So far in Sahmino Academy we have met the individual assets one by one: shares, gold, coins, currency and crypto. But most households have neither the time to watch the market daily nor the knowledge to analyse each company. This is where the investment fund comes in: a vehicle that pools your money together with that of thousands of others and lets a professional team manage it. This lesson explains funds from scratch.
What you will learn in this lesson
You will learn what an investment fund is, how its four most common types (fixed-income, equity, balanced and gold) differ, what NAV (Net Asset Value) means, and why an exchange-traded fund (ETF) is different from an issuance-and-redemption fund. No prior knowledge is needed, and no advice to buy or sell is given.
Definitions
Investment fund: a financial institution that pools the capital of a group of people and, under defined rules, invests it in assets such as shares, debt securities, bank deposits or gold. Instead of buying these assets directly, you buy a piece of the fund itself.
Unit: the smallest piece of ownership in a fund, just like a "share" in a company. If a fund is divided into millions of units, buying any number of units makes you a proportional part-owner of the fund's entire portfolio.
NAV (Net Asset Value): the real value of each fund unit. The formula is simple: take the fund's total assets minus its liabilities, and divide by the number of units.
Fund manager: the professional firm (such as a brokerage or an investment bank) that decides where the fund's money is invested, and charges a management fee for doing so.
How is NAV calculated?
Suppose a fund holds 500 billion tomans of assets in total (shares, bonds and deposits) and has 10 billion tomans of liabilities (for example unpaid fees). Net assets come to 490 billion tomans. Now, if this fund has issued 490 million units:
NAV per unit = 490 billion tomans / 490 million units = 1,000 tomans.
So the real value of each unit of this fund is 1,000 tomans. As the value of the fund's assets rises and falls, the NAV also changes day by day. (This is a hypothetical example for teaching, not the figure of a real fund.)
The four most common fund types
Fixed-income fund: puts most of its assets in low-volatility places, such as bank deposits and debt securities. Its aim is to preserve the principal and deliver a relatively steady return. Note that "fixed income" does not mean a "guaranteed profit"; it simply fluctuates less than equities.
Equity fund: holds mostly company shares. It has higher return potential, but also more volatility and risk, and can lose money in some periods.
Balanced fund: something between the two above; part shares, part bonds and deposits. Its risk and return usually sit between fixed-income and equity funds.
Gold fund: part of the commodity-fund family; instead of shares, it invests in gold-based instruments. Under these funds' prospectus (omidnameh), most of the assets are held in gold-coin and gold-bar deposit certificates. With one small unit you effectively own a share of gold, without the hassle of physical storage.
There are other funds too (index, leveraged, capital-guarantee funds and so on) that we will cover in later lessons.
What is an ETF, or exchange-traded fund?
By how they are bought and sold, funds fall into two groups:
Issuance-and-redemption fund: you buy a unit directly from the fund itself (through the fund's platform or branch), called "issuance," and sell it back to the fund whenever you wish, called "redemption." The buy and sell prices are set on the basis of the NAV.
Exchange-traded fund (ETF): its units trade on the stock-exchange board just like a company's shares. Using the same trading code and your brokerage platform, you buy and sell it exactly as you would buy shares.
One important point about ETFs: because its price is set by the market's moment-to-moment supply and demand, it may trade slightly above or below NAV. If the board price is above NAV, the fund is at a "premium"; if below, at a "discount."
Hypothetical example: a fund's NAV per unit is 1,000 tomans, but it trades at 1,030 tomans on the exchange. That means the buyer is paying 3 percent above the real value; that is a 3 percent premium.
In Iran's market
A few local points to know:
Entry through the exchange: to buy an ETF you need a trading code and registration on the Sejam system, the same path described in our lesson on entering the bourse. Issuance-and-redemption funds are usually accessed through the fund's own platform and do not require a trading code.
Where NAV is published: each fund's issuance, redemption and statistical values are published on the Fipiran system (Iran's Financial Information Processing Center, affiliated with the Securities and Exchange Organization).
Periodic profit payments: many fixed-income funds pay a periodic profit, often monthly, into the investor's account, a feature that makes them attractive to those who value regular cash flow.
Market maker: so that the gap between an ETF's board price and its NAV does not grow too wide, a "market maker" is required to buy and sell in the market and keep the price close to the real value.
Gold funds and the commodity exchange: a gold fund's assets are held in gold-based instruments on the Iran Mercantile Exchange, not as bars at home.
How a fund differs from buying directly
When you buy a share or a coin directly yourself, everything depends on your own decision and timing. In a fund, a professional team manages a basket of dozens of assets for you, risk is spread across several holdings, and you can enter with even a small amount. In return, you pay a management fee and give up direct control over each individual asset. Neither is inherently better than the other; the choice depends on your goal, time horizon and risk tolerance.
Common mistakes
"A fund with a higher NAV is better." No. NAV per unit depends only on the number of units issued; a fund with a NAV of 10,000 tomans is not necessarily better than one with a NAV of 1,000 tomans. What matters is the percentage return over time, not the absolute NAV figure.
"Fixed income means no risk and a guaranteed profit." No. These funds are less volatile, but their profit is not certain or guaranteed and can change from period to period.
"A gold ETF is the same as physical gold." Not exactly. A gold fund invests in gold-based instruments, and its board price can carry a premium or discount to NAV; buying at a premium means paying more than the real value.
Summary
An investment fund is a way to invest in markets indirectly and under professional management. Its four common types (fixed-income, equity, balanced and gold) differ in risk and return. NAV is the real value of each unit, and funds are bought and sold either through "issuance and redemption" or as an "exchange-traded fund (ETF)" on the exchange board. In the next lesson we turn to the basic concept of risk and return. If you have not read the previous lesson, see our earlier lesson on crypto, Bitcoin and Tether. To review the whole path, visit the map of an Iranian household's assets and the Sahmino Academy page. To buy an ETF, review the Sejam and trading-code path.
Educational
Educational
Analysis
Analysis