Mutual Funds

Submitted To : Dr. Farheen Zahra

Submitted By :
 Ahmad javed (MCME-21-11)
 Muhammad Waleed Bin Farooq (MCME-21-12)
 Muhammad Muzamil Irshad (MCME-21-13)
 Muneeb Ali (MCME-21- 36)
 Ali Ahsan (MCME-21-37)
 Muhammad Farooq (MCME-21-38)

Date : 13-04-2022

DEPARTMENT OF COMMERCE
BAHUDDIN ZAKARIYA UNIVERSITY MULTAN
 Table Of Contents

1. Mutual Fund :.........................................................................................1

2. Types of Mutual Funds :.........................................................................1
3. History of Mutual Funds in Pakistan :....................................................2
4. Major market players :............................................................................2
5. Islamic Mutual Fund Industry :..............................................................3
6. Advantages of investing in Mutual funds :.............................................4
7. Disadvantages of investing in Mutual funds..........................................5
8. Marketing of Mutual funds :...................................................................5
9. Incorporation of an NBFC and Grant of License as an Asset
Management Company...............................................................................6
10. Fund Documentation and Mechanics...................................................6
11. How to buy and redeem units in mutual funds?...................................7
1. Mutual Fund :

A mutual fund is a company that collects money from many investors and invests in
securities such as stocks, bonds, and short-term loans. The combined holdings of
mutual fund is known as its portfolio. Since Mutual Funds provide indirect access to
financial markets for individual investors, they are a form of financial intermediary. In
fact, Mutual Funds are now the second largest type of intermediary in the United
States. Investors buy shares in Mutual Funds. Each share represents the share of the
investor's ownership in the fund and the income he generates. A mutual fund is simply
an organization. As an organization, the mutual fund belongs to it shareholders.
Shareholders elect a board of directors; the board of directors is responsible to hire a
manager to oversee the fund's operations. Although Mutual Funds are usually a big
part of its Financial “family”, (A family of funds (or fund family) includes all the
separate funds managed by a single investment company). Every day, the portfolio
manager calculates the total amount of cash held, calculates the total number of shares
purchased by the shareholders and calculates the total assets of the mutual funds, the
value of one share of the current funds. Shared funds are market-linked tools and are
therefore subject to market volatility. Therefore, no mutual fund is 100% secure.
However, mutual funds have different levels of flexibility.

Net Asset Value:

Net asset value of funds fluctuates along with the value of its investments. Formula
used to calculate net asset value is as under
NAV = Market value of all securities held by fund + Cash and equivalent holdings –
Funds liabilities / Total funds share outstanding

Example:
We assume that the close of trading yesterday that a particular mutual funds held
Rs.1500000 worth of securities, Rs.2000000 of cash and Rs.800000 of liabilities. If
the fund had 100000
NAV = 1500000 + 2000000 – 800000 / 100000
= Rs.27
2. Types of Mutual Funds :
There are 2 types of Mutual Funds

 Open ended mutual funds

An investment company that stands ready to buy and sell shares at any time with the
investors.

 Closed ended mutual funds

An investment company with a fixed number of shares that are bought and sold only
in the open stock market.

These funds are usually not traded on stock exchanges. The big difference between
open ended and closed ended mutual funds is that open-ended funds always offer high
liquidity compared to close ended funds where liquidity is available only after the
specified lock-in period or at the fund maturity.

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And the most Mutual Funds fall into one of four main categories.

 Cash market funds (Cash & cash equivalent securities)

 Bond funds (Bond & other debt instruments)
 Stock funds
 Targeted day investments. (Targeted date funds are designed to help manage
investment risk)

Each type has different features, risks, and rewards

3. History of Mutual Funds in Pakistan :

 In 1962 - The Pakistani government launches NITL ( National investment trust

limited) Pakistan's first Open End Mutual Fund - NIT

 In 1966 - The Pakistani government launches the ICP launching a series of

Closed End Funds ( The close end fund is a type of mutual fund that provides a
fixed number of shares with a single initial public offering (IPO) to increase
initial investment).

 In 1994-95 - Additional funds were introduced in the private sector

 In 2006 - A total of 30 AMC (Asset management company ) holds 56 Mutual

Funds.

One of the fastest growing sector but as compared to the rest of the mutual fund
industry, it is in the process of growth and development.

Currently, about 250 Islamic institutions in 75 countries, managing funds worth more
than USD $5.9 billion.

 There exists a total of ＄20 billions worldwide Mutual Funds out of which there
are 5900 million are worldwide Islamic Mutual Funds.

Also including that worldwide Islamic Mutual Funds are ＄ 5900 millions out of
which ＄160 millions are Pakistan Mutual Funds as stated bellow.

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 Pakistan vs Overall Islamic Mutual
Funds in millions

160; 3% Worldwide Islamic Mutual

Funds
Pakistan's Mutual Funds

5900; 97%

1. Major market players :

 National Investment Trust Ltd.
The company was consolidated as a closed fund and its main function was to invest in
shares and securities in both domestic and international markets.

 JS ABAMCO Ltd.
JS Investments Limited is one of Pakistan's largest private asset management
companies in terms of the amount of assets held in its portfolio. It was established in
1995 in Karachi. it Provides professional services related to asset management,
investment advice, and pension fund management. Managed assets are distributed to
various Mutual Funds, pension funds and separate managed accounts.

 Arif Habib Investment Management Ltd.

MCB Arif Habib Savings and Investments Limited (“MCB-AH” or “Company”) is a
Limited Public Company listed on the Pakistan Stock Exchange. The Company is
registered as a Pension Fund Manager under the Voluntary Pension Schemes Act,
2005, as an Asset Management Company and an Investment Adviser under the Non-
Banking Companies Act (Establishment Act), 2003. MCB-AH is a member of the
Mutual Funds Association of Pakistan (MUFAP).

 Al Meezan Investment management Ltd.

Al Meezan investment management Ltd. Is the company which gives Asset
Management, Voluntary Pension Scheme Management and Investment Advisory
Services.

 Atlas Asset Management Ltd.

Atlas Asset Management Limited (AAML), a subsidiary of Atlas Group, was
established on 20 August 2002. as an unregistered public company and registered
with the Securities and Exchange Commission of Pakistan as an open and closed asset
management company. AAML is also a licensed pension fund manager.

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 UBL Fund Managers Ltd.
UBL Fund Managers is a wholly owned subsidiary of United Bank Limited, making it
the first Asset Management Company launched by a Pakistani bank. UBL Fund
Managers have been in operation since 2001 and are ranked among the leading asset
management companies in Pakistan. UBL Fund Managers were awarded AM1
(Higher Quality Management) Management Quality by VIS Credit Rating Company
Limited and was the first Pakistani company to comply with ‘Global Investment
Performance Standards’.

2. Islamic Mutual Fund industry

Islamic mutual funds operate similarly to traditional mutual funds, with the exception
that they only invest in Shariah-compliant assets. Shariah-compliant investments
follow to Islamic principles, meaning they are free of interest and financial penalties.

Shariah-compliant investments
The term "Shariah compliant Fund" refers to a group of money in which investors
combine their funds for the goal of making halal earnings in strict accordance with
Shariah rules or Islamic principles.

Islamic investment Of Funds

There are many mode of investment funds.

Mode of investment
 Equity Fund
 Commodity Fund
 Mixed Fund
 Mudarabah Fund

1. Equity Fund
Equity Funds are mutual fund schemes that invest their assets in stocks of various
firms based on the underlying policy's of investment aim. These funds are a good
choice for capital gain because they have the potential to generate long-term income.
2. Commodity Fund
In this type of fund management will be offered a fee for their services. Fee
may be fixed or a percentage a the profits earned.
3. Mixed Fund
A fund where the subscription amount is invested in different types of
investments, like equities, leasing, commodities, etc.
Certificates of units of funds are tradable in the secondary market only if the
tangible assets are more than 51% while the liquidity and debts are less than
50%.
4. Mudarabah Fund
In this type of fund management will be offered a fee for their services.Fee
may be fixed or a percentage a the profits earned.Mudarabah arrangement to
share profits is also feasible here.
 Challenges Being Faced By Islamic Funds
 Fund size is small.
 Lack in strong legal and institutional framework.
 Lack in supervisory framework.

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 Lack of knowledge and understanding of the Islamic Fund.
Lack in research and development in the field of Islamic finance and
economics.
 Lack in HR development and training to the banks staff on Islamic Banking
system.
 Funds being Operated in the Market
 UBL Sharia stock fund
 United Islamic income fund
 HBL Islamic money market fund
 HBL Islamic stock fund
 Al- Meezan Mutual fund Ltd.
 Askari Islamic asset allocation fund

3. Advantages of investing in Mutual funds :

1) Liquidity:
It is relatively easy to buy and sale the mutual funds. You can sell the open ended
mutual funds when the stock market is high and make a profit beside this you have to
focus on load and expense ratio.

2) Diversification:
Mutual funds have a risk based on the situation of the stock market. The fund
manager invest your money in different companies and different sectors which means
diversify your investment. So in this case if a person suffers loss when one sector
doesn't perform well and the same time they earn profit from other sector this profit
they earned will compensate this loss they faced

3) Expert management:
A mutual fund is good for investor who doesn't have time or skills to do the research
and asset allocation. Hence the fund take care of your investment and make decisions
about your investment what to do with your investment. Fund manager must be
skillful, expert and having good knowledge about stock market

4) Less cost for bulk transactions:

When we buy some product in a bulk quantity the seller gives us discount on it such
as 100 g toothpaste cost Rs 10 you might get 500g pack for Rs 40. Similarly when
you buy mutual funds in bulk quantity the processing fees and other commissions
charges will be lesser as compared to buying a single mutual fund

4. Disadvantages of investing in Mutual funds.

1) High cost:
There are no free lunches in this world. Similarly mutual funds also comes with cost
in the form of expense ratio i.e marketing, manager fee and sales cost etc. A high
expense ratio directly affect your portfolio returns. Investors who prefer a lower
expense ratio can invest in index funds

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2) Misuse of Management authority:
The fund manager may misuse his authority and damages your portfolio. They
constantly buy and sell other stocks which increases tax and other costs. This reduces
portfolio returns which is result by by poor investment decisions making which will
lead to losses.

3) Exit load:
Exit load is a penalty charged by mutual funds companies on redemption before a
specific period. Different funds have different exit load periods.
> liquid funds: 7 days
> Debt funds: 30 to 540 days
> Equity funds: 365 days
So investor match their financial goals with exit period.

4) Over-diversification:
Diversification reduces risk but it also dilutes profits earned by investor. At time
funds manager invest in too many asset which is known as over- diversification. To
avoid this investor should do goal based financial planning before investing

5. Marketing of Mutual funds :

 Advertising through print media
1. Magazines
2. Newspapers
 Advertising through electronic media
1. Television
2. Radio
 Outdoor advertising
1. Hoardings
2. Banners

6. Incorporation of an NBFC and Grant of License as an Asset

Management Company

The Asset Management Company(AMC) is a Non-Banking Finance

Company(“NBFC”) licensed by the Securities and Exchange Commission of Pakistan
(“SECP”) to carry out Asset Management in accordance with the companies
ordinance, 1984.
Following is the suggested chronological methodology for incorporation of an NBFC
and licensing as AMC.

 NOC for Formation of NBFC :

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Application to Specialized Companies Division, SECP Headquarter Islamabad for
obtaining permission to form an NBFC along with the following documents:

 Form I of the Rules along with all relevant supporting documents

 Fee with Form I (as per Schedule II of the Regulations)

 Incorporation of NBFC
Incorporation of an NBFC as a public limited company, at the concerned Company
Registration Office, as per the existing procedures, forms and fees.

 Licensing as AMC
Application to Specialized Companies Division, SECP Headquarter Islamabad for
grant of license for to carry out Asset Management Services

 Form II of the Rules along with all relevant supporting documents

 Fee with Form II (as per Schedule II of the Regulations)

7. Fund Documentation and Mechanics :

 Trust Deed
The trust deed specifies the responsibilities of the trustees and the Investment
Advisor/ Asset Management Company that need to be strictly followed by each
concerned party. The trust deed also spells out the objective and Investment policy,
valuation of assets, pricing, fee and charges and details of dealings of the funds.

 Offering Document
Every mutual fund publishes an offering document that states the name of the fund
manager, its investment goal, authorized investments (such as stocks, bonds etc.), fees
& expenses, distribution policy, risks and performance. A potential investor can also
examine the annual and semi-annual reports. When examining a mutual fund's
performance, consistency of returns year after year is normally studied.

 Account Statement
The Registrar sends, directly to each unit holder, a non-transferable statement of
account, each time there is a transaction in the account, i.e. each time units are
subscribed, redeemed, transferred to a third person, transferred from a third person,
consolidated/split, additional units issued against bonus issue or reinvestment of
dividend.
 Electronic Issuance and Certificates
When an application, duly filled in, is delivered to the authorized branch along with
the payment in the prescribed form to a fund distribution company, units applied for
are allotted (issued) to the investor as per policy of the fund. Certificates are issued
only if requested by the unit holders.

8. How to buy and redeem units in mutual funds?

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 Investment by Individuals
Obtain application form by contacting the AMCs or their designated distributors or by
visiting their website. You will need to provide the following at the time of opening
an account:
 Copy of CNIC
 Application / Account Opening Form /Purchase of Units Form
 Zakat Affidavit (Optional)
 KYC Form (Know Your Customer)
 FATCA (Foreign Account Tax Compliance Act.) Form
 cheque /pay order/demand draft payable to the respective trustee
 Carefully complete all forms, and read all documents before you sign them.

 Investment by Corporate
When investing in mutual funds, corporate, provident, and pension fund investors are
required to provide the following:
 Memorandum and Article of Association/ Trust deed
 Board / Trustee Resolution approving the investment
 Application/Account Opening Form
 Purchase of Units Form
 Power of Attorney and/or relevant resolution of board of directors/ trustee
delegating authority to any of its officer to invest
 NTN of the institution with tax status
 CNIC of the officer to whom the authority has been delegated

 Redemption procedure
A unit holder may redeem units by lodging a request, on the prescribed form
(redemption form), with an authorized branch of a distribution company. Redemption
payments are made to the investors within a maximum period of 6 working days,
either through a cross-cheque or through a bank transfer by submitting the redemption
form at designated sales points of an AMC.