requires a bigger share for investment funds and a policy that discourages direct investment.
