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MUTUAL FUNDS By: Uzair Ahmad (Relationship Manager) NBP Fullerton Asset Management Ltd. Qualification: MBA (Finance) Mutual Funds Distributor Certification Stock ... – PowerPoint PPT presentation

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  • By
  • Uzair Ahmad (Relationship Manager)
  • NBP Fullerton Asset Management Ltd.

  • MBA (Finance)
  • Mutual Funds Distributor Certification
  • Stock Brokers Certification
  • IMSciences (2011)
  • Institute of Capital Markets, Karachi (2010)
  • Institute of Capital Markets, Karachi (2011)

Professional Qualification
Mutual Funds
  • Mutual Funds are a pool of money invested by
    small, medium large Investors .
  • Simply put, a mutual fund is a type of
    investment. You can think of it as a group of
    people with similar goals who, instead of
    investing on their own, pool their money.
  • They hire a professional manager to invest that
    money in securities, such as stocks, bonds, and
    money market instruments.

Mutual Funds
Introduction to Mutual Funds
  • Mutual Funds
  • Professional Fund Managers
  • MBAs
  • CAs
  • CFAs
  • Investments
  • Stocks
  • Money Markets
  • TFCs
  • Bank Deposits
  • CFS

YOU The Investor
History of Mutual Funds
  • The mutual fund industry was born in the United
    States 87 years ago.
  • The  first open-end mutual fund was founded on
    March 21, 1924 and after one year had 200
    shareholders and 392,000 in assets.
  • By the end of the 1960s there were around 270
    funds with 48 billion in assets.
  • Today, mutual funds assets in the United States
    are more than their bank deposits.
  • Similar stories are being repeated in other

Mutual Funds around the Global Local Market
  • Mutual funds are very popular today, known for
    ease-of-use, liquidity, and unique
    diversification capabilities.
  • Mutual Fund around the Globe
  • Country                       Assets  (US
    Billion)     No. of Funds
  • USA                                    
    8,977           14,026
  • Europe                                  
    5,561                   29,690
  • Asia Pacific                      
    1,815                    11,620
  • Africa                                   
    52                        570
  • Hong Kong                          
    404                   1,040
  • India                                      
    38                      415
  • Japan                                    
    406 2,576
  • Korea                                    
    189        6,568
  • New Zealand                       
    10               554
  • Philippines                          
    1                 28
  • Pakistan                                
    3                         122
  • Taiwan                                 
    71                       453

Mutual Fund in Pakistan
  • The mutual fund industry was introduced in
    Pakistan by the Government in the form of
    National Investment Trust (NIT) it was
    constituted under the trust deed dated 12th
    November 1962.
  • Executed between the National Investment Trust
    Ltd (NITL) as the Management Company and the
    National Bank of Pakistan as the Trustee.
  • Mutual Funds in Pakistan are running under the
    Non-Banking Finance Companies (NBFC) Act 2003 and
    regulated by Securities and Exchange Commission
    of Pakistan (SECP).

  • A trustee is a party who is given the legal
    responsibility to hold and safeguard the fund
    property in the best interest of or for the
    benefit of investors.
  • Asset Management Company only takes investment
    decisions. The trustee makes payments from the
    funds account for the securities purchased and
    the securities are then placed into the same
    account according to the trust deed.
  • The trustee for Mutual Funds in Pakistan is
    Central Depository Company (CDC), which is
    running under Government of Pakistan.
  • CDC is also the trustee for the entire stock
    market investors in the country (size Rs.
    2000 billion).

Who can invest in mutual funds?
  • Individuals
  • Companies
  • Financial Institutions
  • Banks
  • Non-profit Organizations
  • Provident Funds
  • Pension Funds
  • Gratuity Funds
  • Foreign Nationals (fulfilling requirements of the

Types of Mutual Funds
  • There are two types of Mutual Funds.
  • Close Ended Fund Open Ended Fund

Close Ended Funds
  • Closed End Funds have a predetermined and fixed
    number of shares outstanding.
  • Closed-end funds behave more like stocks because
    they trade on an exchange and the price is
    determined by market demand after an initial
    public offering (IPO) process.
  • Closed-end funds can be traded below their net
    asset value or above.

Close Ended Funds
  • The closed-end fund "company" still has its own
    stock, which is traded on an exchange and trades
    above or below its underlying value, or net asset
    value (NAV), in this case.
  • They also trade according to market demands.
    Every seller must have a buyer.

Open Ended Funds
  • A type of mutual fund, where there are no
    restrictions on the amount of shares the fund
    will issue.
  • If demand is high enough, the fund will continue
    to issue shares no matter how many investors
    there are.
  • Open-end funds also buy back shares when
    investors wish to sell.
  • It's important to understand that each mutual
    fund has different risks and rewards.

Open Ended Funds
  • In general, the higher the potential return, the
    higher the risk of loss.
  • Although some funds are less risky than others,
    all funds have some level of risk - it's never
    possible to diversify away all the risk. This is
    a fact for all investments.

Types of Open Ended Funds
  • Equity / Stock Funds
  • Money Market Funds
  • Debt Funds
  • Balanced Funds
  • Islamic Funds
  • Index Funds
  • Global /International Funds

Equity / Stock Funds
  • These funds invest mainly in the shares of
    companies and undertake the risk of price
    movement at the stock exchange.
  • Such funds are clearly expected to out-perform
    other types of funds in a rising market.
  • Their strength is the expected dividends and
    windfall income through capital gains.

Money Market Funds
  • These funds primarily invest in assets which have
    maturity less than 1 years e.g.
  • Treasury Bills
  • Short term Bank Deposits (CD)
  • Commercial Papers other securities.
  • They are generally not affected by volatility at
    the debt market stock exchanges.
  • The risk of Money Market funds is very low and so
    is the return.

Debt Funds
  • The objective of Income funds is to seek a high
    level of current income than Money Market funds.
  • Investors seeking higher income are willing to
    accept moderate risk price fluctuations.
  • Bond/Income funds usually invest money in
  • Bank Deposits
  • Term Finance Certificates (Corporate Bonds)
  • Government Bonds

Balanced Funds
  • The objective of these funds is to provide a
    balanced mixture of safety, income and capital
  • The strategy of balanced funds is to invest in a
    combination of fixed income and equities.
  • A balanced fund might have a weighting of 60
    equity and 40 fixed income any other depending
    on the situation of capital market .

Islamic Funds
  • These funds mainly invest in Riba free
  • Islamic funds conduct all their activities
    according to the Islamic Shariah based on the
    guidelines provided by the Shariah Advisory Board
    appointed for the fund.
  • A Shariah Advisory Board comprises of eminent
    Islamic and financial scholars, who have
    considerable experience in the field of Islamic
  • Islamic Funds can be equity, income or balanced
    fund as long as the policies meet the Shariah

Index Funds
  • This type of mutual fund replicates the
    performance of a broad market index such as KSE
    100 Index.
  • An investor in an index fund figures that most
    managers can't beat the market.
  • The asset allocations of the index funds mostly
    the same as compare to their benchmark index.

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.
  • It's tough to classify these funds as either
    riskier or safer than domestic investments.
  • They do tend to be more volatile and have unique
    country and/or political risks.
  • The world's economies are becoming more
    inter-related, it is likely that another economy
    somewhere is outperforming the economy of your
    home country.

The Benefits of Mutual Funds
  • Simple to invest
  • Diversification
  • A mutual fund is diversified because it invests
    in many different types of securities thus
    offering better risk management.
  • Professional management
  • Mutual funds are managed by Asset Management
    Companies through professional portfolio
    managers, who in coordination with the research
    department, identify the best securities for a
    fund and make timely and profitable short term
    long term investment decisions.

The Benefits of Mutual Funds
  • Low Cost
  • Diversifier portfolio allocated to investor even
    on minimum investment.
  • Transparency
  • Most transparent form of investment. Prices
    can be monitored daily .
  • Liquidity
  • You can liquidate your investment anytime.
  • Highly Regulated
  • Mutual Funds are regulated by Securities
    Exchange Commission of Pakistan (SECP)

The Benefits of Mutual Funds
  • Life Cycle Planning
  • Investor can link their investment plans to
    future individual family needs and make
    changes as the life cycle changes.
  • Market Cycle Planning
  • For investors who understand how to actively
    manage their portfolio, their investments can be
    moved as market conditions change.
  • Taxation Benefits
  • Investment in open end funds also enjoys a
    Tax-Rebate under section 62 of the Income Tax
    Ordinance 2001.

Risk Associate with Mutual Funds
  • Market Risk
  • Credit Risk
  • Liquidity Risk
  • Interest Rate Risk

Mutual Funds are diversified investments.
  • Mutual Funds are, by definition diversified
    investments therefore they are lower-risk
    investments, especially when compared to
    individual stocks.
  • Most investors use mutual funds in order to
    diversify their holdings and provide some
    stability to their portfolios.
  • Mutual Funds are managed by Asset Management
    Companies through professional fund managers.
  • Mutual Funds distribute 90 of their realized
    income to the investors.

Investment opportunities in Pakistan
  • Mode Returns Risk Liquidity
  • Banks Low Low High (with penalty)
  • National Savings Low Low High (with
    penalty) Yes
  • TFC / Bonds Medium
    Medium Medium
  • Property Medium Medium
    Low Yes
  • Stocks High High High
  • Mutual Funds High/Low High/Low High
    (without penalty) No

Tax benefits of investing in Mutual funds
Comparison of Income Funds with Bank Deposits
Subject to completion of 1 year when capital
gain tax is exempted.
  • Thank You.