Mutual Funds

Presented by;

Muhammad Daniyal Munir

FOLLOWING ARE THE CONTENTS OF MY

PRESENTATION

Introduction & Concept of Mutual funds.

Working of Mutual funds.

History & Phases of Mutual funds.

Structure & Flow of Mutual funds.

Types of Mutual Funds.

Mutual Fund Performance.

Mutual fund

and its Concept

Mutual Funds

• A Mutual Fund is a trust that pools together

the savings of a number of investors who

share a common financial goal.

• The money thus collected is then invested

in capital market instruments such asshares, debentures and other securities.

Mutual Funds

Mutual Funds

Professional Fund Managers

•MBA’s

•CA’s

•CFA’s

The Investor

Investments

•Stocks

• Money Markets

•TFC’s

•Bank Deposits

•CFS

In 1893, the first closed-end fund “The Boston Personal

Property Trust” was formed.

In Pakistan National Investment Trust (NIT) offered first

open end fund in 1962.

ICP offered a series of closed end funds in 1966, these were

later privatized in 2000.

History of Mutual Funds

History of Mutual Funds

The first mutual fund was established in Europe.

First mutual fund outside the Netherlands was the Foreign &

Colonial Government Trust, which was established in London in

1868.

Mutual funds were introduced into the United States in the 1890s.

They became popular during the 1920s.

Pool their money with

INVESTORS

FUND

MANAGERS

Passed back to

Generate

SECURITIES

Invest in

RETURNS

How Mutual Fund works?

Flow of Mutual Funds

Investors

Fund

Securities

Return

Given back to

That generates Which is invested in

Pool their money in

Mutual Funds Operations

PERFORMANCE OF MUTUAL FUND COMPANIES OF PAKISTAN

STRUCTURE BACKGROUND

Open end and closed end funds are established through a trust deed as atrust under the trust act 1888.

Investment Company is established as a limited liability company.

Operated by two parties i.e. fund manager and the trustee or custodian.

Central Depository Company (CDC) largest trustee of mutual funds inPakistan with almost 90% of the market share.

Securities and Exchange Commission of Pakistan (SECP) through Non-bank financial companies (NBFCs) Regulations 2008 regulates the mutualfund industry.

Mutual fund

Types

TYPES OF MUTUAL FUNDS ON THE BASES OF STRUCTURE

Open ended Funds.

Closed ended Funds.

Open End:-

Continuously offer and redeem their units to the investors.

Closed End:-

One time issuance of certificates and then are traded in thesecondary market.

Investment Company:-

One time issuance of shares and then are traded in thesecondary market.

TYPES OF MUTUAL FUNDS ON THE BASES OF STRUCTURE

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.

Open 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.

Close ended Funds

Primary Markets are the markets in which

corporations raise new capital. When securities are

sold for the first time directly from the issuer it is a

transaction in the primary market.

Primary Markets

Total Industry Size - Rs. 171 billion

(US$ 2.83 billion)

Total number of Funds - 56

Total number of AMC - 30

Open end Rs. 129.73 bn

Closed end Rs. 41.33 bn

Open end 34

Closed end 22

Public Sector 1

Private Sector 29

Mutual Funds Industry in 2006

Benefits OF Mutual Funds

Professional Management:-

Expertise to manage and reinvest interest or dividend income, or toinvestigate thousands of securities. Access to extensive research,market information, and skilled securities traders.

Liquidity:-

Mutual fund can be bought and sold on any business day, soinvestors have easy access to their money. Many individualsecurities can also be bought and sold readily, others aren't widelytraded.

Benefits OF Mutual Funds

Diversification:-

Securities from hundreds or even thousands of issuers it reducesthe risk of loss.

Convenience:-

Mutual funds offer services that make investing easier. Mail,telephone, or the Internet. Automatic investments into a fund orautomatic transfers from a fund to your bank account.

Tax Free Return:-

The stock dividend from mutual funds are exempt from tax. Cashdividend taxable.

Comparison of Income Funds with Bank Deposits

0%1.2%Tax Deduction

0%4.2%Tax Deduction

Bank Deposits Mutual Funds*

Corporate (35% Tax Bracket)

Pre tax return 12.0% 12%

After tax return 7.8% 12%

Individuals (10% Tax Bracket)

Pre tax return 12.0% 12%

After tax return 10.8% 12%

TAX BENEFITS OF MUTUAL FUNDS

MARKET RISK: Sometimes prices and yields of all securities rise and fall. Broadoutside influences affecting the market in general lead to this.

Inflation Risk: Inflation is the loss of purchasing power over time.

INTEREST RATE RISK: In a free market economy interest rates are difficult if notimpossible to predict.

POLITICAL/GOVERNMENT POLICY RISK: Changes in government policy andpolitical decision can change the investment environment.

LIQUIDITY RISK: Liquidity risk arises when it becomes difficult to sell thesecurities that one has purchased.

RISK FACTORS OF MUTUAL FUNDS

25 28 30 35 40 50 60

Start

Career

Marriage

Buy

Automobile

Buy

House

Children’s

Education

Daughter’s

Marriage

Retirement

AGE

Why Invest?

DIRECTLY THROUGH MUTUAL FUNDS

Stocks

Bonds/Debentures

Corporate FD’s

Short Term Deposits

Govt.. Paper.

Equity

Funds

Debt Funds

Money Market Funds

Where do Mutual Funds come in?

Mutual fund

in Pakistan

by: Gurmeet Singh

Mutual Funds in Pakistan

Controlled by Public Sector, initially.

Lack of awareness.

Interest rates were too high.

Education.

Distribution.

Low savings.

Why Mutual Funds lagging in Pakistan?

The National Investment (Unit) Trust is Pakistan’s largest and oldestMutual Fund. As on June 30, 2009, NIUT had funds under managementof around Rs. 28 billion invested in over 430 listed companies and hadapproximately 56,000 unit holders

Mutual Funds were introduced in Pakistan in 1962, with the publicoffering of National Investment (Unit) Trust (NIT) which is an open-end mutual fund in the public sector. This was followed by theestablishment of the Investment Corporation of Pakistan (ICP) in 1966,which subsequently offered a series of closed-end mutual funds

Currently there exists one open end (NIT) mutual fund in public sector.Twelve open-ended and fourteen closed-ended mutual funds underprivate sector management, and there are many more Funds in thepipeline

Mutual Funds Industry in Pakistan

by: G

urm

eet Sin

gh

NATIONAL INVESTMENT TRUST

NBP FULLERTON ASSET MANAGEMENT LIMITED

ABAMCO LIMITED

AKD INVESTMENT MANAGEMENT LTD.

AL FALAH GHP INVESTMENT MANAGEMENT

AL-MEEZAN INVESTMENT MANAGEMENT LIMITED

.

Mutual Funds Corporation in Pakistan

AMZ ASSET MANAGEMENT LTD.

ARIF HABIB INVESTMENT MANAGEMENT LTD.

ASIAN CAPITAL MANAGEMENT (PVT.) LTD

ASKARI ASSET MANAGEMENT LTD.

ATLAS ASSET MANAGEMENT LTD.

BMA ASSET MANAGEMENT LTD.

by: G

urm

eet Sin

ghMutual Funds Corporation in Pakistan

Mutual fund

Examples in Pakistan

by: Gurmeet Singh

Meezan Islamic Fund (MIF) is not only the largest Shariah compliant equityfund but also the largest Equity Fund in private sector in Pakistan.

MIF invests in combination of income and growth stocks of Shariah compliantcompanies with demonstrated track record of profitability and stable dividendpayout history.

Meezan Islamic Fund

Risk Diversification:-

MIF reduce the risk of volatility of prices by investing your money in a welldefined portfolio of securities.

Cost Efficiencies:-

The per unit research and execution costs of a fund manager are also lowerdue to the large size of portfolio under management.

Salient Features Of MIF

Professional Management:-

Our fund managers are trained investment professionals. Their knowledgeprovides you and opportunity to earn greater risk adjusted returns. Also byinvesting in MIF, you pass on the job of continuous monitoring andevaluation of investment opportunities to the Fund manager.

Healthy Return:-

Apart from tax benefit, MIF also provides you a healthy return on yourinvestment.

Salient Features Of MIF

Tax Credit:-

Investment in MIF enables you to get tax benefit up to Rs. 232,500/- in case ofsalaried person or up to Rs 272,250/- in case of non salaried person oninvestments up to Rs. 1,000,000/- under applicable tax laws, if investment isheld for a period of two years.

Affordability:-

A minimum investment of Rs. 5,000 makes MIF an affordable investment forsmall investors. Subsequent investments can be made with a minimum amountof Rs. 1,000. There is no cap on maximum amount of investment

Salient Features Of MIF

Fund Statistics:

Fund Type Equity

Launch Date 8-Aug-03

Trustee Central Depository Company

Benchmark KMI-30 Index

Auditors KPMG Taseer Hadi & Co.

Management Fee 2 %

Front End Load 2%

Listing KSE

AMC Rating AM2

Status of Funds

Description30 June

2005

30 June

2006

30 June

2007

30 June

2008

30 June

2009

30 June

2010

30 June

2011

Dividend Per Unit Rs.

7.50 17.50 17.50 15.60 10.00 - 9.00 10.00

% of Face Value(i.e., Rs. 50/ Unit)

15.00%

35.00%

35.00%

31.20%

20.00%

-18.00%

20.00%

% of Opening NAV

15.00%

32.15%

29.81%

26.61%

16.70%

-25.51%

26.90%

Dividend History