Mutual funds:
 A company/corporation that pools money from many
investors and invest the money in securities such
as stoc...
Stock market crash……
History of mutual funds:
 An integral part of financial activity in American life.
 Mind boggling o...
The first mutual fund scandal 1960
Reasons:
 Duplicity of advisory fee.
 Measure like amendment of section 12(d/1) of in...
Steps taken:
 Mutual fund would disclose the portfolio holding for the whole
month on the funds website.
 Funds must acq...
Mutual funds in Pakistan
 In Pakistan mutual funds were introduced in 1962.Initially public offering of “National
Investm...
Reasons for low success of mutual funds in Pakistan
 Controlled by public sector initially.
 Lack of awareness.
 Educat...
Board of directors:
 Care takers of share holder’s money.
 2/3 of the BODs shall be independent
persons not associated w...
Distributor or underwriter:
Mutual funds usually distributes their share
through underwriter who continuously offer
new sh...
Types of mutual fund On the basis of structure
A. Open ended fund
 Typically called mutual funds which continuously offer...
CLOSEED END FUNDS:
 Are open initially for 45 days during IPO.
 A fund where fixed number of shares are issued on
exchan...
Categories of mutual funds:
SECP the regulator has categorized the scheme of mutual fund as under:
1). Equity scheme:
An e...
3). Balanced scheme:
These funds provide investors with a single mutual fund that invest in both stocks
and debt instrumen...
6).Islamic scheme:
Those funds which invest in Sharia complaint
securities
i.e. share,sukuk ,Ijara
7). Money market scheme:
 Money market fund are the safest and the
most stable of all of the different type of
mutual fun...
Other funds
Diversified funds:
A fund which invest funds in diverse sector of economy
i.e. in various sectors.
Sector fund...
Myths about mutual funds:
Mutual funds invest only in shares
Mutual funds are prone to very high risk trade
Mutual fund...
Advantages of mutual funds:
 Low risk
 Professional management of investment
 Low cost of investment
 Diversification
...
MUTUAL FUNDS BY waqas hassan
MUTUAL FUNDS BY waqas hassan
MUTUAL FUNDS BY waqas hassan
MUTUAL FUNDS BY waqas hassan
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MUTUAL FUNDS BY waqas hassan

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MUTUAL FUNDS BY waqas hassan

  1. 1. Mutual funds:  A company/corporation that pools money from many investors and invest the money in securities such as stocks, bonds and short term debts.  The combine holdings of a mutual fund are known as its portfolio.  Investors who buy shares in mutual funds become entitled to ownership in the fund and the income it generates.
  2. 2. Stock market crash…… History of mutual funds:  An integral part of financial activity in American life.  Mind boggling one third of the families in the United States invest in mutual funds.  From 1980-2008 worth of mutual funds grew from $134 billion to $ 9 trillion.  The first kind of unit trust was formed in England in 1868.  In 1924 unit investment trust was established in US.  Around that time open ended and closed ended become popular.  Market crash in 1929.  Congress in US initiated SEC study and report on the function and activities of investment trust and investment companies.  Report found outright thefts.  Congress decided to enhance disclosure scheme of securities Act of 1933 and to regulate operation of funds.
  3. 3. The first mutual fund scandal 1960 Reasons:  Duplicity of advisory fee.  Measure like amendment of section 12(d/1) of investment company Act was pursued which obligated investment advisor to have reasonable fee and governing the investment by the investing companies.  Money market mutual fund surfaced in 1970’s. The second scandal: 2003-2009 Reasons  Improper trading activities, undisclosed compensation arrangement related to brokers in distribution.  High fee and expenses.  Improper sales practices.
  4. 4. Steps taken:  Mutual fund would disclose the portfolio holding for the whole month on the funds website.  Funds must acquaint SEC regarding portfolio holdings and certain other information on monthly basis. Dodd-frank Act: July 2010 Bounties for “whistle-blowers”. Short form prospectus revealing information about the fund objectives, nature, goal etc.
  5. 5. Mutual funds in Pakistan  In Pakistan mutual funds were introduced in 1962.Initially public offering of “National Investment Trust” were offered which is an open ended mutual fund.  In 1966 another fund known as Investment Corporation of Pakistan was established. It offered a series of closed ended mutual fund.  In 1994 -1995 more funds were lunched in private sector. Rules : There are two rules which govern mutual funds in Pakistan ,these are: , 1. Investment companies and investment advisor’s rule 1971 (govern close ended mutual funds). 1. Asset management companies rule 1995 (govern open ended mutual funds)
  6. 6. Reasons for low success of mutual funds in Pakistan  Controlled by public sector initially.  Lack of awareness.  Education.  Distribution ineptitude.  Low saving by the people for investment. Structure of mutual funds/key players: Sponsor:  Akin to promoter of the company  Contribution of minimum 40% of net worth of AMC  Posses a sound financial report over 5 years period  Establishes the fund  Gets it register with SECP  Appoints board of directors
  7. 7. Board of directors:  Care takers of share holder’s money.  2/3 of the BODs shall be independent persons not associated with the sponsor.  Ensures whether the system, process and personnel are in place.  Resolve unit /share holders’ grievances.  Appoints AMC and custodian and ensure all the activities are in accordance with the SECP regulation. Custodian:  Holds the fund securities in safe keeping.  All mutual funds use a qualified bank custodian. Asset management company/investment advisor:  Floats investment schemes only after receiving prior approval from BOD’s and SECP.  Make the required disclosure to the investors in area such as calculation of NAV and re-purchase price.  Must maintain a minimum worth Rupees 10 crore at all times.  Cannot act as a trustee/BOD of any other mutual fund.
  8. 8. Distributor or underwriter: Mutual funds usually distributes their share through underwriter who continuously offer new shares to the public. Transfer agent:  Employed ,by mutual fund for record keeping.  Calculating and disbursing dividend, tax information. Independent public accountant: They certify fund’s financial statements.
  9. 9. Types of mutual fund On the basis of structure A. Open ended fund  Typically called mutual funds which continuously offer new shares to investor unless a fund become too large.  It has no secondary market  By law they are required to redeem outstanding shares at any time upon a share holder request on a price based upon ‘net asset value’  The investor could buy only the shares through the fund or its outlet and not in an open market. Examples of Open Ended Mutual Funds  National Investment Trust (NIT) in public sector  Pakistan Stock Market Fund (PSM)  Pakistan Income Fund (PIF)  Unit Trust of Pakistan (UTP)  UTP Islamic Fund  United Money Market Fund (UMMF)  Dawood Money Market Funds (DMMF)  Atlas Income Fund (AIF)  Meezan Islamic Fund (MIF)
  10. 10. CLOSEED END FUNDS:  Are open initially for 45 days during IPO.  A fund where fixed number of shares are issued on exchange or over the counter.  Exchange determines the price of share. Example of closed end funds:  Asian Stocks Fund  First Capital Mutual Fund  Golden Arrow Stock Fund  Investec Mutual Fund  Pakistan Premier Fund  Pakistan Capital Mkt Fund  Prudential Stock Fund  Safeway Mutual Fund  Tri-Star Mutual Fund Difference B/W open and closed end funds: The main difference is that in closed end mutual funds they are exchanged in open market like other common shares. While open end mutual market fund sell their share to investors and stand ready to buy back their share only through the fund, and its shares could not be exchanged on exchange. Open ended funds doesn’t have shares limit where as closed ended funds have limited number of shares.
  11. 11. Categories of mutual funds: SECP the regulator has categorized the scheme of mutual fund as under: 1). Equity scheme: An equity scheme or equity fund is a fund that invests in equities more commonly known as stocks. The objectives of an equities fund is long term growth through capital appreciation. Although dividends and capital gain realized are also source of revenue of a Mutual fund. 2). Fixed income funds: These funds invests in the area that pay a fixed rate of return like government bonds, corporate bond etc. They aim to have money coming to their fund on a regular basis ,mostly through the interest that the fund earns.
  12. 12. 3). Balanced scheme: These funds provide investors with a single mutual fund that invest in both stocks and debt instruments and with this diversification aimed at providing investors with growth through investments in stocks and income from investment through debt instruments. 4). Asset allocation fund: These funds may invest in assets in any type of securities at any time in order to diversify its assets across multiple type of securities and investments style available in market. 5). Fund of fund scheme: Fund of fund are those funds which invest in other mutual funds. The fund operate in diverse portfolio of equity, balanced fixed income and money market funds.
  13. 13. 6).Islamic scheme: Those funds which invest in Sharia complaint securities i.e. share,sukuk ,Ijara
  14. 14. 7). Money market scheme:  Money market fund are the safest and the most stable of all of the different type of mutual funds.  These funds invest in short term debts instruments such as T-bills , commercial papers.
  15. 15. Other funds Diversified funds: A fund which invest funds in diverse sector of economy i.e. in various sectors. Sector funds: A fund which invest in a particular sector such as health or technology etc. Domestic funds: These funds mobilize resources from a particular geographical locality. Market is limited to the boundaries of the nation in which the funds operates. Gilt funds: Those funds which only invest in central and state government securities. Offshore funds: These funds attract outside investors and also invest in security abroad e.g. Zaffar and associates trust
  16. 16. Myths about mutual funds: Mutual funds invest only in shares Mutual funds are prone to very high risk trade Mutual funds are very new in financial markets Mutual funds are not reliable, people rarely invest in them The good thing about mutual funds that you don’t have to pay attention to them.
  17. 17. Advantages of mutual funds:  Low risk  Professional management of investment  Low cost of investment  Diversification  Various type of schemes  Scope of good returns  Easy liquidity  Tax benefits  Provides transparency

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