Investment Funds in Saudi Arabia: A Comprehensive Guide for Investors 2024-2025

An investment fund is a financial vehicle that pools money from a group of investors to be collectively invested in a diversified portfolio of financial assets such as stocks, bonds, real estate, or money market instruments. In the Kingdom of Saudi Arabia, investment funds are supervised by the Capital Market Authority, which sets clear standards for governance, management, and disclosure. These funds aim to achieve investment diversification and reduce risks associated with investing in a single asset, as funds are distributed across various financial instruments according to a specified strategy. The fund is managed by a team of professionals who make buy and sell decisions on behalf of investors and prepare periodic reports on the fund's performance and the returns achieved. Through investment funds, individual or institutional investors can benefit from the expertise of fund managers and access assets that may be difficult to invest in individually. The goals of the funds vary between achieving capital growth, distributing profits, or preserving capital, depending on the type and strategy of each fund.

Investment funds in the Saudi financial market are divided into several main types, each differing in terms of objectives, invested assets, and risk levels. First, equity funds, which invest in shares of locally or globally listed companies, aiming to achieve long-term capital growth. Second, fixed-income and sukuk funds, which invest in debt instruments such as government or private bonds to generate stable income. Third, money market funds, focusing on short-term financial instruments with low risk, such as treasury bills and bank deposits. Fourth, real estate investment funds (REITs), which own and manage real estate assets and distribute rental returns to investors. Fifth, private equity and alternative investment funds, focusing on investments in unlisted companies or private projects, often targeting high-net-worth investors. There are also other classifications such as funds specialized in a specific sector or index funds. These funds are available in general open subscription formats for all investors or private formats for specific categories according to regulatory conditions.

The nature of the fund (open or closed) is one of the important factors that determine the flexibility of investment in it. An open fund allows investors to subscribe or redeem their units at any time at a price reflecting the net asset value of the fund. This type provides high liquidity and ease of entry and exit, making it suitable for those looking to invest in the short or medium term. On the other hand, a closed fund issues a limited number of units at the initial offering and cannot be subscribed or redeemed thereafter except through trading units in the secondary market (Tadawul). Closed funds are often used for long-term investments or in illiquid assets such as real estate or private projects. Closed funds may offer higher returns in the long term, but they are less liquid and their unit prices may be affected by supply and demand factors in the secondary market. In the Saudi market, both formats are available, each with advantages and considerations that investors need to understand before making a decision.

The investment fund market in Saudi Arabia has witnessed notable growth in recent years, driven by legislative reforms and the Kingdom's Vision 2030. According to recent reports, the total assets managed in Saudi investment funds rose to between 60 and 70 billion Saudi Riyals by the end of 2024. The number of public and private funds also increased to around 40 licensed funds, covering various categories of equities, fixed income, money market, real estate, and alternative investments. Annual returns for funds ranged between 5% and 12% depending on the type of fund and its strategy, with increasing interest from individual and institutional investors. This growth is attributed to increased financial awareness, ease of access to investment products, and the availability of new Sharia-compliant investment tools. Additionally, changes in global interest rates and the volatile performance of markets have enhanced the attractiveness of funds as a tool for diversifying investments and managing risks.

The Saudi Capital Market Authority (CMA) plays a pivotal role in regulating and monitoring the operations of investment funds. The Authority sets clear standards for issuing fund licenses, including the necessity of having a qualified fund manager, a transparent investment strategy, and strong governance practices. The Authority also imposes requirements for periodic financial disclosure, such as issuing quarterly and annual reports on asset performance, returns, and risks. Funds are required to disclose all fees and costs, ensuring the protection of investors' rights through a complaint system and ongoing audits. Furthermore, the Authority monitors funds' compliance with investment limits and profit distribution, imposing penalties in case of violations. This regulatory framework aims to enhance transparency, build trust in investment products, and ensure the safety of the investment fund sector in the Kingdom.

Individual and institutional investors can join licensed investment funds through banks or approved investment companies. The process begins by selecting the appropriate fund by studying the prospectus, which outlines the fund's strategy, type of invested assets, risk level, fees, and past performance record. After that, the investor opens an investment account with the managing entity, fills out a subscription form, and specifies the amount to be invested. Some funds allow electronic subscriptions through digital platforms, facilitating the process and providing quick execution. Most public funds do not require a high minimum investment, making them accessible to a wide range of investors. It is important to review management fees, redemption terms, and profit distribution policies before making a final decision. All funds are subject to the supervision of the Capital Market Authority, enhancing protection and transparency for investors.

The costs and fees of investment funds vary depending on the type of fund and its strategy. Common fees include annual management fees, which are deducted as a percentage of the fund's total assets (usually between 1% and 3%). Some funds may charge additional performance fees if a certain return is exceeded, especially in active funds or private equity funds. There may also be issuance or redemption fees in some cases, but these are not common in public funds in Saudi Arabia. Investors should carefully read the fund's prospectus to understand all fees and costs, as high fees may impact the net return achieved by the investor. Transparency in disclosing costs is a requirement of the Capital Market Authority, and all licensed funds are obliged to detail fees in their periodic reports.

Diversification is one of the most important features of investment funds, as they allow investors to spread their money across multiple assets and markets instead of focusing on a single asset. This diversification reduces the impact of market fluctuations on the investment portfolio and limits the risk of total loss if the performance of one asset declines. The fund management continuously monitors the market and adjusts the asset allocation according to economic conditions and the fund's objectives. Furthermore, investment funds in Saudi Arabia are subject to strict regulatory controls imposed by the Capital Market Authority, including disclosure standards, risk management, and internal and external audits. Although funds reduce risks compared to direct individual investment, they do not eliminate risks entirely, so it is essential to review the fund's strategy and the associated risk level before investing.

Hail Cement Company (symbol: 3001) is an example of listed industrial companies that form part of the portfolios of some Saudi investment funds, especially sector funds or exchange-traded funds (ETFs) focusing on the construction or building materials sector. Hail Cement Company is engaged in the production of cement and building materials, benefiting from infrastructure and housing projects under Saudi Vision 2030. During 2024-2025, the price of Hail Cement shares ranged between 6 and 10 Riyals per share, with a market value of approximately 4–5 billion Saudi Riyals. The company's price-to-earnings ratio decreased during periods of profit improvement to below 5 times, which is a relatively low rate reflecting the company's ability to achieve good profits compared to the share price. The company announced annual dividends ranging between 5% and 8% in some years, attracting funds seeking stable distributions. The company's financial results impact the performance of funds investing in the industrial sector, as improvements in the company's profits lead to an increase in the value of the fund units that hold its shares. For more information about the share, you can visit Hail Cement Company Share Page (3001).

The share of Hail Cement Company (3001) belongs to the construction products sector in the Saudi market, a vital sector supporting construction and infrastructure projects. The sector includes major companies such as Saudi Cement (2010), Southern Cement (3005), and Yanbu Cement (3000), along with medium and small companies like Umm Al-Qura Cement (3002) and Qassim Cement (2020). These companies compete on price, product quality, and transportation and production costs. Hail Cement enjoys a moderate market share and benefits from its geographical location to meet the needs of projects in the Hail region and neighboring areas. In recent years, the company has benefited from increased demand for cement due to accelerated construction projects under Vision 2030, successfully improving its sales and net profits. Sector trends and company performance within it influence the decisions of investment fund managers, as cement companies are often included in sector fund portfolios or industrial indices, highlighting the importance of understanding the sector for investors in funds.

The years 2024-2025 witnessed many significant developments in the cement sector and Saudi investment funds. At the sector level, cement companies announced plans to upgrade production lines and improve efficiency, in addition to increasing attention to environmental issues such as reducing carbon emissions. Companies like Hail Cement recorded growth in sales and net profits, with cash dividends distributed in some periods. On the investment fund side, the market saw the launch of new funds focusing on real estate and industrial sectors, along with increased interest in Sharia-compliant funds. The Capital Market Authority also strengthened oversight of disclosure and transparency, issuing new licenses for investment fund managers by the end of 2024. Expectations indicate continued growth in both sectors with the launch of new infrastructure projects and increased investment awareness, which may positively reflect on the performance of related companies and funds.

Although investment funds reduce risks through diversification, investing in them is not without challenges. Risks vary by fund type: equity funds are affected by market fluctuations, fixed-income funds are influenced by changes in interest rates, and real estate funds are impacted by rental prices and the market value of properties. Additionally, past performance of the fund does not guarantee its future, and profits may decline during periods of economic slowdown. Therefore, risk management plays a crucial role in the operation of funds, as fund managers continuously monitor markets and reallocate assets when necessary. Funds in Saudi Arabia are subject to the oversight of the Capital Market Authority, which imposes transparency and disclosure standards, requiring funds to provide investors with periodic reports on performance and potential risks. Investors are advised to study the fund's prospectus, understand the investment strategy, and determine the fund's suitability for their goals and risk tolerance.

Investment funds play an increasingly important role in structuring the Saudi financial sector, accounting for about 10% of total capital trades in the market by the end of 2024. Funds contribute to pooling national savings and transforming them into productive investments across various sectors, enhancing economic growth and providing new job opportunities. They also enable individual investors to access markets and assets that were previously difficult to reach, thanks to professional management and regulatory oversight. On the other hand, funds raise levels of transparency and financial disclosure in the market and support price stability through long-term investment. With the development of financial regulations, funds have become a preferred means for an increasing segment of investors amid global market fluctuations, solidifying their position as a key tool for diversifying investments and enhancing economic development in the Kingdom.

Before joining any investment fund, there are several criteria that investors should consider to achieve their financial goals. First, investment objectives should be clearly defined (growth, income, or capital preservation), then select the fund whose strategy aligns with these objectives. It is important to review the fund's past performance, keeping in mind that past results do not guarantee the future, and to check periodic performance reports to understand the stability of returns. Comparing fees and costs is also essential, as high fees may affect net profits. It is advisable to ensure that the fund complies with Sharia standards if that is a personal requirement for the investor. Finally, consulting a licensed financial advisor accredited by the Capital Market Authority is recommended to review available options and identify the most suitable one based on financial situation, time horizon, and acceptable risk level.