MUTUAL FUNDs

Subject:
BUSINESS FINANCE

Submitted By:

Amir Shahzad

Submitted To:

Sir, Aamer Sohail

Date:

15-11-2011

University of The Punjab

Gujranwala Campus

Mutual Funds
A mutual fund is a collective investment scheme, which specializes in investing a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. A fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. One of the main advantages of funds is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult (if not impossible) to create with a small amount of capital. 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. Open-ended fund units are issued and can typically be purchased or redeemed as needed at the fund's current net asset value (NAV) per share whereas closed-end funds are listed on the stock exchanges and can be freely traded. Types of Mutual Funds (By Structure) Funds can be open-ended funds or closed-end funds depending on their structure. Open-ended Funds These funds are in a continuous process of issuing shares/ units on demand and redeeming shares/ units on demand. The shares/ units do not trade on a market. The number of shares/ units outstanding varies each time the net asset valuation calculation is carried out, which is daily for most open-ended funds. Closed-end Funds Closed-end funds issue a specific number of shares. Their capitalization is fixed. The shares are not redeemable, but are readily transferable and traded on either a stock exchange or the overthe-counter market. The price of a closed-end fund share fluctuates based on investor supply and demand. Closed-end funds are not required to redeem shares and have managed portfolios. Types of Mutual Funds (By Objective) Open-ended or closed-end funds can be of several types; however the most basic classifications are stock funds, income funds, hybrid funds or specialty funds. Further classifications evolve as each fund pursues diverse investment strategies for instance: Islamic Equity Funds, Sector Funds, Global Equity Funds, High Yield Debt Funds, Aggressive Equity Funds, Income Funds and so on. 1. Money Market Funds The money market consists of short-term debt instruments, mostly Treasury bills. This is a safe place to park your money. You won't get great returns, but you won't have to worry about losing your principal. A typical return is twice the amount you would earn in a regular checking/savings account and a little less than the average certificate of deposit (CD). 2. Income Funds A type of mutual fund that emphasizes current income, either on a monthly or quarterly basis, as divergent from targeting capital appreciation. These funds hold a variety of government, municipal and corporate debt obligations, preffered stock, money market instruments and dividend paying stocks.

3. Hybrid Funds Hybrid funds invest in both bonds and stocks or in convertible securities. Balanced funds, asset allocation funds, target date or target risk funds and lifecycle or lifestyle funds are all types of hybrid funds. Hybrid funds may be structured as funds of funds, meaning that they invest by buying shares in other mutual funds that invest in securities. Most fund of funds invest in affiliated funds (meaning mutual funds managed by the same fund sponsor), although some invest in unaffiliated funds (meaning those managed by other fund sponsors) or in a combination of the two. i. Balanced Fund Mutual funds that combine investments in shares, shortterm and longterm bonds in pursuit of income gains and capital appreciation while avoiding excessive risk. These are also called hybrid funds. The idea behind this concept is to provide investors with a single mutual fund that combines inco me and growth objectives, by investing in both stocks and bonds. Due to diversification, these funds are less volatile with moderate correlation with market. ii. Assets Allocation Funds This type of mutual fund invests in a variety of securities in multiple asset classes with the object ive of carrying out asset allocation typically by itself. The rationale is to provide investors with s uitably diversified holdings and consistent returns. Generally, asset allocation funds are less volat ile usually with correlation of almost 1 with the market. 4. Specialty Funds This classification of mutual funds is more of an all-encompassing category that consists of funds that have proved to be popular but don't necessarily belong to the categories we've described so far. This type of mutual fund forgoes broad diversification to concentrate on a certain segment of the economy. 5. Sector funds Sector funds are targeted at specific sectors of the economy such as financial, technology, health, etc. Sector funds are extremely volatile. There is a greater possibility of big gains, but you have to accept that your sector may tank. 6. Global/International Funds An international fund (or foreign fund) invests only outside your home country. Global funds invest anywhere around the world, including your home country 7. Islamic Funds A type of fund which entirely invests in Shariah compliant instruments. Islamic funds exist in almost all the forms discussed earlier. Each fund invests in its respective areas of interest keeping in view the rules of Shariah compliance. The volatility of each kind of Islamic fund depends on its category and also the relationship with the market in which it operates.

Basic Structure
Mutual Funds are operated by Asset Management Companies (AMC) which exists in the form of a corporation, owned by its shareholders. The AMC launches new funds through the establishment of a Trust Deed, entered between the Asset Management Company and the Trustee, which in most cases is the Central Depository Company of Pakistan Limited, with due approval from the SECP under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the Rules). The CDC performs the functions of the custodian and trustee, whereas the AMC can act as the registrar or can appoint an external registrar. Banking/ financial companies maybe authorized to act as distributors/ sales agents. The Board of Directors must also approve and appoint a legal advisor and auditor for legal and compliance affairs.

Benefits of Investing in Mutual Funds

Professional fund managers have the training and experience to manage investments effectively. Investing in funds allows one to benefit from the expertise of professionals who have the resources to thoroughly study potential investments. Their investment decisions are based on extensive knowledge and research of market conditions and the financial performance of individual companies and specific securities. As economic conditions change, the fund may adjust the mix of its investments to adopt a more aggressive or a more defensive posture to meet its investment objective.

1. Liquidity
Liquidity gives the investor the ability to readily access his money in an investment. Fund shares are liquid investments that can be sold on any business day. Funds are required by law to buy, or redeem, shares each business day. The price per share at which you can redeem shares is known as the funds net asset value (NAV). NAV is the current market value of all the funds assets, minus liabilities, divided by the total number of outstanding shares.

2. Diversification
Funds allow investors to diversify their investment portfolio automatically by holding a wide variety of securities. Moreover, since the assets are pooled with other investors, a fund allows greater diversification at a fraction of the cost than would otherwise be probable for a single investor portfolio.

3. Variety
The fund industry in Pakistan is still in a development phase, yet it offers investors a wide variety of fund types to choose from, depending on their investment objectives. Fund types include pure equity, money market or debt funds or hybrid funds like fixed and variable asset allocation funds or benchmark funds which pursue a certain index. These categories continue to grow as the investor needs become more complex.

Regulation and Disclosure

All fund companies operating in Pakistan are subject to strict regulation and oversight by the Securities and Exchange Commission Pakistan (SECP). As part of this regulation, all funds must provide investors with full and complete disclosure about the fund in a written prospectus describing the funds investment objective, its investment methods, information on how to purchase and redeem shares, information about the investment adviser, risks of investments and fund fees and expenses. Unit holders are also to be provided with annual and semiannual reports that contain recent information on the funds portfolio, performance, and investment goals and policies.

Risk of Investing in Mutual Funds

Mutual funds are capital market instruments and therefore subject to the same risks as the underlying investments. Specific risks include:

1. Credit Risk
Potential that an investment (specifically fixed-income securities) will go down when assigned a negative rating (downgraded) by a reputable credit rating service.

2. Default Risk
Risk associated with an issuer of a debt instrument that may not have the financial ability to meet regular interest payments or is incapable of repaying the debt at maturity.

3. Equity Investment Risk

Risk resulting from changes in a specific company or industry developments and prospects, as well as changes in interest rates, economic conditions and stock market news.

4. Interest Risk
Risk resulting from increased interest rates in the market place, that the income earned from an original investment will not be worth as much as the going market rates.

5. Liquidity Risk
Risk inability to sell a security reasonably quickly at the prevailing market price or convert an asset into cash as quickly as possible.

6. Political Risk
Risk potential for changes in government to impact the value of an investment. It may also include policy changes made by governments.

Assets Under Management

(Open ended Schemes) Fund Name ABL Assets Management Company Limited
ABL Cash Fund ABL Income Fund ABL Islamic Income Fund ABL Stock Fund

Category
Money Market Income Islamic income Equity Aggressive Fixed Income Index Tracker Equity Islamic Equity Islamic Capital Protected Fund Islamic Money Market Islamic Equity Islamic Income Islamic Income Equity Money Market Aggressive Fixed Income Islamic Asset Allocation Asset Allocation Fund Money Market Asset Allocation IncomeJanuary Equity Islamic Income Income Income Balanced Capital Protected Money Market Aggressive Fixed Income Income Islamic Asset Allocation Equity Equity Equity

AKD Investment Management Limited

AKD Aggressive Income Fund AKD Index Tracker Fund AKD Opportunity Fund

Al Meezan Investment Management Limited

Al Meezan Mutual Fund Meezan Capital Protected Fund II Meezan Cash Fund Meezan Islamic Fund Meezan Islamic Income Fund Meezan Sovereign Fund Alfalah GHP Alpha Fund Alfalah GHP Cash Fund Alfalah GHP Income Multiplier Fund Alfalah GHP Islamic Fund Alfalah GHP Value Fund MCB Cash Management Optimizer MCB Dynamic Allocation Fund MCB Dynamic Cash Fund MCB Dynamic Stock Fund MCB Islamic Income Fund Metro Bank Pakistan Sovereign Fund (12/12) Metro Bank Pakistan Sovereign Fund (Perpetual) Pakistan Capital Market Fund Pakistan Capital Protected Fund (FIS) Pakistan Cash Management Fund Pakistan Income Enhancement Fund Pakistan Income Fund Pakistan Int'l Element Islamic Asset Allocation Fund Pakistan Premier Fund Pakistan Stock Market Fund Pakistan Strategic Allocation

Alfalah GHP Investment Management Limited

Arif Habib Investments Limited (A subsidiary of MCB Bank Limited)

Askari Investments Management Limited

Askari Asset Allocation Fund Askari High Yield Scheme Askari Islamic Asset Allocation Fund Askari Islamic Income Fund Askari Sovereign Cash Fund Asset Allocation Aggressive Fixed Income Islamic Asset Allocation Islamic Income Money Market Income Islamic Income Equity Money Market Equity Income Islamic Asset Allocation Asset Allocation Balanced Aggressive Fixed Income Islamic Income Money Market Income Income Islamic Money Market Islamic Equity Money Market Balanced Asset Allocation Aggressive Fixed Income Money Market Fund of Funds Income Islamic Equity Index Tracker Equity Capital Protected Balanced Income

Atlas Asset Management Limited

Atlas Income Fund Atlas Islamic Income Fund Atlas Islamic Stock Fund Atlas Money Market Fund Atlas Stock Market Fund

Dawood Capital Management Limited

Dawood Income Fund Dawood Islamic Fund

Faysal Asset Management Limited

Faysal Asset Allocation Fund Faysal Balanced Growth Fund Faysal Income & Growth Fund Faysal Islamic Savings Growth Fund Faysal Money Market Fund Faysal Savings Growth Fund

HBL Asset Management Limited

HBL Income Fund HBL Islamic Money Market Fund HBL Islamic Stock Fund HBL Money Market Fund HBL Multi Asset Fund

JS Investments Limited
JS Aggressive Asset Allocation JS Aggressive Income Fund JS Cash Fund JS Fund of Funds JS Income Fund JS Islamic Fund JS KSE 30 Index Fund JS Large Cap Fund JS Principal Secure Fund 1 Unit Trust of Pakistan

National Asset Management Company Limited

NAMCO Income Fund

KASB Funds Limited

Crosby Dragon Fund Crosby Phoenix Fund KASB Asset Allocation Fund KASB Capital Protected Gold Fund KASB Cash Fund KASB Income Opportunity Fund KASB Islamic Income Opportunity Fund KASB Stock Market Fund Equity Income Asset Allocation Capital Protected Money Market Aggressive Fixed Income Islamic Aggressive Fixed Income Equity Equity Income Income Asset Allocation Income Money Market Income Income Islamic Aggressive Fixed Income Islamic Balanced Fund Balanced Islamic Income Income Equity Asset Allocation Islamic Income Income Islamic Asset Allocation Money Market Income Equity Capital Protected Income Islamic Income Money Market Income Islamic Balanced Fund Aggressive Fixed Income Equity

National Investment Trust Limited

National Investment Unit Trust NIT Government Bond Fund NIT Income Fund

NBP Fullerton Asset Management Limited

NAFA Asset Allocation Fund NAFA Financial Sector Income Fund NAFA Government Securities Liquid Fund NAFA Income Fund NAFA Income Opportunity Fund NAFA Islamic Aggressive Income Fund NAFA Islamic Multi Asset Fund NAFA Multi Asset Fund NAFA Riba Free Savings Fund NAFA Saving Plus Fund NAFA Stock Fund Pak Oman Advantage Asset Allocation Fund Pak Oman Advantage Islamic Income Fund Pak Oman Government Securities Pak Oman Islamic Asset Allocation Fund

Pak Oman Asset Management Company Limited

PICIC Asset Management Company Limited

PICIC Cash Fund PICIC Income Fund PICIC Stock Fund UBL Fund Managers Limited UBL Capital Protected Fund II UBL Government Securities Fund UBL Islamic Savings Fund UBL Liquidity Plus Fund UBL Savings Income Fund United Composite Islamic Fund United Growth & Income Fund United Stock Advantage Fund

Assets Under Management

(Voluntary Pension Funds)
Fund Name Sub Fund Category
Al Meezan Investment Management Limited Meezan Tahaffuz Pension Fund Debt Islamic Pension Funds Meezan Tahaffuz Pension Fund Equity Islamic Pension Funds Meezan Tahaffuz Pension Fund Money Market Islamic Pension Funds Arif Habib Investments Limited (A subsidiary of MCB Bank Limited) Pakistan Islamic Pension Fund Debt Islamic Pension Funds Pakistan Islamic Pension Fund Equity Islamic Pension Funds Pakistan Islamic Pension Fund Money Market Islamic Pension Funds Pakistan Pension Fund Debt General Pension Fund Pakistan Pension Fund Equity General Pension Fund Pakistan Pension Fund Money Market General Pension Fund Atlas Asset Management Limited Atlas Pension Fund Debt General Pension Fund Atlas Pension Fund Equity General Pension Fund Atlas Pension Fund Money Market General Pension Fund Atlas Pension Islamic Fund Debt Islamic Pension Funds Atlas Pension Islamic Fund Equity Islamic Pension Funds Atlas Pension Islamic Fund Money Market Islamic Pension Funds JS Investments Limited JS Islamic Pension Savings Fund Debt Islamic Pension Funds JS Islamic Pension Savings Fund Equity Islamic Pension Funds JS Islamic Pension Savings Fund Money Market Islamic Pension Funds JS Pension Savings Fund Debt General Pension Fund JS Pension Savings Fund Equity General Pension Fund JS Pension Savings Fund Money Market General Pension Fund UBL Fund Managers Limited UBL Islamic Retirement Saving Fund Debt Islamic Pension Funds UBL Islamic Retirement Saving Fund Equity Islamic Pension Funds UBL Islamic Retirement Saving Fund Money Market Islamic Pension Funds UBL Retirement Saving Fund Debt General Pension Fund UBL Retirement Saving Fund Equity General Pension Fund UBL Retirement Saving Fund Money Market General Pension Fund

Assets Under Management (Close End Schemes)

Fund Name AKD Investment Management Limited
Golden Arrow Selected Stock Fund

Category
Equity Islamic Balanced Fund Fund of Funds Balanced Equity Equity Equity Balanced Income Equity Equity Equity Equity equity

Al Meezan Investment Management Limited

Meezan Balanced Fund

Atlas Asset Management Limited

Atlas Fund of Funds

Dawood Capital Management Limited

First Dawood Mutual Fund First Capital Investments Limited First Capital Mutual Fund

JS Investments Limited
JS Growth Fund JS Value Fund Limited

National Asset Management Company Limited

NAMCO Balanced Fund Pak Oman Asset Management Company Limited Pak Oman Advantage Fund

PICIC Asset Management Company Limited

PICIC Energy Fund PICIC Growth Fund PICIC Investment Fund

Safeway Funds Limited

Asian Stocks Fund Safeway Mutual Fund