Investment of Mutual Funds in Pakistan

investment of vulgar specie in PakistanChapter 1 Introduction1.1 Introduction1.2 Purpose of the plain1.3 Research Objective1.4 Research Methodology1.5 Data Sources1.INTRODUCTION1.1 IntroductionMutual currency hobo pret hold back a signifi nominatet role in the growth of an parsimony of some(prenominal) country. Mutual property argon a preferred investment cash in hand pecuniary resource destination for every item-by-item/ organization as the breed houses stomach non only the expertise in managing silver but too a host of new(prenominal) go.Not too more years ago, reciprocal cash in hand were simply broad-based investment instruments shitd to simplify the flesh out involved in place in separate securities. Mutual coin also plyd a corking measure of safety through broad diversification and the kind of top nonch professional counselling that is for the most part out of reach for the small shargonholder.Today, however, correlative investment companys atomic number 18 rise specialized and flummox almost limit slight diversity. The types of rough-cut blood line portfolios available run the range from conservative to aggressive, from packs to bonds, from domestic to international portfolios, from taxable to tax-free, and from virtually no- try specie market notes to high-risk options mo cabbageary resource (Jacobs, 2001).If we come across at correlative bloodline market of a developed country, we butt joint see that their investment in the inter change overable fund industriousness is higher as comp ard to their bank define base, which shows the potential of growth of plebeian funds industry in Pakistan. This comparison with an otherwise(prenominal) countrys plus steering Companies ( frequent funds) indicates that Pakistans plus Management companies be not playing the role that it should play. This gives rise to many questions in iodines mind. For instance Why are the Pakistans asset Management Companies no t doing well and Why Pakistans asset Management Companies are not that much competent?The primer is that reciprocal funds industry in Pakistan is still in its immature stage and investment options are limited to only equity, government security funds, fixed income and gold market breeds. With the maturity in the industry and by the passage of time, the investors may buzz off the options to diversify investments into commodities, real estate and other avenues. Today, the greatest contend faced by the Asset Management Companies is the lack of awareness about the Mutual bloodline products by general public.Lack of awareness by the individuals for interchangeable funds is a dilemma. The curtilage is that multitude dont ideate out of the box. They dont go for any other avenue to keep or save money provided banks and on the other hand banks invest in varied avenues such as cared funds, TFCs, stocks, judicature bonds, treasury bills etc. So the question arise that why do the individuals always invest their money in banks why do they dont want to invest other than a bank like in vulgar funds. investing in correlative funds dissolve give them better returns as compared to the banks. The reason is that the individuals are unaware of the better returns, benefits and security they hind end get by investing in vernacular funds. So far, mutual funds have failed in bringing awareness to the individuals. Due to unawareness individuals hesitate in investing in mutual funds. Individuals should be given awareness about the functions that mutual funds per abidance. Mutual funds process can be better understood in a form of a cycle which is presented be firstIn 2008 before recession the Asset Management Companies were doing well, they were building individuals potency for investing in mutual funds by making individuals aware of Mutual breeds and its benefits along with the higher profitability margins it offers. But recession and the regulators for Asset Management Companies took them to the initial stage a have where people were not much confident about investing in mutual funds because giving ones labored get money into mostone elses hands requires utmost faith and a sense of trust.1.2 Purpose of the find outTo highlight those points which are creating negative impact on investor this creates ambiguity when the investor wants to invest in mutual funds.To pose the causes due to which the live market of mutual funds is not growing.To illustrate the prefatorial distinctiveness in operating modes, counsel and explore resources between ASSET MANAGEMENT COMPANIES other Investment Companies.To highlight peoples option of the Asset Management Company while investing in mutual funds.1.3 Research ObjectivesThe paper in detail contains the theoretical framework supporting the research objectives. The secondary data is useful in explaining the research objectives and the primordial data is also importance as it gives the picture to explain the dilemma in the mutual funds industry.1.4 Research MethodologyThe secondary and primary source of data was used in this research, visits of unalike websites specially the website of MUFAP helped in a great manner to streamline of research work, however few individuals whom we met and contend difference sort of questions for the research gave us valuable information about the past and present situation. The polar sources of by which we ga thered the data are listed below,1.5 Data SourcesThe desired data is collected from the following sourcesKarachi memory ExchangeAsset management companiesAnnual ReportsAsset Management BanksSecurity Exchange Commission of Pakistan paladinject Bank of PakistanChapter 2 LITERATURE REVIEW2.1 Introduction2.2 Mutual stemmas pains2.3 Why mutual stores?2.LITERATURE REVIEW2.1 IntroductionChapter 2 focuses on the theoretical approach of mutual funds industries. In the literature review a comprehensive discussion will be performed on th e working of mutual fund industries, the types and categories of mutual fund industries and the dilemma that mutual fund industries are facing. The chapter also studies that how investing in mutual funds is better or to a greater extent beneficial than investing in any other avenue, the factors that differentiate mutual fund industries with other monetary In destinationediaries and the mutual funds cycle.2.2 Mutual computer storages IndustryThe mutual funds industry is a secure and better way of investing money. The conventional style of saving money is by keeping them in banks. However, the diminishing bank rates are heretofore lower than that of the rate of inflation and so it may not be a very thoroughly choice. The next option could be lay the money in the market but this requires a great deal of knowledge. Investing money through mutual funds is trouble-free and good for small ventures.A mutual fund is a financial organization that allows a group of investors to pocket b illiards their money in concert with a prede vergeined investment objective. The mutual funds have specialized fund managers who are responsible for(p) for investing the pooled money into specific kind of securities (usually equity or fixed income securities). The manager uses the money to demoralize bonds, stocks or other securities according to specific investment objectives that have been established for the fund. In return for putting money into the fund, one can receive either units or shares that represents proportionate share of the pool of fund summations. In return for administering the fund and managing its investment portfolio, the fund manager charges taps based on the value of the funds summations.In simple words, a mutual fund is a pool of money that is managed on behalf of investors by a professional money manager. It entangles a group of well qualified people who can return and invest the money of the unit holders appropriately. When one invests in a mutual fu nd, he / she is buying shares (or portions) of the mutual fund and becomes a shareholder of the fund.Since mutual fund is a pool of money, different investors invest in it at a time and the total make sense collected by all the investors by the mutual fund manager is then invested in different avenues. Be it a money market, stock market, financial institutions, government securities, banks or / and other avenues. The fund manager may invest in more one than avenue at a time which depends on the category defined. Before investing the gathered amount by the investors, the mutual fund manager has to consider and calculate all the important facts and figures that could create more and more profit for the investors who have invested in the mutual fund. After the fund manager has invested, he/ she gets returns which are then distributed to the investors according to their shares in the mutual fund. It is therefore all important(p) to look out for the best mutual fund to obtain maximum r eturns.The flow chart below describes more often than not the working of a mutual fundMutual fund provides numerous receiptss to its users. One of a great benefit of mutual funds compared to stocks is their study characteristic of diversification. This means that mutual funds invest in many different stocks and in this way balance the risk you may encounter. Additionally, the fund managers may decide to invest in companies from different sizes and industries. This is done in order to balance the downturns in a particular(prenominal) investment with the upturn in another.The basic duty of the management of any firm and the company is to maximise the business and the wealth of the shareholders as well as the sustainability of the owners of the company. The management of the mutual funds is charging the management tip for this purpose. The growth of the mutual funds which we have examined here is based on the determinants which are affecting the growth of the mutual funds and is dependent on the negative and the positive impacts of these determinants. We worked through dickens models for investigation of this relationship of growth. The two models are comprised of fixed solvent model and the cross section model. Most of the wills are drawn by these models provided same results except for some factors.Mutual funds are one of the best investments ever created because they are very cost effective and very easy to invest in (one doesnt have to figure out which stocks or bonds to buy).2.3 Why mutual monetary funds?Mutual funds are used as a gauge to operate economy effectively and efficiently, they help central banks in implementing their monetary policies, organizations to go through financing attained through mutual funds and banks to mobilize the investment or the cash. Mutual funds have become essential for the growth of an economy as it is a source of money mobilization in the country. Mutual funds mobilizes money in a country in such a manner that it deals with almost all(prenominal) available investment options. Mutual funds help in regulating money through investments in stock market i-e via purchasing shares they are rolling the money to the companies. By investing in debts (long term financing), Term Finance Certificates / Sukuk they are mobilizing cash and enhancing the company. Moreover a growing company can enhance its countrys economy with the help of mutual funds. Along with the investments in money markets, mutual funds invest in banks and government bonds also.Another rationale to invest in mutual funds is that its conservative nature offers a hedge against loss and allows the investor to climb into other vehicles that may be more risky. That way a retired investor can try to make some money in mutual funds without putting at risk their future. Also by being part of a mutual fund portfolio, the senior citizens have a chance to view how the various stocks that make up the mutual funds are performing and can select to invest in mutual funds that starts out performing the others to produce profits.For the senior citizens and retired investors, mutual funds can offer a hedge against inflation and it can direct the retired investors to the best stock picks and most importantly, it can protect the retired investors from losing their savings.Chapter 3 mutual funds3.1 What is Mutual investment firms?3.2 Types of Mutual Funds3.3 Categories of Mutual Funds3.4 How Mutual Fund Works3.5 Partners in a Mutual Fund3. uncouth FUNDS3.1 What is Mutual Fund?A mutual fund is basically a collective investment that pools money from many investors to buy bonds, stocks, succinct-term money market instruments or other securities and is managed professionally. Mutual funds serve as a connecting bridge of a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual funds have a fund manager who is responsible for investing the gathered mon ey into specific securities (stocks or bonds). When an individual invests in a mutual fund, he or she is likely to buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.Mutual funds are considered as one of the best available investments as compared to other investments. They are very cost efficient and snug individuals can easily invest in. Thus by pooling money together in a mutual fund, investors can bribe stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk maximizing returns.A Mutual Fund is a trust that pools the savings of a physique of investors who share a common financial goal. The money thus collected is then invested in cracking market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by i ts unit holders in proportion to the repress of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification. Mutual funds have a large amount of funds so it is easy for the investors to invest in different stocks or bonds.3.2 Types of Mutual Funds inconsiderate Ended unopen EndedOpen-end Mutual FundOpen ended mutual funds possess following characteristics Open ended fund is a fund which homecomings or redeems its shares at net asset value (NAV). It does not have a fixed fund size. Investors can get back their investment at any time by selling the units back to the fund. These are no fixed number of units.Open end funds are type of mutual fund that does not have 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 should be noted that when a funds manager(s) determine that a funds total assets have become too large to effectively carry its stated objective, the fund will be unkindly to new investors and in extreme disciplines, be closed to new investment by existing fund investors.In simple terms, open end funds mean that the fund does not have a set number of shares. Instead, the fund will issue new shares to an investor based upon the current net asset value and redeem the shares when the investor decides to sell. Open-end funds always gleam the net asset value of the funds underlying investments because shares are created and destroyed as necessary.Close-end Mutual FundFollowing are the characteristics of close ended mutual funds Close end fund is a fund whose shares are traded at bells other than the NAV It has a fixed fund size. Investors can sell their shares to any buyer through an step in where the share is listed other then the issuing company. These are fixed number of units / shares.A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.Unlike regular stocks, closed-end fund stock represents an interest in a specialized portfolio of securities that is actively managed by an investment advisor and which typically concentrates on a specific industry, geographic market, or sector. The stock prices of a closed-end fund fluctuate according to market forces (supply and demand) as well as the changing values of the securities in the funds holdings.3.3 Categories of Mutual FundsFollowing are the broad categories of funds that are further sub categorized and tailored according to the requirements of the investors Stock Fund / Equity Fund / nifty Market Fund Hybrid Funds / Multi Asset Fund / Balanced Fund Fixed Income Fund / Money Market Fund Muslim FundA. Stock FundsInvestment ObjectiveThe primary objective of this fund is to invest in stocks through different stock exchanges while controlling risk. The engender of the fund is to provide individuals and institutional investors with a well diversified portfolio of equity stocks covering all major sectors. The objective is to maximize income and capital gains by prudently employing its investment management expertise.Investment PolicyThe fund follows a growth strategy by investing in large cap companies. This entails looking for companies with a track record of growing sales and earnings and the potential for more of the same.In drawing the investment plan Research plays a vital role, as it identifies the stocks which have potential for capital gains, de velopment of particular industry and its impact on the particular stock, timings of investments and divestments depending upon industry trend and expected results.Asset AllocationThe portfolio generally has the following asset allocation but it can change from time to time or as the investment strategy molds it.B. Hybrid FundInvestment ObjectiveThe main objective of this fund is to come in in a diversified portfolio of securities representing investments in capital and money markets. The main investment objective is to maximize capital appreciation and income.Investment PolicyConsistent with the investment objective the fund primarily invests in large capital equity securities, along with debt securities and other money market instruments such as political relation Bonds, TFCs, Islamic Bonds, Reverse-Repo etc.Asset AllocationThe portfolio generally has the following asset allocation but it can change from time to time or as the investment strategy molds it.C. Fixed Income FundsInv estment ObjectiveThese funds seek to provide its unit holders with attractive income from a well diversified portfolio of low risk assets while maintaining liquidity.Investment PolicyIn line with the investment objective the fund invests in a diversified portfolio of Government Securities, Investment Grade Term Finance Certificates, Rated Corporate Debt, Certificates of Investment and other long and short term money market instruments.Asset AllocationThe weightages of the investment mix of the portfolio are managed in a manner that reduces the risk of loss in market value of the investments as the result of any major upward movement in lending rates. During periods where the Management Company is of the view that there is economic uncertainty, the weightages of the portfolio are increased in the short-term debt securities, debt securities with short remaining life, money market instruments and short maturity repurchase arrangements including spread transactions. The funds typically comprise of 60 % fixed income instruments.D. Islamic FundInvestment ObjectiveThese fund aims at achieving high level rate of capital gains and current income in line with Shariah principals along with providing liquidity to the investors.Investment PolicyThese funds primarily invest in Shariah compliant investment instruments whereby 60% investments are made in listed securities. Specifically Shares, TFCs, Participation term certificates, Musharika, Murabaha, and other asset backed securities. The funds also keep cash in riba free deposit schemes with Islamic banks and other financial institution with the objective to maintain sufficient liquidity.Equity investment broadly meets the following criteria and any additional requirements as advised by the Shariah advisors (These criteria change subject to change in investment policies and shariah advisors) The basic business of the investee company should be halal. The total debt of the investee company should not exceed 45% of its total assets.Long term assets of the investee company as a percentage of current assets may not exceed 10%Mutual funds with different investment objectives provide a variety of investment risk and return opportunities to the investors. Therefore, it is important for fund investors to thoroughly understand and identify the investing style employed by the funds that they choose to use to build their portfolios. Mutual funds can also be categorized as the followingThe three included categories in the mutual funds are lower risk and return, moderate risk and return and high risk and return. Further sub categories include money market funds, income funds, balanced funds,equity funds and aggressive allocation stock funds.3.4 How Mutual Fund WorksThe below mentioned diagram is clearly shown the process that how a mutual fund works.A. Net Asset ValueThe Net Asset Value is a term used to describe the value of an entitys assets less the value of its liabilities. The term is commonly used in relati on to collective investment schemes. It may also be used as a synonym for the book value of a firm.For mutual funds, net asset value is the total value of the funds portfolio less liabilities. The NAV is usually calculated on a daily basis.B. Sale RedemptionSaleWith reference to mutual fund industry sale is state to be executed when a unit or number of units are sold to an investor by a mutual fund on a specific price.Sale PriceIt is the price at which an open-end mutual fund sells its shares or units to the investor. In most cases, the sale price is the net asset value per share but they might have a sales load structured which is explained in the next two paragraphs.RedemptionWith reference to mutual fund industry redemption is said to be executed when a unit or number of units bought back from an investor on their instructions and the investor is paid back his money at the rates of the prevailing unit price by a mutual fund.Redemption PriceIt is the price at which an open-end m utual fund buys backs its shares or units from the owners. In most cases, the redemption price is the net asset value per share but they might have a back end load incorporated which is explained in the next two paragraphs.Management FeesThe management tip for the fund is usually the advisory fee charged for the management of a funds investments. However, as many fund companies include administrative fees in the advisory fee component, when attempting to compare the total management expenses of different funds, it is helpful to define management fee as equal to the contractual advisory fee + the contractual administrator fee. This helps when comparing management fee components across multiple funds.Contractual advisory fees may be structured as flat-rate fees, i.e., a mavin fee charged to the fund, regardless of the asset size of the fund. However, many funds have contractual fees which include breakpoints, so that as the value of a funds assets increases, the advisory fee paid de creases.3.5 Partners in a Mutual FundInvestment Management / Asset ManagementInvestment management is the professional management of various securities (shares, bonds etc) assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds).The term asset management is often used to refer to the investment management of collective investments. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their operate as wealth management or portfolio management.Investment management services include financial analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Coming under the remit of financial services many of the worlds largest companies are at least in part investment managers and employ millions of staff and create billions in revenue.InvestorsAn investor is any party that makes an investment. The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company. The term is also applied to parties who purchase real estate, currency, commodity derivatives, private property, or other assets.The term implies that a party purchases and holds assets in hope of achieving capital gain, not as a profession or for short-term income.TrusteeTrustee is a legal firm or group of people who hold the property or investments on behalf of the mutual fund. A trust can be set up either to benefit particular persons, or for any charitable purposes. In all cases, the trustee may be a person or company, whether or not they are a prospective beneficiaryR egistrarA registrar is an official keeper of records. In case of a mutual fund they are the ones who keep the record of the Sale and Redemption of units, total units issued or outstanding with the information regarding the Unit Holder, dividend distribution etc.DistributorIt is a firm or an individual who is licensed by the Asset Management Company to sell units on behalf of the fund.Custodian / DepositoryIt refers to an institution which safeguards and manages flow of the financial assets of a Mutual Fund. In finance, a custodian bank, or simply custodian, refers to a financial institution responsible for safeguarding a firms or individuals financial assets. The role of a custodian is as follows to hold in safekeeping assets such as equities and bonds, arrange settlement of any purchases and sales of such securities, collect information on and income from such assets (dividends in the case of equities and interest in the case of bonds), provide information on the underlying compani es and their annual general meetings, manage cash transactions, perform foreign exchange transactions where required and provide regular reporting on all their activities to their clients.Custodian banks are often referred to as global custodians if they hold assets for their clients in multiple jurisdictions around the world, using their own local branches or other local custodian banks in each market to hold accounts for their underlying clients. Assets held in such a manner are typically owned by pension funds.Chapter 4 Research Findings4.1 natural selection of Investment in Mutual Fund4.2 Comparison of Pakistan with Asia.4.3 Delimma of Investing in Mutual Funds4.1 Choices for Investing in Mutual FundsFor the following four categories Stock Fund / Equity Fund / pileus Market Fund Hybrid Funds / Multi Asset Fund / Balanced Fund Fixed Income Fund / Money Market Fund Islamic FundListed are the available choices for Investing in Mutual Funds as of March 31st 2011.AKD Investment Man agement LtdAKD Income FundAKD Index Tracker FundAKD probability FundAKDAlfalah GHP Inv. Management. Ltd.Alfalah GHP Income Multiplier FundAlfalah GHP Value FundAlfalah GHP Islamic FundAlfalah GHP Stock FundAlfalah GHP chapiter Protected FundAlfalah GHP Cash FundAlfalah GHP Capital Protected Fund IIAl Falah GHPAMZ Asset ManagementAMZ Plus Income FundAMZ Plus Stock FundAMZAskari Investment Management Ltd.Askari Income FundAskari Asset Allocation FundAskari Islamic Income FundAskari Islamic Asset Allocation FundAskari Soverign Cash FundAskari atlas Asset Management Ltd.Atlas Income FundAtlas Islamic Income FundAtlas Islamic FundAtlas Stock Market FundAtlas Money Market FundAtlasCrosby Asset ManagementCrosby Dragon FundCrosby Pheonix FundCrosbyDawood Capital ManagementDawood Money Market FundDawood Islamic FundDawoodFaysal Asset ManagementFaysal Balanced Growth FundFaysal Income Growth FundFaysal Asset Allocation FundFaysal nest egg Growth FundFaysal Money Market FundFaysal Islamic Savings Growth FundFaysalHabib Asset Management first gear Habib Income FundFirst Habib Cash FundFirst Habib Stock FundHabibHBL Asset ManagementHBL Income FundHBL Multi Asset Fund