Mutual funds report


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Mutual funds report

  1. 1. Mutual Funds in Pakistan Submitted to; Mam Mahvish Javed Submitted By; Aqsa Rasheed MBKM-13-54 Misbah Fatima MBKM-13-27 Nighat Naeem MBKM-13-52 Mamoona Ashraf MBKM-13-13 MBA(B&F) 2ND Semester Morn Alfalah Institute of Banking & Finance
  2. 2. Mutual Funds 2 TABLE of CONTENTS INTRODUCTION………………………………………………………….…………2 CONCEPT OF A MUTUAL FUND…………………………………………………2 ADVANTAGES OF MUTUAL FUNDS………………………………..…………..3 DISADVANTAGES OF MUTUAL FUNDS………………………………………..5 FREQUENTLY USED TERMS…………………………………………………….6 TYPES OF MUTUAL FUND SCHEMES…………………………………………..7 BY STRUCTURE BY INVESTMENT OBJECTIVE APPROACHES TO PORTFOLIO MANAGEMENT (FUND MANAGEMENT STYLE)………………………….…11 MUTUAL FUND AND PAKISTAN………………………………………………11 MUFAP (MUTUAL FUND ASSOCIATION OF PAKISTAN) TAXATION ON MUTUAL FUNDS RULES GOVERN MUTUAL FUNDS ………………………………………….12 IN PAKISTAN PERFORMANCE OF MUTUAL……………………………………………..….13 MUTUAL FUND COMPANIES IN PAKISTAN………………………………..14 NATIONAL INVESTMENT TRUST...............................................................14 AL MEEZAN MUTUAL FUNDS....................................................................16 INVESTMENT PROCEDURE......................................................................19 INTRODUCTION
  3. 3. Mutual Funds 3 Specialization is the order of the day, be it with regard to a scheme’s investment objective or its targeted investment universe. Given the plethora of options on hand and the hard-sell adopted by mutual funds vying for a piece of your savings, finding the right scheme can sometimes seem a bit daunting. Mind you, it’s not just about going with the fund that gives you the highest returns. It’s also about managing risk–finding funds that suit your risk appetite and investment needs. So, how can you, the retail investor, create wealth for yourself by investing through mutual funds? To answer that, we need to get down to brass tacks–what exactly is a mutual fund? Very simply, a mutual fund is an investment vehicle that pools in the monies of several investors, and collectively invests this amount in either the equity market or the debt market, or both, depending upon the fund’s objective. This means you can access either the equity or the debt market, or both, without investing directly in equity or debt. CONCEPT OF A MUTUAL FUND A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:- Savings form an important part of the economy of any nation. With savings invested
  4. 4. Mutual Funds 4 in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents multiple avenues to the investors. Though certainly not the best or deepest of markets in the world, it has ignited the growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings. Investment goals vary from person to person. While somebody wants security, others might give more weightage to returns alone. Somebody else might want to plan for his child’s education while somebody might be saving for the proverbial rainy day or even life after retirement. With objectives defying any range, it is obvious that the products required will vary as well. INVESTORS EARN FROM A MUTUAL FUND IN THREE WAYS: 1. Income is earned from dividends declared by mutual fund schemes from time to time. 2. If the fund sells securities that have increased in price, the fund has a capital gain. This is reflected in the price of each unit. When investors sell these units at prices higher than their purchase price, they stand to make a gain. 3. If fund holdings increase in price but are not sold by the fund manager, the fund's unit price increases. You can then sell your mutual fund units for a profit. This is tantamount to a valuation gain. ADVANTAGES OF MUTUAL FUNDS 1. PROFESSIONAL MANAGEMENT Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. This risk of default by any company that one has chosen to invest in, can be minimized by investing in mutual funds as the fund managers analyze the companies’ financials more minutely than an individual can do as they have the expertise to do so. They can manage the maturity of their portfolio by investing in instruments of varied maturity profiles. 2. DIVERSIFICATION Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. 3. CONVENIENTADMINISTRATION Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. 4. RETURNPOTENTIAL Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Apart from liquidity, these funds have also provided very good post-tax returns on year to year basis. Even historically, we find that some of the debt funds have generated superior returns at relatively low level of risks. On an average debt funds have posted
  5. 5. Mutual Funds 5 returns over 10 percent over one-year horizon. The best performing funds have given returns of around 14 percent in the last one-year period. In nutshell we can say that these funds have delivered more than what one expects of debt avenues such as post office schemes or bank fixed deposits. Though they are charged with a dividend distribution tax on dividend payout at 12.5 percent (plus a surcharge of 10 percent), the net income received is still tax free in the hands of investor and is generally much more than all other avenues, on a post tax basis. 5. LOWCOSTS Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. 6. LIQUIDITY In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Since there is no penalty on pre-mature withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity. Moreover, mutual funds are better placed to absorb the fluctuations in the prices of the securities as a result of interest rate variation and one can benefits from any such price movement. 7. TRANSPARENCY Investors get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. 8. FLEXIBILITY Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans; you can systematically invest or withdraw funds according to your needs and convenience. 9. AFFORDABILITY A single person cannot invest in multiple high-priced stocks for the sole reason that his pockets are not likely to be deep enough. This limits him from diversifying his portfolio as well as benefiting from multiple investments. Here again, investing through MF route enables an investor to invest in many good stocks and reap benefits even through a small investment. Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. 10.CHOICEOFSCHEMES Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. 11. WELLREGULATED All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. 12.TAX BENEFITS Last but not the least, mutual funds offer significant tax advantages. Dividends distributed by them are tax-free in the hands of the investor. They also give you the advantages of capital gains taxation. If you hold units beyond one year, you get the benefits of indexation. Simply put, indexation benefits increase your purchase cost by a certain portion, depending upon the yearly cost-inflation index
  6. 6. Mutual Funds 6 (which is calculated to account for rising inflation), thereby reducing the gap between your actual purchase cost and selling price. This reduces your tax liability. What’s more, tax-saving schemes and pension schemes give you the added advantage of benefits under Section 88. You can avail of a 20 per cent tax exemption on an investment of up to Rs 10,000 in the scheme in a year DISADVANTAGES OF MUTUAL FUNDS Mutual funds are good investment vehicles to navigate the complex and unpredictable world of investments. However, even mutual funds have some inherent drawbacks. Understand these before you commit your money to a mutual fund. 1. NO ASSURED RETURNS AND NO PROTECTION OF CAPITAL If you are planning to go with a mutual fund, this must be your mantra: mutual funds do not offer assured returns and carry risk. For instance, unlike bank deposits, your investment in a mutual fund can fall in value. In addition, mutual funds are not insured or guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakh per bank is insured by the Deposit and Credit Insurance Corporation, a subsidiary of the Reserve Bank of India). There are strict norms for any fund that assures returns and it is now compulsory for funds to establish that they have resources to back such assurances. This is because most closed-end funds that assured returns in the early-nineties failed to stick to their assurances made at the time of launch, resulting in losses to investors. A scheme cannot make any guarantee of return, without stating the name of the guarantor, and disclosing the net worth of the guarantor. The past performance of the assured return schemes should also be given. 2. RESTRICTIVE GAINS Diversification helps, if risk minimization is your objective. However, the lack of investment focus also means you gain less than if you had invested directly in a single security. Assume, Reliance appreciated 50 per cent. A direct investment in the stock would appreciate by 50 per cent. But your investment in the mutual fund, which had invested 10 per cent of its corpus in Reliance, will see only a 5 per cent appreciation. 3. TAXES During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made. 4. MANAGEMENT RISK When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers. FREQUENTLY USED TERMS  NET ASSET VALUE (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.
  7. 7. Mutual Funds 7 𝑁𝐴𝑉 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑎𝑙𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 EXAMPLE  SALE PRICE Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.  REPURCHASE PRICE Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.  REDEMPTION PRICE Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.  SALES LOAD Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.  REPURCHASE OR ‘BACK-END’LOAD Is a charge collected by a scheme when it buys back the units from the unit holders. TYPES OF MUTUAL FUND SCHEMES
  8. 8. Mutual Funds 8 A wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry. BY STRUCTURE a) OPEN-ENDED SCHEMES Open-ended or open mutual funds are much more common than closed-ended funds and meet the true definition of a mutual fund – a financial intermediary that allows a group of investors to pool their money together to meet an investment objective– to make money! An individual or team of professional money managers manage the pooled assets and choose investments, which create the fund’s portfolio. They are established by a fund sponsor, usually a mutual fund company, and valued by the fund company or an outside agent. This means that the fund’s portfolio is valued at "fair market" value, which is the closing market value for listed public securities. An open-ended fund can be freely sold and repurchased by investors.  Buying and Selling: Open funds sell and redeem shares at any time directly to shareholders. To make an investment, you purchase a number of shares through a representative, or if you have an account with the investment firm, you can buy online, or send a check. The price you pay per share will be based on the fund’s net asset value as determined by the mutual fund company. Open funds have no time duration, and can be purchased or redeemed at any time, but not on the stock market. An open fund issues and redeems shares on demand, whenever investors put money into the fund or take it out. Since this happens routinely every day, total assets of the fund grow and shrink as money flows in and out daily. The more investors buy a fund, the more shares there will be. There's no limit to the number of shares the fund can issue. Nor is the value of each individual share affected by the number outstanding, because net asset value is determined solely by the change in prices of the stocks or bonds the fund owns, not the size of the fund itself. Some open- ended funds charge an entry load (i.e., a sales charge), usually a percentage of the net asset value, which is deducted from the amount invested.  Advantages:
  9. 9. Mutual Funds 9 Open funds are much more flexible and provide instant liquidity as funds sell shares daily. You will generally get a redemption (sell) request processed promptly, and receive your proceeds by check in 3-4 days. A majority of open mutual funds also allow transferring among various funds of the same “family” without charging any fees. Open funds range in risk depending on their investment strategies and objectives, but still provide flexibility and the benefit of diversified investments, allowing your assets to be allocated among many different types of holdings. Diversifying your investment is key because your assets are not impacted by the fluctuation price of only one stock. If a stock in the fund drops in value, it may not impact your total investment as another holding in the fund may be up. But, if you have all of your assets in that one stock, and it takes a dive, you’re likely to feel a more considerable loss.  Risks: Risk depends on the quality and the kind of portfolio you invest in. One unique risk to open funds is that they may be subject to inflows at one time or sudden redemptions, which leads to a spurt or a fall in the portfolio value, thus affecting your returns. Also, some funds invest in certain sectors or industries in which the value of the in the portfolio can fluctuate due to various market forces, thus affecting the returns of the fund. b) CLOSE-ENDED SCHEMES Close-ended or closed mutual funds are really financial securities that are traded on the stock market. Similar to a company, a closed-ended fund issues a fixed number of shares in an initial public offering, which trade on an exchange. Share prices are determined not by the total net asset value (NAV), but by investor demand. A sponsor, either a mutual fund company or investment dealer, will raise funds through a process commonly known as underwriting to create a fund with specific investment objectives. The fund retains an investment manager to manage the fund assets in the manner specified.  Buying and Selling: Unlike standard mutual funds, you cannot simply mail a check and buy closed fund shares at the calculated net asset value price. Shares are purchased in the open market similar to stocks. Information regarding prices and net asset values are listed on stock exchanges, however, liquidity is very poor. The time to buy closed funds is immediately after they are issued. Often the share price drops below the net asset value, thus selling at a discount. A minimum investment of as much as $5000 may apply, and unlike the more common open funds discussed below, there is typically a five-year commitment.  Advantages: The prospect of buying closed funds at a discount makes them appealing to experienced investors. The discount is the difference between the market price of the closed-end fund and its total net asset value. As the stocks in the fund increase in value, the discount usually decreases and becomes a premium instead. Savvy investors search for closed-end funds with solid returns that are trading at large discounts and then bet that the gap between the discount and the underlying asset value will close. So one advantage to closed-end funds is that you can still enjoy the benefits of professional investment management and a diversified portfolio of high quality stocks, with the ability to buy at a discount.  Risks: Investing in closed-end funds is more appropriate for seasoned investors. Depending on their investment objective and underlying portfolio, closed-ended funds can be fairly volatile, and their value can fluctuate drastically. Shares can trade at a hefty discount and deprive you from realizing the true value of your shares. Since there is no liquidity, investors must buy a fund with a strong portfolio, when units are trading at a good discount, and the stock market is in position to rise.
  10. 10. Mutual Funds 10 BY INVESTMENT OBJECTIVE: A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows: GROWTH / EQUITY ORIENTED SCHEMES The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. EQUITY FUNDS As explained earlier, such funds invest only in stocks, the riskiest of asset classes. With share prices fluctuating daily, such funds show volatile performance, even losses. However, these funds can yield great capital appreciation as, historically, equities have outperformed all asset classes. At present, there are four types of equity funds available in the market. In the increasing order of risk, these are: INDEX FUNDS These funds track a key stock market index, like the KSE 100 index (Karachi Stock Exchange) or NYSE (New York stock exchange). Hence, their portfolio mirrors the index they track, both in terms of composition and the individual stock weightages. For instance, an index fund that tracks the KSE will invest only in the KSE 100 index stocks. The idea is to replicate the performance of the benchmarked index to near accuracy. SECTOR FUNDS The riskiest among equity funds, sector funds invest only in stocks of a specific industry, say IT or FMCG. A sector fund’s NAV will zoom if the sector performs well; however, if the sector languishes, the scheme’s NAV too will stay depressed. Barring a few defensive, evergreen sectors like FMCG and OIL&GAS most other industries alternate between periods of strong growth and bouts of slowdowns. The way to make money from sector funds is to catch these cycles–get in when the sector is poised for an upswing and exit before it slips back. Therefore, unless you understand a sector well enough to make such calls, and get them right, avoid sector funds. INCOME / DEBT ORIENTED SCHEME The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. Such funds attempt to generate a steady income while preserving investors’ capital. Therefore, they invest exclusively in fixed-income instruments securities like bonds, debentures, Government of India securities, and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. There are basically three types of debt funds.
  11. 11. Mutual Funds 11 SPECIALIZED FUNDS Specialized funds resemble sector funds in most respects. The major difference is the type of securities that make up the fund's portfolio. For example, the portfolio may consist of common stocks only, foreign securities only, bonds only, new stock issues only, over - the - counter securities only, and so on. ISLAMIC FUNDS In case of Islamic Funds, the investment made in different instruments is to be in line with the Islamic Shairah Rules. The Fund is generally to be governed by an Islamic Shariah Board. And then there is a purification process that needs to be followed, as some of the money lying in reserve may gain interest, which is not desirable in case of Islamic investments. BALANCED FUND The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. As the name suggests, balanced funds have an exposure to both equity and debt instruments. They invest in a pre-determined proportion in equity and debt–normally 60:40 in favour of equity. On the risk ladder, they fall somewhere between equity and debt funds, depending on the fund’s debt-equity spilt–the higher the equity holding, the higher the risk. Therefore, they are a good option for investors who would like greater returns than from pure debt, and are willing to take on a little more risk in the process. MONEY MARKET OR LIQUID FUND These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. BOND FUNDS These funds invest in government bonds and corporate bonds. These Bond Funds offer a steady source of income and in many times these incomes get the advantage of Tax Exemption. Approaches to Portfolio Management (Fund Management Style): Mutual funds can be broadly classified into two categories in terms of the fund management style i.e. actively managed funds and passively managed funds (popularly referred to as index funds). ACTIVELY MANAGED FUNDS
  12. 12. Mutual Funds 12 Actively managed funds are the ones wherein the fund manager uses his skills and expertise to select invest-worthy stocks from across sectors and market segments. The sole intention of actively managed funds is to identify various investment opportunities in the market in order to clock superior returns, and in the process outperform the designated benchmark index. in active fund management two basic fund management styles that are prevalent are: Growth Investment Style: wherein the primary objective of equity investment is to obtain capital appreciation. this investment style would make the funds manager pick and choose those shares for investment whose earnings are expected to increase at the rates that exceed the normal market levels. they tend to reinvest their earnings and generally have high P/E ratios and low Dividend Yield ratio. Value Investment Style: wherein the funds manager looks to buy shares of those companies which he believes are currently undervalued in the market, but whose worth he estimates will be recognized in the market valuation eventually. PASSIVELY MANAGED FUNDS On the contrary, passively managed funds/index funds are aligned to a particular benchmark index like KSE 100 index KSE 30 index. The endeavor of these funds is to mirror the performance of the designated benchmark index, by investing only in the stocks of the index with the corresponding allocation or weightage. MUTUAL FUND AND PAKISTAN MUFAP (MUTUAL FUND ASSOCIATION OF PAKISTAN) Mutual Funds Association of Pakistan (MUFAP) is the trade body for Pakistan’s multi billion rupees asset management industry. The money our members manage is in a wide variety of investment vehicles including stocks, bonds, money market instruments, government securities and bank deposits. Our role is to ensure transparency, high ethical conduct and growth of the mutual fund industry. MUFAP was formed in 1996 by Mr. ZaighamMahmood Rizvi, ex-Chairman and founder member, and was formally licensed in 2001 as a public limited company (by guarantee) under Section 42 of the Companies Ordinance, 1984 by Ministry of Commerce (MOC) and is thus a quasi legal entity. After the establishment of MUFAP in 1996, private and foreign firms were allowed to float open- ended funds for the general public. This time also saw the stock market’s performance scale new heights as a result of positive government policies and incentives, registering a growth of more than 15 times in the net assets of the mutual funds between 2000-2008. Mutual Funds were initially overseen by the Corporate Law Authority (“CLA”) under its Securities Wing. The CLA, then a division of the Ministry of Finance, was gradually transformed and made independent as the Securities and Exchange Commission of Pakistan (“SECP”) as part of the Capital Market Development Program (CMDP) initiative of the Asian Development Bank undertaken for Pakistan. The CMDP envisaged formation of four types of Self-Regulated Organizations (“SROs”) to function under the SECP:  Stock Exchanges recognized as separate SROs;  Mutual Funds Association of Pakistan (MUFAP);  Leasing Association of Pakistan (LAP); and  Modaraba Association of Pakistan (MAP). MUFAP’s role is to establish the essential codes and standards within the industry to ensure the trust and confidence of investors and build the industry as a whole.
  13. 13. Mutual Funds 13 TAXATION ON MUTUAL FUNDS The income of mutual funds is exempt from Income Tax, if not less than 90% of the income of the year, as reduced by capital gains is distributed amongst the unit holders as dividend or bonus units. TAXATION ON UNIT HOLDERS Holders of mutual funds are subject to Income Tax on dividend income received from a mutual fund (excluding the amount of dividend paid out of capital gains on listed securities) as under: Public Company and Insurance Company 5%.If received by any other person, including a non- resident 10% Capital gain on disposition of units in a mutual fund is exempted from tax till such time that capital gain on sale of securities listed on the stock exchanges is exempt from such tax. TAX CREDIT As funds are listed at the stock exchanges, unit holders of the mutual funds, other than a company, are entitled to a tax credit under section 62 of the Income Tax Ordinance, 2001 on purchase of new units. The amount on which tax credit is allowed is the lower of (a) amount invested in purchase of new units, (b) fifteen percent of the taxable income of the unit holder, or (c ) Rupees Five Hundred Thousand (PKR. 500,000), and is calculated by applying the average rate of tax of the unit holder for the tax year. If the units are disposed within twelve months, the amount of tax payable for the tax year in which the units are disposed is increased by the amount of credit allowed. RULES GOVERN MUTUAL FUNDS IN PAKISTAN There are two rules govern mutual funds in Pakistan, which are: 1) Investment Companies and Investment Advisors' Rules, 1971. (Govern closed-end mutual funds) 2) 2. Asset Management Companies Rules, 1995. (Govern open-ended mutual funds) PERFORMANCE OF MUTUALFUND COMPANIES OF PAKISTAN
  14. 14. Mutual Funds 14 MUTUAL FUND COMPANIES IN PAKISTAN Some of the mutual fundcompany’s details are given below: NATIONAL INVESTMENT TRUST LIMITED The National Investment Trust Limited (NITL) is the first Asset Management Company of Pakistan, formed in 1962, had Funds under management of Rs. 87 billion, with approximately 53,936 unit holders as on December 31, 2013. NIT's distribution network comprises of 23 branches, various Authorized bank branches all over Pakistan. The Trust constituted under the Trust Deed dated 12th
  15. 15. Mutual Funds 15 November 1962, executed between National Investment Trust Ltd (NITL) as Management Company and National Bank of Pakistan as Trustee. Vision Be recognized as the beacon of positive change in the Capital Markets. Leading by example, with an aim to provide the necessary opportunity to all the stakeholders and to contribute towards healthy growth of the industry. Mission To serve the investors by providing best possible return on their investments and to invest in the Capital Markets in a manner, which could provide depth for the investors and necessary capital to the industry. PRODUCTS & INVESTMENT STRATEGY 1-National Investment Unit Trust (NIUT) The National Investment Unit Trust (NIUT) is the Pakistan’s largest and oldest Mutual Fund. As on December 31, 2013, NIUT had funds under management of around Rs. 54.04 billion invested in over 385 listed companies and had approximately 51,087 unit holders. NITL's distribution network comprises of 23 NIT branches, various Authorized bank branches all over Pakistan. The Trust constituted under the Trust Deed dated 12th November 1962, executed between National Investment Trust Ltd (NITL) as Management Company and National Bank of Pakistan as Trustee. The core objective of NIT is to maximize returns for Unit holders, provide a regular stream of current income through dividends, while long term growth is achieved by the management of diversified portfolio and investments into growth and high yielding equity securities. It is an Open End Equity Fund and may invest in stocks listed on any stock exchange in Pakistan. 2-NIT – State Enterprise Fund National Investment Trust Limited has launched NIT – State Enterprise Fund on Jan 13, 2009. NIT – SEF was constituted under the trust deed executed between National Investment Trust Limited as Management Company and Central Depository Company (CDC) of Pakistan as Trustee. The total size of the Fund is Rs. 20.829 billion, Invested in the following eight eligible stocks backed by government guarantee. 1. Oil & Gas Development Company Limited. 2. Pakistan Petroleum Products. 3. KotAddu Power Company Limited. 4. Pakistan Telecommunication Company Limited. 5. National Bank of Pakistan. 6. Pakistan State Oil Company Limited. 7. Sui Northern Gas Pipeline Limited. 8. Sui Southern Gas Company Limited. The Objective of the Fund is to take advantage of market conditions and acquire a selection of Eligible Stocks thereby creating an opportunity for investors to achieve superior returns. It is an Open End Equity Fund. The Fund may invest in eight eligible stocks. 3-NIT-EMOF NIT started making investments from this Fund on 25th July 2008. NIT – EMOF was constituted under the Trust Deed executed between National Investment Trust Limited (NITL) being the management company and Central Depository Company (CDC) of Pakistan being Trustee. Objective of the Fund is to invest the Funds in Equity Market at a time when the Management Company of the Fund has reasons to believe that there is an opportunity to invest the fund in a gainful manner and such investment is in the benefit of the Fund taking a long term perspective. It is an Open End Equity Fund and may invest in 50 eligible stocks listed on Karachi stock exchange of Pakistan.
  16. 16. Mutual Funds 16 4-NIT-GBF NITL, in its efforts to provide a wide range of services to cater the needs of different classes of investors, has launched NIT Government Bond Fund. It is an open end Income Fund investing primarily in the short term as well as long term Government Securities with maximum weighted average time to maturity not exceeding 7.5 years. NIT GBF is a low risk income fund with major investment (70% or above) in Government Securities while remaining (30% or below) in schedule banks having investment grade cash or near cash instruments. As on December 31, 2013, NIT GBF had funds under management of around Rs. 4.2 billion and had approximately 1,263 unit holders. The primary objective of NIT - GBF is to generate best possible return with minimum risk, for its Unit Holders, by investing primarily in the government securities. 5- NIT-IF NITL, in its efforts to provide a wide range of services to cater to the needs of different classes of investors, has launched " NIT Income Fund" in the Fixed Income Category. It is also an open end Income Fund. As on December 31, 2013 NIT IF had funds under management of around Rs. 3.4 billion and had approximately 1,586 unit holders. The objective of "NIT IF" is to generate competitive stream of return with moderate level of risk for its unit holders, by investing primarily in portfolio of fixed income securities with weighted average time to maturity not exceeding four (4) years. In order to achieve its primary objective of generating competitive return for its unit holders, NIT IF would substantially invest in a diversified portfolio comprising of high quality debt securities. The fund shall at all time maintain a minimum of 25% of net assets in the form of cash & near cash instruments, whereas, the fund can take exposure of up to 75% of net assets in high quality debt securities. WHY SHOULD YOU INVEST WITH NIT ? NIT makes savings and investing simple, accessible and afforadable. By investing in NIT you will get the following benifits: • Sharing in diversified portfolio. • Continuous attractive return. • Expertise of experienced and professional managers. • Tax benefits on investment. • Easily en-cashable. • Operations under strict adherence to Government regulations. • Investment in NI(U)T units starts with a small amount of Rs.5,000/=. • Qualify as collateral for availing bank financing. • Full disclosure. • Investor who wishes to choose the growth path, has the option to reinvest his/her dividend income in the existing fund by which he/she will get additional Units equivalent to his/her dividend amount at the rate of opening NAV.
  17. 17. Mutual Funds 17 • NIT enables the common man to participate in the industrial growth of the country by becoming a part of that company. • It helps to make ownership of the industrial projects more broad based. • It minimizes the risk of investment as compared to individual investment in Stock Market. • Investment decisions at NIT are based on company specific and sector related detailed analysis of information which may not be readily accessible to an individual. • By investing in NIT units, the unit holder is indirectly investing in the shares quoted on stock exchanges and reaps the benefits of professional decision making. Al Meezan Investment Management Limited Al Meezan Investment Management Limited (Al Meezan) is the largest Shariah compliant asset management company in Pakistan with a solid track record of over 18 years of fund management. Incorporated on 27th February 1995, it is a group company of Meezan Bank Limited and Pakistan Kuwait Investment Company Private Limited and is currently managing assets of over Rs.53 Billion. Al Meezan is registered as a Non Banking Finance Company under the Non Banking Finance Companies (Establishment and Regulation) Rules, 2003 and NBFC Entities Regulations 2007 with the Securities and Exchange Commission of Pakistan (SECP) to carry on the business of asset management and investment advisory. Al Meezan is a member of the Mutual Funds Association of Pakistan (MUFAP). As an Investment Adviser, Al Meezan is authorized to manage discretionary and non-discretionary portfolios for its clients. It has also been licensed as Pension Fund Manager to manage Voluntary Pension Funds under Voluntary Pension System Rules, 2005. Al Meezan has got Management Quality Rating “AM2” assigned by JCR-VIS. Vision:- "To promote professional fund management through development and implementation of Shariah compliant investment products, policies and practices designed to meet the investment objectives of the investors". Mission:- "To be the leading Shariah compliant asset management company providing quality service to institutional and individual investors utilizing modern techniques of portfolio management, proactive asset allocation and prudent security selection while maintaining high standards of ethical and professional conduct”. Al Meezan Mutual Funds:- 1-Meezan Islamic Fund Meezan Islamic Fund (MIF) is not only the largest Shariah compliant equity fund but also the largest Equity Fund in private sector in Pakistan.
  18. 18. Mutual Funds 18 Fund Statistics: Fund Type Equity Launch Date 8-Aug-03 Trustee Central Depository Company Benchmark DJIMPK Auditors A.F. Ferguson Management Fee 2 % Front End Load 2.25% Listing KSE Rating 5 Star by JCR-VIS Salient Features Of MIF  Risk Diversification  Cost Efficiencies  Professional Management  Tax Credit  Healthy Return  Affordability 2-Meezan Islamic Income Fund Meezan Islamic Income Fund (MIIF) is the Pakistan’s first Shariah Compliant open end mutual fund which falls in the category of Income Fund. Fund Statistics: Fund Type Open End Risk Level Minimal Launch Date 15-Jan-07
  19. 19. Mutual Funds 19 Trustee Central Depository Company Unit Types A, B & C Auditors A.F. Ferguson Portfolio Duration 3.41 Months Stability Rating A +(f) by JCR-VIS The objective of MIIF is to provide Halal and consistent stream of income with long-term capital preservation in a Shariah Compliant manner. 3-Meezan Cash Fund If you are looking for a cash management solution for parking short term liquidity, Meezan Cash Fund (MCF) is the ideal product for it. Being the first ever Shariah compliant money market fund in Pakistan, MCF aims to bring you very stable returns avoiding volatility of both long-term fixed income instruments and stock markets. 4-Al Meezan Mutual Fund Al Meezan Mutual Fund (AMMF) – ( previously a closed-end equity fund) managed by Al Meezan) since 1995 has now been converted into an open-end equity fund with effect from August 5, 2011. 5-Meezan Balanced Fund Meezan Balanced Fund is a Shariah compliant open-end balanced scheme which aims to provide reasonable returns by distributing investible assets between both equity and debt markets. A balanced fund is suited for investors who are seeking higher returns than a debt fund and at the same time don’t want to be exposed to high risk associated with equity investing. 6-Meezan Capital Preservation Fund Meezan Capital Preservation Fund (MCPF) is an open- end Shariah Compliant Fund of Funds Scheme. The objective of MCPF is to earn potentially high rate of return utilizing internationally renowned capital protection methodology; Constant Proportion Portfolio insurance(CPPI) while preserving the initial investment amount. Fund Statistics: Fund Type Open End – Equity Risk Level High Launch Date May-96 ( open end from Aug 05, 11) Trustee Central Depository Company Auditors A.F. Ferguson AMC Rating AM2 (High Quality)
  20. 20. Mutual Funds 20 7-Meezan Capital Protected Fund - II The foremost concern of most of the investors is safety of capital with optimal rate of return on their investment. In order to achieve this objective, Al Meezan Investment Management Limited (Al Meezan) and Meezan Bank presents Meezan Capital Protected Fund-II (MCPF-II), the second series of Shariah compliant Capital Protected Funds. MCPF-II offers the best investment solution to investors offering safety of capital while having access to the stock market. Investment Procedure:- 1. Obtaining Form 2. Filling Out The Form Documents required with Account Opening Form In case of Individual Investor:  Copy of CNIC/ NICOP/Copy of passport  Copy of Zakat Affidavit form for Zakat deduction exemption In case of Institutional Investor:  Memorandum and Articles of Association/ Bye Laws/ Trust Deed.  Power of Attorney or List of authorized signatories  Copy of CNICs of authorized signatories  Board resolution authorizing the investment  Any other document 3. Making The Payment The payment can be made in the following modes:  Cheque  Pay-order  Demand Draft 4. Submitting The Form And Payment Instrument