How to Invest in Iran’s Capital Market (Stock Exchange)

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On October 18, 2015, Posted by , In About Iran, With No Comments

Of course you need more specific information to actually start investing specially as a foreign investor. That is why we have tried to cover the steps you need to take.

Since 2008, the Tehran Stock Exchange index has risen from just below 9,000 up to more than 54,000, an astonishing rise of over 600 percent.
The World Federation of Exchanges ranked the Tehran Stock Exchange or TSE as the second best performing in 2010. After the recent presidential election in Iran, the TSE broke its all-time highs daily. As with several emerging stock markets, the TSE historically set a number of limitations on foreign investment. With the growth of Iran’s stock market and the development of economy, the Stock market Authorities have gradually relaxed these limitations on foreign investors.

Investment Options

There are a couple of options each with their own pros and cons which will be covered in more detail below:

Investment with direct involvement
Nominee Accounts
Managed Accounts
Mutual Funds

Investment with direct involvement

In order to invest directly on TSE, investors, individuals and entities, must have a valid investment license and also a trading code through a brokerage firm. Therefore choosing a stock broker is the first step of the procedure. We have been informed recently that the Securities and Exchange Organization of Iran is working to remove the requirement for an investment license for foreign investors. But currently it is required.

Once the license is issued and you obtain a trading code, orders can be placed through one of the following methods:
– In person*
– Via phone*
– Via email*
– Online trading (individual investors only)**
* Please note that through the first three methods, a signed trading order sheet is necessary before any order gets executed.

** Online Trading: Investing online, A.K.A online trading, is where individual investors and traders buy and sell securities over an electronic network (trading platform), through a brokerage firm . However, you should know that as the infrastructure required to provide comprehensive data and customer support in English is still in its early days, we do not recommended you to start with an online trading account.

As tempting as direct investment may sound, there are difficulties associated with the method and we do not to recommend it to foreign investors. Due to the limited infrastructure nationally, lack of reports and analyses in English, the need for investors in person or for their official attorney’s to receive dividends and attend to many other administrative issues, we strongly suggest that you consider other routes for the execution of your investment plans that are more convenient and risk-free.

Nominee Accounts

Nominee accounts, as we call them, allow investors to own shares and securities without becoming involved in any of the associated administration or paperwork that is indispensable when transacting in the market. An investment license is still required from the SEO. The investor is supposed to place the order himself through one of the approved channels that are provided by and available through the broker. The investor can also expect in-depth company specific reports in English to support his investment strategies. Using nominee accounts, you are not required to sign each order sheet before execution nor you are required to be present in Iran to execute the paperwork after it is prepared.

Managed Accounts

Managed Account, as it is clear from the name, refers to investment accounts that are owned by an individual investor and looked after by a retained professional money manager. This is the most advanced account a broker can provide for its high net worth clients. In contrast to mutual funds (which are professionally managed on behalf of many mutual-fund holders), managed accounts are personalized investment portfolios tailored to the specific needs of the account holder. With this type of account, the client is required to enter into a legal contract with a broker called “portfolio-management contract” and at the same time he/she should apply for an individual portfolio-management code from the Securities and Equities Organization (SEO) which is again obtained through a broker.

The procedure for obtaining a managed account is straightforward and starts with signing a contract between the investor and a broker . Investors must have an official investment license in order to own a portfolio account as explained above. Company specific reports in English along with routine performance reports are also provided with each managed account.

Mutual Funds

A mutual funds is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are managed by money managers, who invest the fund’s capital and attempt to produce capital gains and income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Advantages & Disadvantages

Mutual funds have advantages over investing directly in individual securities.

Increased diversification: A fund normally holds many securities; diversification decreases risk.
Daily liquidity: Shareholders may sell their holdings back to the fund at the close of every trading day at a price equal to the closing net asset value of the fund’s holdings.
Professional investment management: Mutual funds hire portfolio managers to supervise the fund’s investments.
Ability to participate in investments that may be available only to larger investors.
Government oversight: Mutual funds are regulated by the SEO
Ease of comparison: All mutual funds are required to report the same information to investors, which makes them easy to compare.

However, mutual funds have disadvantages as well, including

Less control over the timing of the recognition of gains
Less predictable income
No opportunity to customize

Bottom line

Identifying and making use of a favorable and profitable investment opportunity requires a comprehensive understanding of the local capital markets. That is why we always suggest starting by investing in mutual funds. Should you want to be more actively involved , here at Group, we are well positioned to deliver customized strategies and professional investment consulting services to meet the needs of foreign investors. For more information please contact us via email at info{AT} .

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