The document discusses various types of funds available to investors in Pakistan, including: - Equity schemes that invest in stocks for capital appreciation and dividend income. Examples include ABL Stock Fund. - Balanced schemes that invest in both stocks and debt instruments for balanced growth and income. Examples include Meezan Balanced Fund. - Asset allocation funds that diversify across multiple security types and investment styles. Examples include Askari Asset Allocation Fund. - Fund of funds that invest in a portfolio of other mutual funds for diversification. Examples include Meezan Financial Planning Fund of Funds. - Shariah compliant schemes that invest in Shariah approved securities like sukuk. These can be equity

2. Assignment Submitted by .................. To sir /Madam
Q 1 (a): What is an investment company ? How would
you differentiate between managed and unmanaged
investment company ? Qoute at least one example of
each from Pakistan ?
Ans :
investment company
An investmentcompanyis a companywhose mainbusinessisholdingandmanaging securities for
investmentpurposes.Investmentcompaniesinvestmoneyonbehalf of theirclientswho,inreturn,
share in the profitsandlosses
A corporation or trust engaged in the business of investing the pooled capital of investors in
financial securities. This is most often done either through a closed-end fund or an open-end fund
(also referred to as a mutual fund) .
Investment companies are business entities, both privately and publicly owned, that manage, sell,
and market funds to the public. They typically offer investors a variety of funds and investment
services, which include portfolio management, recordkeeping, custodial, legal, accounting and
tax management services.
Managed Investment Companies
The most common type of investment company is the management investment company, which
actively manages a portfolio of securities to achieve its investment objective. There are two types
of management investment company: closed-end and open-end. The primary differences
between the two come down to where investors buy and sell their shares - in the primary or
secondary markets - and the type of securities they sell.
 Closed-End Investment Companies: A closed-end investment company issues shares in a
one-time public offering. It does not continually offer new shares, nor does it redeem its
shares like an open-end investment company. Once shares are issued, an investor may
purchase them on the open market and sell them in the same way.

3. Example of a Local Closed ended investment company : GoldenArrow SelectedStocksFund
Limitedisa closedendedequitymutual fundlaunchedandmanagedbyAKDInvestment
ManagementLimited.The fundinvestsinthe publicequitymarketsof Pakistan.Itinvestsinstocks
of companiesoperatingacrossdiversifiedsectors.The fundinvestsindeepvalue andgrowthstocks
of companies.Itbenchmarksthe performance of itsportfolioagainstthe KSE100 Index.Golden
ArrowSelectedStockFundLimitedwasformedonMay9, 1983 and isdomiciledinPakistan.
 Open-End Investment Companies: Open-end investment companies, also known as
mutual funds, continuously issue new shares. These shares may only be purchased from
the investment company and sold back to the investment company.
Example of a Local open ended investment company : NI(U)Tisan open-endequityFund
constitutedthroughaTrust Deeddated12th
November,1962 executedbetween National
InvestmentTrust Limited(NITL) beingan Asset ManagementCompany and National Bank of
Pakistan (NBP) beingTrustee tothe Fund.The Fundprimarilyinvestsinequitieslistedonthe stock
exchangesof Pakistan.
non-managed investment
companies
There is only one type of non-managed investment companies called Unit
Investment Trusts.
A unit investment trust, or UIT, is a company established under an indenture or similar
agreement. It has the following characteristics:
 The portfolio is merely supervised, not managed, as it remains fixed for the life of the
trust. In other words, there is No day-to-day management of the portfolio.
 The management of the trust is supervised by a trustee.
 Unit investment trusts sell a fixed number of shares to unit holders, who receive a
proportionate share of net income from the underlying trust.
 The UIT security is redeemable and represents an undivided interest in a specific
portfolio of securities.
Example : Unit Trust of Pakistan
Unit Trust of Pakistan (UTP) is a balanced fund that aims to preserve and grow investor’s capital
in the long term while providing a regular stream of current income on an annual basis. The Fund

4. operates a diverse portfolio of equity and fixed income investments whereby the equity
component is meant to provide the growth in capital while dividends on the equity component
along with the fixed income investments help generate the current income.
Refrenes :
(https://en.wikipedia.org/wiki/Investment_company)
http://www.investopedia.com/terms/i/investmentcompany.asp#ixzz4uAgUCkO3
Types of Investment Companies http://www.investopedia.com/exam-guide/series-26/investment-
companies/investment-companies.asp#ixzz4uAjlubZ7
(https://www.nit.com.pk/index.php?option=com_content&view=article&id=181&Itemid=272#?1)
(https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=20383660)
Types of Investment Companies http://www.investopedia.com/exam-guide/series-26/investment-
companies/investment-companies.asp#ixzz4uAuY9Cdt
(https://www.gulfbase.com/InvestmentTutorial/SubSection?id=33&SectId=58)
( http://www.jsbl.com/wealth-management/js-cash-fund/unit-trust-of-pakistan/)
Q1(b) : Explain investment decision making
process ? How direct and indirect investement
can be diffrenciated ? Support your answer
with local examples .
Ans :
In finance,aninvestmentisamonetaryassetpurchasedwiththe ideathatthe assetwill provide income
inthe future orappreciate andbe soldat a higherprice.
Traditional investmentscovers:
• Securityanalysis
Involvesestimatingthe meritsof individual investments
• Portfoliomanagement
Dealswiththe constructionandmaintenance of acollectionof investments

5.  The process of analysing whether investment projects are worthwhile
Five main methods are used to asses an investment .
 Payback
 Net present value ("NPV")
 Average rate of return ("ARR")

 Risks
 The time value of money
When considering investing in property, one should choose between
direct investment (owning one or two properties that are physically
rented out and managed) or indirect investment (shares in a
property loan stock or unit trust company).
Direct investment
Directinvestmentisdefinedbythe International MonetaryFund(IMF) as“Investmentthatismade
to acquire a lastinginterestinanenterpriseoperatinginaneconomyotherthanthat of the

6. investor,the investor’spurposebeingtohave an effective voiceinthe managementof the
enterprise.”Inpractice,thistranslatestoan equityholdingof 10 percentor more inthe foreign
firm.For example,the investorwhodecidestoinvestinatoll road isa directinvestor.
Buying the stock by name or buying shares in a company or investing in shares directly
though broker/subbroker is called direct investment.
Local example :Forexample FDIthroughChina andon Gwadar port will countedinDirect
investment.
Indirect investment
An indirectinvestmentisatype of investingopportunitythatdoesnotrequire the actual purchase
of the assetthat ultimatelygeneratesthe return.Thistype of arrangementisoftenassociatedwith
investinginreal estate ventures,typically bypurchasingstocksissuedbyareal estate companythat
inturn purchasesand maintainsthe propertiesgeneratingthe dividendsissuedtothe shareholders.
Indirectinvestmentisawayof investinginreal estate withoutactuallyinvestinginthe property.
Indirectinvestmentcanbe done inmanyways,includingsecurities,funds,orprivate equity.Most
investorsinterestedinindirectinvestmentwoulddosothrougha companyor advisorwhohas
experience inthistype of investing.
Local example: Mutual funds offered by different companies in Pakistan are type of Indirect
investment in which investor do not buy the asset .
Buying a mutual fund (having the same stock in its portfolio) is an indirect investment.
Refrences:
(https://enemsfinalyearprojectmadeeasy.com/2016/03/01/direct-and-indirect-investment-advantages-
and-disadvantages/)
( https://enemsfinalyearprojectmadeeasy.com/2016/03/01/direct-and-indirect-investment-advantages-
and-disadvantages/)
(https://www.bayt.com/en/specialties/q/295130/what-is-the-difference-between-direct-and-indirect-
investment/)
Q:2 You are advised to study the existing corporate
structure of National clearing company ,central

7. depositary company and stock exachange . write one
page on each of the organization and also draw flow
diagrams of each?
A capital market is a market for securities (debt or equity), where
business enterprises (companies) and governments can raise long-
term funds. It is defined as a market in which money is provided for
periods longer than a year.
The Capital Market of Pakistan has a triangular foundation comprising of the stock
exchange, Depository Company and NCCPL; the goal of all being an economically
stronger, moreprosperous PakistaniCapitalMarket.
National Clearing Company of Pakistan Limited
(NCCPL)
The National Clearing Company of Pakistan Limited has been formed to establish and operate a
national clearing and settlement system (“NCSS”)
Accordingly the Company was incorporated on July 3, 2001 to manage and operate the National
Clearing & Settlement System (NCSS) in a fully automated electronic settlement system. NCSS
Live Operations commenced from December 24, 2001. However, the Company became fully
operational in the year 2003-04 by inducting and handling clearing and settlement of all book-
entry securities through NCSS. Thereafter, any security which becomes live in Central
Depository System, on ready status, is accordingly inducted into the NCSS.
As a part of Capital Market Development Program of Asian Development Bank (ADB) in
Pakistan, the Capital Market Project Consultants, Arthur Anderson & Company were given
mandate to develop recommendations for a National Clearing & Settlement System (NCSS) to
replace the separate and individual Clearing Houses of three Stock Exchanges, namely Karachi
Stock Exchange, Lahore Stock Exchange and Islamabad Stock Exchange by a single and
centralized entity.
key products and services offered by NCCPL are as under:

8.  Issuance of Unique Identification Number (UIN) for each client.
 UIN Information System (UIS) to access trading information directly by client through
NCCPL’s System.
 Pre-Settlement Delivery Facility.
 Reporting of Un-Listed TFC Trades by Market Participants.
 Interbank Fund Transfer (IBFT) Facility for Members of NCCPL.
 Implementation of Leveraged Market Products such as:
o Margin Trading System (“MTS”);
o Margin Financing System (“MFS”);and
o Securities Lending and Borrowing System (“SLB”)
 Risk Management of Institutional Clients and Leverage Markets.
 Computation, Determination and Collection of Capital Gain Tax “CGT”
 National Custodial Services (NCS)
Organization flow Diagram

9. Central Depository Company(CDC)
Central Depository Company is recognized as the infrastructure backbone of the Pakistan Capital
Market and it is the sole securities depository in the country. In the past two decades, CDC has
also evolved as one of the leading and most prestigious infrastructure institutions in Pakistan
with a focus on the capital market.
CDC is the sole entity handling the electronic (paperless) settlement of transactions carried out at
the stock exchanges of the country. Through efficient functioning of CDC, all the market
settlement is in book entry form.
Primarily, CDC’s function was to operate the Central Depository System (CDS) for all financial
instruments traded in Pakistan Capital Market. However, with the ever growing capital market, It

10. has diversified its business beyond the traditional depository domain It offer the following
services as well:
Investor Account Services
 Launchedin1999
 Allowsthe retail investortoopenandmaintaincustodyaccountsdirectlywithCDC.
Trustee and Custodial Services
 Launchedin2002
 Servesasa Trustee toOpen-endandClosed-endMutual FundsandVoluntaryPensionSchemes.
Share Registrar Services
 Launchedin2008
 Providesshare issuingcompaniesstate-of-the-artfacilitiesof registrarandtransferagents,
includingcustomerdealingonbehalf of the companies.
ITMinds Limited
(Wholly owned subsidiary of CDC)
 Launchedin2009
 ProvidesBusinessProcessOutsourcing(BPO)serviceswhichinclude provisionof backoffice
functionstothe Mutual Fundindustry.
CISSII (Centralized Information Sharing Solution for Insurance Industry)
(Developed andmanaged by CDC Pakistan)
 Launchedin2014
 Offersonline informationsharingsolutionforthe life insurance industry.Itallowslife insurance
companiestoshare informationsuchasacceptance of claim, postponedordeclinedrisks,
malpracticesof agentsandgroup life claimsexperience forthe purpose of achievinggreater
efficiencyandtransparencyinthe Industry.
CDC Organization Flow diagram

11. stock exachange
The Pakistan Stock Exchange (PSX) is the stock exchange of Pakistan with trading floors in
Karachi, Islamabad and Lahore. PSX was established on 11 January 2016 after the merger of
individual stock exchange's of Karachi, Lahore and Islamabad PSX's origin's where laid with the
establishment of the Karachi Stock Exchange in 1947, the Lahore Stock Exchange in 1970 and
the Islamabad Stock Exchange in 1992. As of May 28, 2016, there are 560 companies listed in
PSX and the total market capitalisation is $98billion.

12. The investors on the exchanges include 1,886 foreign institutional investors and 883 domestic
institutional investors along with about 0.22 million retail investors. There are also about 400
brokerage houses which are members of the PSX as well as 21 asset management companies.
PSX was reclassified as a MSCI Emerging Market in May 2017. While, the FTSE classifies PSX
as a Secondary Emerging Market.
PSX is among the world's best performing stock market's, between 2009 and 2015 it delivered a
26% a year. In December 2016, PSX sold 40% strategic shares to a Chinese consortium for $85
million
PSX Flow Diagram
Refrences:
https://dps.psx.com.pk/webpages/crp_information.php
http://cdcpakistan.com
https://www.nccpl.com.pk/
(https://en.wikipedia.org/wiki/Pakistan_Stock_Exchange)

13. Q#3(a) : Discuss different types of Funds
available to the investores in Pakistan ?
Ans :
Following types of funds are vailable to
the investors in Pakistan .
Equity Scheme:Anequityscheme orequityfundisafundthat investsinEquities
more commonlyknownasstocks.The objective of anequityfundislong-termgrowththroughcapital
appreciation,althoughdividendsandcapital gainrealizedare alsosourcesof revenue.
Example :
ABL Stock Fund (ABL-SF) is an open end equity fund.
Salient Features:
 Minimum investment from Rs.5,000/-
 Encashment anytime
 Tax Exempt (as per Current Tax Law)
 Tax Credit of up to Rs.75,000/- for individuals*
 Suitablefor investors with a long term horizon

14. Other : AKDOpportunityFund, AlfalahGHPAlphaFund, Askari EquityFund, AtlasStockMarket
Fund, PIML Value EquityFund , FirstHabibStock Fund, JS GrowthFund , LaksonEquityFund, UBL
Stock Advantage Fund
Balanced Scheme:These fundsprovide investorswithasingle mutual fundthat
investsinbothstocksand debtinstrumentsandwiththisdiversificationaimedatprovidinginvestorsa
balance of growththrough investmentinstocksandof income frominvestmentsindebtinstruments.
Example :
Meezan Balanced Fund
Meezan Balanced Fund is a Shariah Compliant open-end balanced scheme.It is a tool that provides exposure to both
Equity and Debt markets through a single fund.The earnings are generated by potentialcapital appreciation and regular
income. Meezan Balanced Fund ( previously a closed end balanced scheme ) was converted into an open-end balanced
fund with effect from July 1, 2013.
Other :Faysal BalancedGrowthFund, FirstHabib IslamicStockFund(Formerly: FirstHabib
IslamicBalancedFund) ,
Asset Allocation Fund:These Fundsmayinvestitsassetsinanytype of
securitiesatanytime inorderto diversifyitsassetsacrossmultiple typesof securities&investment
stylesavailableinthe market.
Askari AssetAllocationFund

15. In line w ith our unique philosophy, the Asset Allocation Fund does not trackthe StockIndex as a benchmark, instead the strategy
w orks towardsmeasured goals, and allow s the investor to build and follow an objective, i.e. earn Risk Free + 4% (CAGR) on a
rolling period of 3 years. This philosophy makes the investment, 'Objective Based'. The strategy calls for investments in
fundamentally stable companies and uses market volatility to its advantage.
Other companies :
PIML AssetAllocationFund,Faysal AssetAllocationFund,HBL IslamicAssetAllocationFund,MCB
PakistanAssetAllocationFund
Fund of Fund Scheme:Fundof Fundsare those funds,whichinvestinother
mutual funds.These fundsoperate adiverse portfolioof equity,balanced,fixedincomeandmoney
marketfunds(bothopenandclosedended).
MeezanFinancial PlanningFundof Funds(Aggressive) ,JSFundof Funds, UBL Conservative Allocation
Planfundsof funds, NAFA IslamicPrincipal PreservationFundof funds.
Shariah Compliant (Islamic) Scheme:Islamicfundsare
those fundswhichinvestinShariahCompliantsecuritiesi.e.shares,Sukuk, Ijarasukuksetc.asmay be
approvedbythe ShariahAdvisorof such funds.These fundscanbe offeredunderthe same categories as
those of conventional funds.

16. ABL IslamicDedicatedStockFund,AtlasIslamicStockFund, PIML IslamicEquityFund, DawoodIslamic
Fund, Faysal IslamicSavingsGrowthFund, JSIslamicFund, NAFA RibaFree SavingsFund
Capital Protected Scheme:Inthis type of scheme,the paymentof
original investmentisguaranteedwithanyfurthercapital gainwhichmayaccrue at the endof the
contractual term of the Fund.Such fundsare for a specificperiod.
JS Capital ProtectedFundV ,NAFA IslamicPrincipal ProtectedFundI,UBL Capital ProtectedFundIII
Index Tracker Scheme: Index fundsinvestinsecuritiestomirrora
marketindex,suchasthe KSE100. Anindex fundbuysandsellssecuritiesinamannerthatmirrorsthe
compositionof the selectedindex.The fund'sperformance tracksthe underlyingindex'sperformance.
AKDIndex TrackerFund

17. Money Market Scheme:Money Market Fundsare among the safestand
moststable of all the differenttypesof mutual funds.Thesefundsinvestinshortterm debtinstruments
such as Treasurybillsandbankdeposits.
ABL Cash Fund, AKDCash Fund, MeezanCash Fund , AlfalahGHPCash Fund, Askari SovereignCash
Fund
Income Scheme:These fundsfocusonprovidinginvestorswithasteady
streamof fixedincome.Theyinvestinshorttermandlongterm debtinstrumentslike TFCs,government
securitieslike T-bills/PIBs,orpreference shares.
ABL Income Fund, MeezanIslamicIncome Fund,AlfalahGHPIncome Fund,Askari IslamicIncome Fund
Aggressive Fixed Income Scheme:The aim of
aggressive income fundistogenerate ahighreturnbyinvestinginfixedincomesecuritieswhile taking
exposure inmediumtolowerqualityof assetsalso. CommodityScheme:Theseschemesenablesmall
investorstotake advantage of gainsincommoditiessuchasgoldthroughpooledinvestments.They
investatleast70%of theirassetsincommodityfuturescontracts,whichinclude bothcash-settledand
deliverable contracts.

18. AKDAggressive Income Fund(Formerly:AKDIncome Fund) ,AlfalahGHPIncome MultiplierFund,Askari
HighYieldScheme ,Faysal Income & GrowthFund
An investorcaninvestinanyof the above categoriesof fundsinaccordance withhisrequirementsand
appetite forrisk.Forexample those whowanttoearnhighreturnsovera longerperiodcaninvestin
EquityFundswhereasthose whowanttoinvestforshortterm withreasonable returncaninvestin
MoneyMarket Fund.
http://www.mufap.com.pk
(http://www.aiml.com.pk/funds.php?fund=Askari%20Asset%20Allocation%20Fund&fundid=2)
(https://www.almeezangroup.com/what-we-offer/mutual-funds/balanced-funds/)
http://ablamc.com/funds/abl_stock_fund/)
Q#3(b)

19. Important terms to know . before answering above
questions.
Benchmark
A benchmark is a standard against which the performance of a security, mutual fund or
investment manager can be measured. Generally, broad market and market-segment stock and
bond indexes are used for this purpose.
R-squared
R-squared is a statistical measure that represents the percentage of a fund or security's
movements that can be explained by movements in a benchmark index. For example, an R-
squared for a fixed-income security versus the Barclays Aggregate Index identifies the security's
proportion of variance that is predictable from the variance of the Barclays Aggregate Index. The
same can be applied to an equity security versus the Standard and Poor's 500 or any other
relevant index
Alpha
Alpha is one of five technical risk ratios; the others are beta, standard deviation, R-squared, and
the Sharpe ratio. These are all statistical measurements used in modern portfolio theory (MPT).
All of these indicators are intended to help investors determine the risk-return profile of a mutual
fund.
Beta
Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to
the market as a whole. Beta is used in the capital asset pricing model (CAPM), which calculates
the expected return of an asset based on its beta and expected market returns. Beta is also known
as the beta coefficient.

20. (i)Which funds returns are best explained by the
market returns ?
Ans :
Fund number one is best explained by market`s return .
Reason :As the 1st fund has highst value of R^2 and +ve alpha and beta is aslo 1 so it is
best for investments.
 98 % rpresents that there is a very good correlation between Fund returns and
benchmark`s return .
 Value of alpha is +ve which means Fund is performing better than its beta would predicit
. while fund produced a return 2% higher than its beta would predict .
 Beta of the market is taken as 1 so when we see the beta of Fund 1 we notice that it is
also 1 it means Funds excess return are aligned with benchmark index.
(ii)Which fund had the largest Total Risk ?
Ans :
FundFive hadthe largesttotal risk
Reason :Because fundfive hashighbetavalue amongall otherfunds whichis 1.2 itmeansit is
more more sensitive tomarketmovementsthe value of alphaisalsolow althoughitis+ve butas
comparedto otherfundsitis lowwhichmeansdifferencebetweenfund'sactual returnsandits
expectedperformance islesswhilethe R^2 of the Fund isalsoaverage whichis60% wile above 70% is
consideredgood.
(iii)Which Fund had the lowest market risk ?
highest risk ?
As ExplainedearlierFundnumber5had highestmarketrisk because itsbetavalue whichis1.2is very
highthan otherfundsand Fundnumber4 has lowestmarketrisk because itsbetavalue lowestthanall
otherfundsand R^2 value isalsogoodwhichis80% above 70% .

21. (iv)Which Fund(s) according to jensen Alpha
outerperformed the market ?
Accordingto jensenalphaFundnumber#3 outperformed the marketasitsalphavalue is3.5 which
meansFund#3 produceda return3.5 higherthanitsbita wouldpredict.whichishigherthanall other
funds.
Refrences:
Read more: Beta http://www.investopedia.com/terms/b/beta.asp#ixzz4uKiKRKQ8
Read more: Benchmark http://www.investopedia.com/terms/b/benchmark.asp#ixzz4uKga2I4X
Read more: Alpha http://www.investopedia.com/terms/a/alpha.asp#ixzz4uKhklq8y
Read more: R-Squared http://www.investopedia.com/terms/r/r-squared.asp#ixzz4uKh18Chc
Q4:
overvalued stock

22. An overvalued stock has a current price that is not justified by its earnings outlook or price/earnings (P/E)
ratio, so it is expected to drop in price. Overvaluation may result from an emotional buying spurt, which
inflates the stock's market price, or from a deterioration in a company's financial strength. Potential
investors do not want to overpay for a stock.
undervaluedstock
An undervaluedstockis definedasastock that issellingata price significantlybelow whatisassumed
to be its intrinsicvalue.Forexample,if astockis sellingfor$50, butit isworth $100 basedon
predictable future cashflows,thenitisanundervaluedstock.
Following stocks are under and
over valued see the picture
below

23. The securitiesthatare plotted above the SML, i.e.the risk-free rate,are undervaluedbecausetheir
expectedreturncomparedtotheir riskislow.Conversely,the securitiesthatare plotted below the SML
are overvaluedbecause theirexpectedreturncomparedtotheirriskishigh.

24. The security market line (SML)
The security market line (SML) presents the capital
asset pricing model (CAPM) on a graph, seeking to
demonstrate the levels of market risk based on the
hypothesis of a perfect market

25. The security market line (SML) of Stock A
The security market line (SML) of Stock B

26. The security market line (SML) of Stock C

27. Overvalued http://www.investopedia.com/terms/o/overvalued.asp#ixzz4uHbVztiF
((https://en.wikipedia.org/wiki/Undervalued_stock)
(http://www.myaccountingcourse.com/accounting-dictionary/security-market-line)
Q5:

28. Ans :
Importantformuleaare these see below

29. The End