Best Investments in UAE: Short-term Investment Options that Guarantee High Returns

Investing is a powerful tool that can help individuals grow their wealth and achieve their financial goals. Whether you’re a seasoned investor or just starting your journey, the United Arab Emirates (UAE) offers a range of options that can provide impressive returns within a relatively shorter time frame. 

These investment avenues are designed to cater to the fast-paced nature of the market and the needs of investors who seek to capitalise on immediate opportunities. In this blog, we will explore a selection of short-term investment options available in the UAE that are known to yield high returns.

Let’s dig in!

What are Short-Term Investments?

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But first, let us learn what short term investing is. Short-term investments are investment options that can help you make money in a relatively short amount of time, usually ranging from a few months to a few years. They are great for those who have specific financial goals they want to achieve soon or need access to their money in the near future.

Unlike long-term investments that you might hold onto for many years, short-term investments are focused on taking advantage of quick opportunities and making money in a shorter period. They provide the possibility of faster returns and the flexibility to use your money when you need it.

Advantages of Short-Term Investments

Stability

Long-term investments, like stocks, are like sailboats, catching strong winds for high returns but also facing the risk of being tossed around by storms. Short-term investments, on the other hand, are more like sturdy motorboats. They navigate calmer waters, offering:

• Lower volatility: Short-term investments are less prone to dramatic swings in price, protecting your principal from significant losses. Think of it as gentle rocking instead of being thrown against the waves.
• Predictable returns: Many short-term investments, like certificates of deposit (CDs) or Treasury bills, offer fixed interest rates. This means you know how much you’ll earn, providing a sense of security like a steady engine hum.

Liquidity

Need to cover an unexpected expense or grab an opportunity that comes your way? Short-term investments are like having an emergency fund readily available. They offer:

• Easy access: Unlike long-term investments with lock-in periods or selling at a loss, short-term options like high-yield savings accounts or money market accounts allow you to withdraw your money quickly and easily. Think of it like having a readily available life preserver in case you need it.
• Flexibility: This liquidity allows you to adjust your investment strategy based on changing needs or market conditions. It’s like having a manoeuvrable boat that can change course as needed.

Lower Risk

Short-term investments can offer valuable peace of mind if you’re naturally risk-averse. They often come with:

• Government backing: Many short-term investments, like Treasury bills or government bonds, are backed by the government, minimising the risk of losing your principal. Imagine having a safety net under your boat, ensuring you won’t sink even in rough waters.
• Insurance: Some short-term options offer insurance against bank failure, adding another layer of protection. Think of it like a sturdy hull that can withstand even the most unexpected bumps.

Short-Term Investment Options in the UAE

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Fixed Deposits (FDs)

Banks in the UAE, like RAKBANK, Emirates NBD and more, offer fixed deposit accounts, also known as time deposits. You can earn a predetermined interest rate by depositing a fixed amount of money for a specific period. Fixed deposit accounts provide a guaranteed return upon maturity and are suitable for individuals looking for a relatively secure short-term investment option.

Pros:

• Guaranteed returns: Enjoy a pre-determined interest rate on your deposit throughout the fixed term.
• Capital protection: Your principal amount is fully guaranteed until maturity.
• Low risk: FDs are considered one of the safest investment options as the bank’s creditworthiness backs them.
• Readily available: Most banks offer FDs like Emirates NBD and ADCB with various tenors and minimum deposit amounts to suit your needs.

Cons:

• Low returns compared to inflation: FDs often offer interest rates below inflation, meaning your purchasing power may decrease over time.
• Early withdrawal penalties: Withdrawing your money before maturity typically incurs significant penalties, eroding your earnings.
• Limited growth potential: FDs offer predictable but stagnant returns, limiting your portfolio’s long-term growth.

Best for:

• Risk-averse investors are seeking stability and capital protection for short-term goals.
• Emergency funds require secure and readily accessible storage.
• Parking short-term savings while waiting for other investment opportunities.

Savings Accounts with High Interest

Several banks offer savings accounts with competitive interest rates. While they may not provide the highest returns compared to other investment options, savings accounts with high interest rates can be a safe and convenient way to earn some extra money on your savings.

Pros:

• Easy access to funds: Enjoy immediate liquidity and freedom to withdraw money as needed.
• Some flexibility: Choose from various account types with different interest rates and features.
• Slightly higher returns than regular savings accounts: Earn a bit more interest compared to traditional savings accounts, potentially mitigating inflation impact.

Cons:

• Lower returns than FDs: Interest rates are generally lower than FDs, offering limited growth potential.
• Susceptible to inflation erosion: Similar to FDs, high inflation can erode the value of your savings over time.
• Limited growth potential: The focus on liquidity over investment restricts long-term capital appreciation.

Best for:

• Emergency funds require immediate access but offer slightly higher returns than traditional savings accounts.
• Parking short-term savings before allocating them to other investments.
• Building a financial cushion for upcoming expenses or unforeseen circumstances.

Money Market Funds

Money market accounts offered by banks in the UAE provide a safe and liquid investment option. These accounts typically offer higher interest rates than regular savings accounts and allow easy access to your funds. 

Pros:

• Slightly higher returns than savings accounts: Invest in low-risk securities like government bonds, providing marginally better returns than standard savings accounts.
• Low risk: Focus on highly secure assets minimises the risk of capital loss.
• Diversification: Gain exposure to a basket of government bonds, spreading risk and offering stability.
• Liquidity: Easily buy and sell shares in the fund, providing quick access to your invested capital.

Cons:

• Not as safe as FDs: While considered low-risk, money market funds are not fully guaranteed like FDs and can experience slight value fluctuations.
• Returns susceptible to interest rate fluctuations: Changes in interest rates can impact the fund’s performance and returns.
• Limited upside potential: Focus on stability restricts the potential for high returns compared to riskier options.

Best for:

• Conservative investors are seeking a safe haven for short-term savings with slightly higher returns than traditional accounts.
• Maintaining some liquidity while earning marginally better interest than regular savings accounts.
• Individuals prioritise safety and stability over aggressive growth potential.

Sharia-compliant Investment Solutions

These investment options adhere to the principles of Islamic finance, which prohibit the earning or payment of interest (riba) and promote ethical and responsible investment practices.

Some examples are the Islamic Mutual Funds. These investment funds follow Sharia principles by investing in assets that comply with Islamic guidelines. Islamic mutual funds typically invest in Sharia-compliant stocks, Islamic bonds (sukuk), real estate, and other permissible assets. They are managed by professional fund managers who ensure that the investment activities align with Islamic principles.

Another one is the Islamic Index Funds. This tracks a specific Islamic stock market index, such as the Dow Jones or FTSE Shariah Global Equity Index. These funds expose investors to a diversified portfolio of Sharia-compliant stocks, allowing them to participate in the index’s performance.

Lastly, Islamic REITs are investment vehicles that allow individuals to invest in Sharia-compliant real estate assets. These trusts pool money from investors to purchase and manage income-generating properties, such as commercial buildings, residential complexes, or hotels. Investors earn returns through rental income and capital appreciation.

Pros:

• Adheres to Islamic principles: Provides investment options compatible with Sharia law, catering to Muslim investors’ ethical considerations.
• Alternatives like Sukuk and Wakalah: Offer halal alternatives to conventional investments like fixed income (Sukuk) and property investment (Wakalah).
• Competitive returns within Sharia framework: Achieve competitive returns while adhering to Islamic financial principles.

Cons:

• Limited availability compared to conventional options: Finding Sharia-compliant investment options may be less accessible than traditional avenues.
• Higher fees in some cases: Sharia-compliant structures can sometimes incur higher fees compared to conventional investments.
• Complex structures for beginners: Some Sharia-compliant instruments can be intricate and require a deeper understanding of the underlying principles.

Best for:

• Sharia-compliant investors are seeking halal investment opportunities aligned with their ethical values.
• Individuals are looking for alternatives to conventional investment options within the Sharia framework.
• Risk-averse investors prioritise ethical considerations and capital protection.

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Mutual Funds

Mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of securities such as stocks, bonds, or other assets. These funds are managed by professional money managers or fund managers who make investment decisions on behalf of the investors.

Pros:

• Diversification across various assets: Spread your investment across different asset classes like stocks, bonds, and commodities, reducing risk and volatility.
• Professional management: Experienced fund managers actively manage the portfolio, making investment decisions based on market research and analysis.
• Potential for higher returns than low-risk options: Achieve potentially higher returns compared to FDs or savings accounts while still maintaining some risk aversion.

Cons:

• Fluctuations based on market performance: Expect ups and downs alongside market movements as the fund’s value reacts to economic and industry factors.
• Management fees: Fund managers charge fees for their services, eating into your overall returns.
• Risk of capital loss: While lower than high-risk options, mutual funds still carry the possibility of losing invested capital depending on market conditions.

Best for:

• Investors with moderate risk tolerance are comfortable with some volatility for potentially higher returns.
• Individuals seeking long-term financial goals like retirement or future investments.
• Those who prefer professional guidance and asset allocation expertise.

Exchange-traded funds (ETFs)

Exchange-traded funds (ETFs) are investment funds traded on stock exchanges, similar to individual stocks. ETFs are designed to track the performance of a specific index, sector, commodity, or asset class. They offer investors a way to gain exposure to a diversified portfolio of underlying assets without directly owning the assets themselves.

The UAE boasts a growing ETF market with options catering to various investor preferences. Here are some examples across different categories:

• Broad Market Exposure
  • iShares MSCI UAE Capped UCITS ETF USD (UAE): Track the performance of the largest and most liquid companies in the UAE equity market, offering broad exposure to the country’s economic trends.
  • Invesco S&P 500 UCITS ETF USD (SPDR): Gain exposure to the top 500 American companies through this ETF, providing diversification beyond the UAE market.

Pros:

• Lower fees than mutual funds: ETFs usually have lower fees compared to mutual funds. This means that more of your money goes towards your investments instead of paying fees to the fund manager.
• Easy entry and exit through exchanges: You can buy or sell ETF shares on stock exchanges throughout the trading day, just like buying or selling stocks.
• Diversified exposure: This means that by investing in one ETF, you can own a little bit of many different companies or assets. This helps to spread out your risk because if one company or asset does poorly, it won’t have as big of an impact on your overall investment.

Cons:

• Risk of tracking error: ETFs aim to track the performance of a specific index, but sometimes they may not perfectly match the index’s performance. This is called a tracking error, and it can lead to slight differences in returns between the ETF and the index it’s supposed to follow.
• Exposure to specific market segments: Some ETFs focus on niche sectors or indices, which means they invest in specific market parts. While this can provide opportunities for higher returns, it also comes with higher volatility and risk.
• Limited active management benefits: Unlike some mutual funds, ETFs are typically passively managed, which means they aim to replicate the performance of an index rather than actively selecting stocks.

Best for:

• Cost-conscious investors are seeking diversified exposure at lower fees.
• Individuals are comfortable with passive index-based tracking for long-term growth.
• Those needing liquidity and flexibility to trade shares readily on exchanges.

Short-term Bonds

Short-term bonds, or short-term fixed-income securities, are debt instruments with relatively shorter maturities. Governments, corporations, and other entities issue them to raise capital for a specific period, typically ranging from a few months to a few years.

The Central Bank of the UAE issues short-term Treasury Bills (T-Bills) with maturities ranging from 3 months to 1 year. These offer a safe haven with government backing but might have lower returns compared to other options.

Some UAE companies may also occasionally issue short-term bonds, but options might be less readily available and require thorough due diligence on the issuer’s creditworthiness.

Pros:

• Higher returns than FDs: Earn potentially higher interest income than fixed deposits, increasing your overall yield.
• Predictable income stream: Bonds offer regular coupon payments, providing stable income generation throughout the bond’s life.
• Relative safety compared to longer-term bonds: Shorter maturities are less sensitive to interest rate fluctuations, offering greater stability.

Cons:

• Subject to interest rate fluctuations: Changes in interest rates can impact the bond’s market value, potentially leading to losses if sold before maturity.
• Risk of issuer default: While considered safer than equities, there’s still a chance of the issuer (borrower) defaulting on their debt obligations.
• Less liquid than FDs: Selling bonds before maturity may involve finding buyers and accepting potential price discounts.

Best for:

• Income-oriented investors seek higher returns than low-risk options with a predictable income stream.
• Individuals with moderate risk tolerance are comfortable with interest rate fluctuations within a shorter time frame.
• Those understand bond market dynamics and issuer creditworthiness before investing.

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Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are companies that own and operate income-producing real estate, like apartments, office buildings, shopping malls, warehouses, and even data centres. Instead of buying and managing properties directly, investors can gain exposure to the real estate market by purchasing shares in a REIT, similar to how you might invest in a stock.

Here are some examples in the UAE: 

• Emirates REIT: The largest Sharia-compliant REIT in the UAE, holding high-end commercial and educational properties with a total asset value exceeding USD 838 million. They offer stable and regular dividends to investors.
• ENBD REIT: Another Sharia-compliant option, focusing on office, residential, and alternative assets like healthcare facilities. They have a total portfolio value of over USD 363 million and are listed on the NASDAQ Dubai exchange.
• The National Bonds REIT: Primarily invests in UAE mortgage-backed securities and Islamic financial instruments like Sukuk. It offers attractive returns for income-oriented investors looking for low volatility.
• Al Mal Capital REIT: This innovative REIT invests in a diversified range of assets beyond traditional real estate, including healthcare, education, and industrial sectors. They offer exposure to high-growth segments with regular income distribution.

Pros:

• Steady income from rent payments: Invest in income-generating real estate portfolios without direct property ownership, receiving regular rental income distributions.
• Indirect exposure to the real estate market: Gain access to diversified real estate assets like offices, apartments, or shopping malls, reducing single-property risks.
• Professional management: REITs are typically managed by experienced teams, handling property maintenance, tenant relations, and other operational aspects.

Cons:

• Less liquid than some options: REIT shares may not be as readily bought and sold as stocks or ETFs, leading to longer selling times.
• Management fees: Similar to mutual funds, REITs charge management fees that can eat into your returns.
• Subject to property market fluctuations: REIT performance can be impacted by economic conditions and specific property sector dynamics.

Best for:

• Investors are seeking regular income generation and diversification beyond traditional financial instruments.
• Individuals are comfortable with moderate risk and indirect exposure to the real estate market.
• Those aiming for long-term wealth building through a managed portfolio of income-producing properties.

Peer-to-Peer (P2P) Lending

Peer-to-peer (P2P) lending is a type of alternative finance where individuals or businesses borrow money directly from other individuals without going through a traditional bank or financial institution. This happens through online platforms that connect lenders and borrowers. Some examples in the UAE are Beehive and Eureeca.

Pros:

• Attractive returns: Potentially earn significantly higher returns compared to traditional investments like bank deposits or bonds.
• Direct lending: Choose who you lend to by assessing borrower profiles and loan criteria.
• Diversification: Spread your investment across different borrowers and industries to mitigate risk.
• Short-term options: Some platforms offer loans with shorter maturities, facilitating quicker access to your capital.
• Ethical considerations: Lend to individuals or businesses you believe in and support their growth.

Cons:

• High risk of borrower default: Risk of losing your invested capital if borrowers fail to repay their loans.
• Lack of regulatory protection: Less stringent regulations compared to traditional banks, increasing the potential for fraud or scams.
• Requires careful borrower selection: Extensive research and evaluation are needed to assess creditworthiness and minimise risk.
• Limited liquidity: Selling your loan investments before maturity can be challenging and may involve discounts.
• Tax implications: Potential tax liabilities on earned interest, depending on individual circumstances and regulations.

Best for:

• Accredited investors with substantial capital who can handle high-risk investments.
• Individuals with strong risk tolerance and the skills to assess borrower creditworthiness.
• Those seeking alternative returns beyond traditional investment options.
• Investors are looking to support ethical entrepreneurs or businesses aligned with their values.

Gold & Silver Investments

Gold and silver investments refer to investing in physical gold and silver or related financial instruments such as gold and silver ETFs, mutual funds, or mining stocks. These precious metals have been valued for centuries. As the city of Gold, Dubai and UAE in general is considered a haven for these investments.

Pros:

• Hedge against inflation: Historically considered a safe haven asset with the potential to retain value during periods of inflation.
• Long-term appreciation: Physical gold and silver have shown long-term price appreciation trends, offering potential capital growth.
• Tangible assets: Provide physical ownership and perceived stability compared to intangible financial instruments.
• Liquidity: Relatively easy to buy and sell through gold and silver dealers or reputable online platforms.

Cons:

• Volatile prices: Gold and silver prices can experience significant fluctuations due to economic and geopolitical factors.
• Storage and security considerations: Requires secure storage or insurance, leading to additional costs and potential risks.
• Limited income generation: Unlike some investments, physical gold and silver offer no regular income like dividends or interest.
• Tax implications: Capital gains taxes may apply upon selling, depending on the holding period and individual circumstances.

Best for:

• Long-term investors are seeking diversification and a potential hedge against inflation.
• Individuals are comfortable with price volatility and willing to hold over extended periods.
• Those with access to secure storage facilities or reputable asset management services.
• Investors want tangible asset ownership alongside their financial portfolio.

Conclusion

In conclusion, if you’re looking to start investing in the UAE and seeking short-term investment options that offer high returns, there are several strategies that you can consider. It’s important to remember that no investment is completely risk-free, especially when aiming for high returns. However, by diversifying your portfolio and conducting thorough research, you can mitigate risks and increase your chances of success.