Group 2

Assignment: Report on mutual funds

SUBMITTED BY:

Group members

Zain hassan BAFE-20-06

Sami ullah BAFE-20-08

Muhammad Ahsan BAFE-20-09

Sultan Ahmed BAFE-20-48

Muhammad Shahzaib BAFE-20-50

Junaid Ashraf BAFE-20-51

SUBMITTED TO:

MAM FARHEEN

Contents
INTRODUCTION...........................................................................................................................................3
Characteristics of Mutual Funds..................................................................................................................3
Mutual Funds Association of Pakistan (MUFAP)..........................................................................................4
Structure of Mutual Funds..........................................................................................................................4
Asset Management Companies...............................................................................................................4
Participants..............................................................................................................................................4
Trustee/Custodian...................................................................................................................................5
Current situation of trustee/custodian in Pakistan:.................................................................................5
 Regulator.................................................................................................................................................5
Distributors/Sales Agents....................................................................................................................5
Legal Advisor/Auditor..........................................................................................................................5
Shariah Scholar........................................................................................................................................6
Flow of mutual fund....................................................................................................................................6
Basic Types of Mutual Funds.......................................................................................................................7
Open-end funds.......................................................................................................................................7
Closed-end funds.....................................................................................................................................7
Categories of Mutual Funds........................................................................................................................8
Capital Protected Funds..........................................................................................................................8
Money Market Funds..............................................................................................................................8
Income Funds..........................................................................................................................................8
Aggressive Fixed Income Funds...............................................................................................................8
Balanced Funds........................................................................................................................................9
Asset Allocation Fund..............................................................................................................................9
Mutual Fund Industry in Pakistan................................................................................................................9
Mutual Fund Corporation in Pakistan........................................................................................................10
Advantages of mutual funds:.....................................................................................................................11
Liquidity.................................................................................................................................................11
Diversification........................................................................................................................................11
Transparency:........................................................................................................................................11
Lower Costs:..........................................................................................................................................11
Tax Benefits:..........................................................................................................................................11
Disadvantages of mutual funds.................................................................................................................12
Market Risk............................................................................................................................................12
Political & Government Policy Risk........................................................................................................12
Liquidity Risk..........................................................................................................................................12
Why Mutual Fund lagging in Pakistan.......................................................................................................12
 Mutual fund
INTRODUCTION
A mutual fund is a collective investment scheme that pools money from many
investors. The money is invested by the asset management company on behalf of
the unit holders in stocks, bonds, money market instruments and similar assets
for profits and income

Majority of the income earned by the mutual funds portfolio is given back to the
investors/ unit holders.

Mutual funds can provide an investor with regular income and an opportunity for
increasing their savings through reinvestment.

Characteristics of Mutual Funds

The characteristic of mutual fund includes:

 The investment portfolios of mutual funds are managed by separate

entities known as "Asset Management Companies" (AMCs) that are
licensed by SECP.
 The value of a mutual fund's portfolio fluctuates as money is invested and
redeemed, and as the value of the securities held by the portfolio rises and
falls
 Under the regulations, an independent trustee registered with SECP has
custody of all mutual fund assets.
Mutual Funds Association of Pakistan (MUFAP)
Mutual Funds Association of Pakistan (MUFAP) was formed in 1996 and
licensed by Ministry of Commerce (Directorate General of Trade
Organizations).

Its role is to ensure transparency, high ethical conduct and growth of the
mutual fund industry

After the establishment of MUFAP in 1996, private and foreign firms were
allowed to float open-ended funds to the public

Structure of Mutual Funds

In structure of mutual funds the main role is played by

 Asset Management Companies (AMCs)

 participants
 Trustee/Custodian
 Regulator
Distributors/Sales Agents
Legal Advisor/Auditor
 Shariah Scholar

Asset Management Companies

Mutual funds are operated by Asset Management Companies (AMCs) which exist
in the form of a public limited company are registered under the Companies Act,
2017.

Participants
Participants are the ones investing in a mutual fund and anyone holding valid
Pakistani computerized national identity card is eligible to become participant to a
mutual fund
Trustee/Custodian
The Trustee performs the functions of the custodian of the assets of the fund. All
mutual funds are obliged to appoint a trustee, which can be a scheduled bank
having a minimum of 'A+' rang or a depository company.

Under Pakistan's law, banks and central depository companies approved by SECP
can act as trustees

Trustee is Responsible of:

 Ensure that the fund manager takes all investment decisions within the
framework of defined investment policy.
 Ensure that the fund manager does not take any action that violates the
provisions of the trust deed, the offering document.

Current situation of trustee/custodian in Pakistan:

At present Central Depository Company of Pakistan (CDC) is acting as trustee of
most of the funds of the industry. CDC performs the functions of the custodian
and trustee, whereas, the AMC either acts as registrar or appoints an external
registrar.

Regulator
In Pakistan “The Securities and Exchange Commission of Pakistan “(SECP) is the
regulator of mutual funds industry.

SECP also carries out continuous monitoring of mutual funds through reports that
the mutual funds are mandated to file with SECP on a regular basis. In addition,
SECP conducts onsite inspections of the AMCs
Distributors/Sales Agents
Banking/financial companies are authorized to act as distributors/ sales agents by
SECP.
Legal Advisor/Auditor
The Board of Directors of AMC must also approve and appoint a legal advisor
and auditor for legal and compliance matters
Shariah Scholar
Shariah scholar of a mutual fund is appointed by AMC and approved by Federal
Shariah Islamic Board His responsibilities are but not limited to:

1. Fool-proof management and smooth operation of the Mutual fund.

2.  Compliance to Islamic Principles.
3. Periodic check and balance on all Shariah compliant products released by
the AMC.

Flow of mutual fund

Basic Types of Mutual Funds
There are two types of mutual funds:

Open-end funds
An open ended fund is one that is available for repurchase and subscription
continuously. The numbers of units outstanding at any particular point in me
varies.

An open-end fund does not have a fixed pool of money

 Any time entry and exit

 No Fixed Maturity period

 It has more liquidity

Closed-end funds
A close ended fund is a type of mutual fund that issuance a fixed number of
shares through a single Initial Public Offering to raise capital.

 Closed-end funds issue a specific number of shares and their capitalization

is fixed.
 The shares are not redeemable, but are readily transferable and traded
either on main board of the stock exchange or over-the-counter
 Exit on Maturity
Categories of Mutual Funds
SECP has categorized the schemes of mutual funds as under:

Capital Protected Funds

Under a capital-protected fund, the original amount of the investment is
protected. Capital protected funds, unlike other funds, have a mutually agreed
upon fixed maturity period. They are essentially low risk, low return funds.

Money Market Funds

These funds invest in liquid assets including short-term debt instruments such
as treasury bills and bank deposits. Usually money market funds are
considered as the safest for novice investors while being the easiest, least
complicated to follow and understand. These funds are considered
appropriate for investors seeking stability of principal, ease of liquidity, and
earnings that are more than return on bank certificates of deposit. Unlike bank
term deposits, money market funds have no early withdrawal penalties.

Income Funds
These funds focus on providing investors with a steady stream of fixed income
with moderate growth of principal invested. They invest in short term and
long-term debt instruments like TFCs, government securities like T-bills/ PIBs,
or preference shares.

Aggressive Fixed Income Funds

Aggressive fixed income fund focuses on generating current income on
investments while maintaining the prospects for capital appreciation and
potential for capital growth. These funds may invest up to specified
percentages in accordance with their offering-documents in any one type of
authorized Investment and may aggressively change weightings to take
advantage of economic trends.

These Funds usually invest in a portfolio of diverse securities including

government securities, fixed income debt securities, deposits with bank(s),
clean placements, certificates of investments and commercial papers.
Balanced Funds
The basic objective of a balanced fund is to generate income as well as long
term growth of the principal amount that has been invested. Investors who
desire to invest in a secure fund with a minimum downside i.e. who seek some
current income and moderate growth with low-level risk, would do well to
invest in balanced mutual funds

Asset Allocation Fund

This category of fund can invest its net assets in several types of securities and
investment styles as specified in its offering document. Asset allocation funds
are generally considered high-risk funds due to their potential to be fully
invested in equities at any point in me

Mutual Fund Industry in Pakistan

The National Investment Trust is Pakistan’s largest and oldest mutual fund. As
one June 30, 2009, NIUT had fund under management of around Rs 28 billion
invested in over 430 listed companies and had approximately 56000 unit
holder. Pakistan Mutual fund industry has grown at a quick pace as the
economy gradually recover from the impact of Covid-19. The Industry reached
PKR 995 bn in Dec 2020, as a result of high return and new investment.
Mutual Fund Corporation in Pakistan
 National Investment Trust

 NBP Asset Management Limited

 AKD Investment Management Limited

 AL FALAH Investment Management

 AL MEEZAN Investment Management Limited

 AMZ Asset Management Limited

 ARIF HABIB Investment Management Limited

 ASIAN Capital Management (PVT) Limited

 Askari Asset Management Limited

Advantages of mutual funds:
Liquidity
Mutual Fund can be bought and sold on any business day so investors have
easy access to their money. Many individual can also be bought and sold
readily.

Diversification
Securities from hundreds and thousands of issuers it reduces the risk of
loss. By investing the pool of unit holders' money across number of securities,
a mutual fund diversifies its holdings. A diversified portfolio reduces the
investors' risk.

Transparency:
A unit holder is provided with regular updates and information on the
fund's holdings and the fund manager's strategy, as the performance of
a mutual fund is reviewed by various publications, and rang agencies
which make it easy for investors to compare the performance of their
fund with other funds in the same category

Lower Costs:
Economies of scale make them a cost-effective option for investment.
Mutual funds buy and sell large amounts of securities at at me. Your
costs for transactions and management fees are shared with fellow unit
holders.

Tax Benefits:
Investment in mutual funds and pension schemes entitles the investor
to avail tax credit and enhance the overall return on savings.
Disadvantages of mutual funds
Market Risk
Sometimes prices and yield of all securities rise and fall.
 Inflation Risk
Inflation is the loss of purchasing power over time

Political & Government Policy Risk

Change in government policy and political decision can change the
investment environment.

Liquidity Risk
Liquidity risk arises when it difficult to sell the securities that one has
purchased.

Why Mutual Fund lagging in Pakistan

 Lack of awareness
 Education
 Low saving
 Interest rate were too high