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INDIRECT INVESTMENT

Investment Companies and Evaluating Performance of Funds

INDIRECT INVESTMENTING

Refers to buying and selling the shares of intermediaries that hold securities in portfolio

It includes Investment Companies and Mutual Funds Decision for direct or indirect investing is very important to the investors. Active investors or Passive Investors. olds !hares"o#nership in portfolio companies. !hareholders also pay e$penses %hat is the benefit to the holders of shares of investment companies&

Investment Company
An 'investment company' is a company (corporation) business trust) partnership) or limited liability company* that issues securities and is primarily engaged in the business of investing in securities. An investment company invests the money it receives from investors on a collective basis) and each investor shares in the profits and losses in proportion to the investor+s interest in the investment company.

Investment Company
A investment company is a financial service organi,ation that sells shares of itself to the general public and uses the funds to invest in the securities mar-et. %ith the holding of large funds the investment company develops the portfolio. Reason being that the investment company #ishes to diversify the ris-. .a$ provision

Investment Company
Investment companies could be both privately and publicly o#ned Investment companies typically offer investors a variety of funds and investment services. It includes a closed/end fund or an open/ end fund or 0nit investment trust.

Company types

Managed Investment Companies (Active* 1pen End Funds Closed End Funds 0n Managed Investment Companies (Passive* 0nit Investment Funds .a$ Advantage

Company types
0nit

investment trusts2 .ypically holds an unmanaged) fi$ed/income portfolio Assets not actively traded once purchased .rust ceases to e$ist #hen securities mature Passive investment 0I. are !pecified Diversification to Investors Minimum operating cost

Company types
Managed

Investment Companies

(Active* 1pen End Funds Closed End Funds

Closed-end investment companies

3o additional shares sold after first time offering (IP1*


4imit of Authori,ation of Capital !hares listed on stoc- mar-et !hare prices determined by trade in a secondary mar-et Price may not e5ual 3et Asset 6alue of the shares
3et Asset 6alue2 .otal mar-et value of the security portfolio divided by total shares 1R Formula. 3A6 also changes #ith the change in the prices of the shares in the portfolio of the fund.

Examples o Closed Funds in !a"istan


Asian !toc-s Atlas Fund F.Cap.Mut.Fund First Da#ood Mutual Fund 7olden Arro# 8! 7ro#th Fund Mee,an 9al Fund Pa-.Premier Fund Pa-istan !trategic PICIC Energy PICIC 7ro#th PICIC Inv.Fund Prudential.!. Fund 4td. !afe#ay Mutual .ri/!tar Mutual 0.P/4arge Capital Fund Al/Mee,an Fund

#pen Ended Investment Companies


It is a managed fund #ith defined ob:ective A type of mutual fund that does not have restrictions on the amount of shares the fund #ill issue. If demand is high enough) the fund #ill continue to issue shares no matter ho# many investors there are. 1pen/end funds also buy bac- shares #hen investors #ish to sell. .he capitali,ation changes of the open ended mutual funds.

#pen Ended Investment Companies


Company si,e constantly changes .he ma:ority of mutual funds are open/end Mutual fund is popular name of open end investment company 3o limit of capitali,ation .ypes of funds are specific e.g.)
E5uity fund 9alanced fund"hybrid fund Money mar-et fund Pension fund Fi$ed income fund Inde$ed fund

$pplication o N$V Concept

3et Asset 6alue2 .otal mar-et value of the security portfolio divided by total shares 1R Formula. 3A6 also changes #ith the change in the prices of the shares in the portfolio of the fund. 3o# the 5uestion arises ho# these funds generate profit or earn money (C7 and Div*

For#ard 4oad"sales 4oad 9ac-#ard 4oad"Purchase load 3o 4oad funds E$ample

Mana%ement o Investment Companies


.he investment companies are managed under the 3on 9an-ing Finance Company regulation ;<<= .he regulations are revised and notified in ;<<> by the !ECP.

Asset Management !ervices 4icense Investor Advisor 4icense

Mana%ement o Investment Companies


.he investment companies are corporations In trust form (.ype of business* aving board of trustees (9oDs* 9o.s may be formed as separate 9ut other 9oDs can also act as 9o.s for that fund .he 9o.s #ill appoint the fund manager have AM!4

Evaluatin% !er ormance o Mutual Funds


.reynor

Performance Measure !harpe Performance Measure 8ensen Performance Measure Information Ratio Performance Measure

&ee"ly $ssi%nment
%rite do#n the basic procedure for formation of 39FC under !ECP latest Regulations and 1ne e$ample of the structure and formation of any 39FC operating in Pa-istan.

T'$N( )#*+