Dubai: As instances of UAE residents being duped by seemingly attractive investment opportunities come to light, the importance of investor education can hardly be stressed enough. The lure of returns is so high that an individual often overlooks the following basic tenets of investing.
Check for red flags: The guarantee of unusually high returns is the first red flag. In a global environment still recovering from one of the worst financial crisis, little can be guaranteed - let alone double-digit monthly returns. Let’s look at this using the stock market performance known as a high risk-high return investment avenue. The benchmark indices, S&P 500 (USA) has returned a CAGR of 3.36 per cent (at the end of 2016) over the last 16 years; the BSE Sensex (India) returned a CAGR of 12.63 per cent in the same period.
Do your homework: There is no dearth of information restricting investors from getting a head start on their next investment decision, even if it’s their first. The primary responsibility on an investor is to avoid falling into the trap of fly-by-night names as intermediaries. Ensure the intermediary is registered with the respective governing authorities. Here, in the UAE, the Securities and Commodities Authority (SCA) is the federal regulatory authority for the Securities and Commodities markets. The SCA website lists firms regulated under its purview. The same can be said of the DFSA, which regulates all entities in the DIFC.
The regulators here realise the pressing need to protect investors and have been working towards a coordinated plan.
Keep track: Going beyond the investment decision, it is essential to not only get to know the product and track the performance of the investment but also to obtain the full breakdown on the fees and commissions that would be charged. Once invested, ensure that contact is maintained with the adviser handling the account and that they provide regular updates about the investments.
Verify the Investment Manager and their Performance: Make sure the institution chosen to invest money is well regulated. Ideally, it should have a local presence, owned and managed by reputable names that can be independently verified. The DGCX being one such institution is the region’s first derivatives exchange established over a decade ago in Dubai. It is regulated by the UAE Federal Regulator, SCA, and is owned by the DMCC, a Government of Dubai entity. Besides the SCA, there is a number of sectoral regulators such as Central Bank of UAE, Insurance Authority of UAE, DFSA to name a few. SCA, DGCX and other regulators/exchanges provide a list of registered and licensed brokers on their website; it is always advisable to check the authenticity of dealers with them.
A little prudence at the beginning of investment process can go a long way in ensuring that your funds are in responsible hands, saving those sleepless nights countless others have faced. For market awareness and education purposes the DGCX has launched a partnership with Trading Campus, to provide financial market skill-sets through education and simulated trading.
“Invest in yourself first and be equipped with the basic ground rules around investing which can ensure you stay far away from the traps set by some of these illegal schemes and fly-by-night scammers”.
The author is CEO, Dubai Gold & Commodities Exchange (DGCX), a subsidiary of Dubai Multi Commodities Centre (DMCC), a strategic initiative of the Government of Dubai, regulated by the Securities & Commodities Authority (SCA)
