Investment of Mutual Funds in Pakistan

Investment of plebeian entrepots in PakistanChapter 1 Introduction1.1 Introduction1.2 Purpose of the Study1.3 explore neutral1.4 Research Methodology1.5 Data Sources1.INTRODUCTION1.1 IntroductionMutual finances substructure play a signifi apprizet role in the growth of an prudence of any coun provide. Mutual bullion be a preferred enthronization destination for any individual/ organization as the parentage houses offer non only the expertise in managing gold but also a host of other services.Not too some years ago, uncouth notes were simply broad-based investment instruments created to simplify the details involved in invest in separate securities. Mutual livestocks also provided a greater invoice of safety through broad diversification and the kind of top notch professional prudence that is generally out of reach for the small share pallbearer.Today, however, vulgar bullion are well specialized and present almost limitless diversity. The types of usual farm ani mal portfolios for sale run the range from conservative to aggressive, from stocks to bonds, from domestic to international portfolios, from rateable to tax-free, and from virtually no-risk property food market pecuniary resource to high-risk options funds (Jacobs, 2001).If we come across at shared fund market of a developed country, we can see that their investment in the common fund labor is higher as compared to their bank deposit base, which shows the potential of growth of common funds industry in Pakistan. This comparison with other countrys As touch on solicitude Companies ( vulgar funds) indicates that Pakistans summation Management companies are not playing the role that it should play. This gives rise to many questions in ones mind. For sheath Why are the Pakistans summation Management Companies not doing well and Why Pakistans Asset Management Companies are not that much competent?The reason is that common funds industry in Pakistan is still in its immature stage and investment options are limited to only equity, government security funds, fixed income and capital market Funds. With the maturity in the industry and by the passage of meter, the investors whitethorn have the options to diversify investments into commodities, real estate and other routes. Today, the greatest challenge confront by the Asset Management Companies is the lack of awareness about the Mutual Fund products by general public.Lack of awareness by the individuals for mutual funds is a dilemma. The reason is that people dont think out of the box. They dont go for any other avenue to keep or save property except banks and on the other hand banks invest in divergent avenues such as mutual funds, TFCs, stocks, Government bonds, treasury bills etc. So the question arise that wherefore do the individuals always invest their bills in banks why do they dont want to invest other than a bank like in mutual funds. place in mutual funds can give them get out returns as compared to the banks. The reason is that the individuals are unaware of the better returns, benefits and security they can enchant by investing in mutual 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 perform. Mutual funds process can be better understood in a form of a cycle which is presented to a lower placeIn 2008 before recession the Asset Management Companies were doing well, they were building individuals confidence for investing in mutual funds by making individuals aware of Mutual Funds and its benefits a want with the higher profitability margins it offers. But recession and the regulators for Asset Management Companies took them to the initial stage again where people were not much confident about investing in mutual funds because giving ones hard make notes into someone elses hands requi res utmost faith and a sense of trust.1.2 Purpose of the StudyTo highlight those points which are creating invalidating impact on investor this creates equivocalness when the investor wants to invest in mutual funds.To identify the causes due to which the current market of mutual funds is not growing.To illustrate the basic distinctiveness in direct demeanors, management and research re beginnings between ASSET MANAGEMENT COMPANIES other Investment Companies.To highlight peoples preference of the Asset Management Company while investing in mutual funds.1.3 Research ObjectivesThe paper in detail contains the notional framework supporting the research targets. The secondary data is useful in explaining the research objectives and the main(a) 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 different websites specially the websi te of MUFAP helped in a great manner to stream caudex of research work, however few individuals whom we met and ask variance sort of questions for the research gave us valuable information about the past and present situation. The different sources of by which we ga in that locationd the data are listed below,1.5 Data SourcesThe coveted data is collected from the undermentioned sourcesKarachi hackneyed ExchangeAsset management companiesAnnual ReportsAsset Management cantsSecurity Exchange Commission of PakistanState Bank of PakistanChapter 2 LITERATURE REVIEW2.1 Introduction2.2 Mutual Funds Industry2.3 Why mutual Funds?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 the 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 inv esting in mutual funds is better or more honest than investing in any other avenue, the factors that differentiate mutual fund industries with other financial Intermediaries and the mutual funds cycle.2.2 Mutual Funds 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 lessen bank rates are even lower than that of the rate of pretension and so it may not be a actually good choice. The undermentioned option could be putting 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 institution that allows a conclave of investors to pool their money together with a predetermined investment objective. The mutual funds have specialized fund autobuss who are responsible for investing the pooled money into specific kind of securities (usually equity or fix ed income securities). The manager uses the money to buy 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 building blocks or shares that represents proportionate share of the pool of fund assets. In return for administering the fund and managing its investment portfolio, the fund manager charges tilts based on the honor of the funds assets.In simple words, a mutual fund is a pool of money that is managed on behalf of investors by a professional money manager. It allow ins a group of well qualified people who can guide and invest the money of the unit carryers appropriately. When one invests in a mutual fund, he / she is buying shares (or portions) of the mutual fund and constrains a shareholder of the fund.Since mutual fund is a pool of money, different investors invest in it at a time and the total amount collected by all the investors by the mutual fund manager is because 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 orchestrate 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 essential to look out for the best mutual fund to obtain maximum returns.The flow chart below describes broadly the working of a mutual fundMutual fund provides numerous advantages to its users. One of a great benefit of mutual funds compared to stocks is their study characteristic of diversification. This mea ns 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 circumstance investment with the upturn in another.The basic responsibility of the management of any firm and the play along is to maximize 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 lean 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 two models for investigation of this relationship of growth. The two models are lied of fixed effect model and the cross section model. Most of the results are w orn 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 efficient and very easy to invest in (one doesnt have to figure out which stocks or bonds to buy).2.3 Why mutual Funds?Mutual funds are used as a gauge to operate delivery effectively and efficiently, they help central banks in implementing their mo exculpateary 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 every 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 Certificat es / Sukuk they are mobilizing cash and enhancing the company. Moreover a growing company can raise 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 heterogeneous stocks that make up the mutual funds are performing and can study 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 prot ect the retired investors from losing their savings.Chapter 3 mutual funds3.1 What is Mutual Funds?3.2 Types of Mutual Funds3.3 Categories of Mutual Funds3.4 How Mutual Fund Works3.5 Partners in a Mutual Fund3. MUTUAL FUNDS3.1 What is Mutual Fund?A mutual fund is basically a incarnate investment that pools money from many investors to buy bonds, stocks, short-term money market instruments or other securities and is managed professionally. Mutual funds help 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 money 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 inves tments as compared to other investments. They are very cost efficient and convenient individuals can easily invest in. Thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower affair 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 list of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units own 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 colossal amount of funds so it is easy for the investors to invest in different stocks or bonds.3.2 Types of Mutual Funds Open stop Closed EndedOpen-end Mutual FundOpen ended mutual funds possess following characteristics Open ended fund is a fund which issues or redeems its shares at net asset tax (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 fu nds manager(s) determine that a funds total assets have become too large to effectively execute its stated objective, the fund will be closed to spick-and-span investors and in extreme fictional characters, 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 reflect 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 prices other than the NAV It has a fixed fund size. Investors can sell their shares to any vendee through an exchange 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 determine 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 / Capital market place Fund Hybrid Funds / Multi Asset Fund / Balanced Fund Fixed Income Fund / gold Market Fund Moslem FundA. Stock FundsInvestment ObjectiveThe primar y objective of this fund is to invest in stocks through different stock exchanges while controlling risk. The aim 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 tape of growing sales and earnings and the potential for more of the same.In drawing the investment contrive Research plays a vital role, as it identifies the stocks which have potential for capital gains, development of particular industry and its impact on the particular stock, timings of investments and divestments depending upon industry social movement and expected results.Asset storage allocationThe portfolio generally has the following asset allocation but it can change fr om time to time or as the investment strategy molds it.B. Hybrid FundInvestment ObjectiveThe main objective of this fund is to participate 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 Government 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 FundsInvestment 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 livestock with the investment objective the fund invests in a diversified por tfolio 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 economical 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 proceedings. 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 Policy These funds primarily invest in Shariah compliant investment instruments whereby 60% investments are do 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 hand 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 tether 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 relation to collective investment schemes. It may also be used as a synonym for the intelligence 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 day-by-day basis. B. Sale RedemptionSaleWith reference to mutual fund industry sale is said 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 lade incorporated 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 mutual 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 FeesT he management tip off for the fund is usually the informatory 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 single 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 decreases.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 g oals 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 services 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 mea ning 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, personal 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 beneficiaryRegistrarA 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 H older, dividend distribution etc.DistributorIt is a firm or an individual who is pass 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 companies 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 glo bal custodians if they hold assets for their clients in multiple jurisdictions most 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 Choice 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 / Capital 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 Management LtdAKD Income FundAKD Index Tracker FundAKD Opportunity FundAKDAlfalah GHP Inv. Management. Ltd.Alfalah GHP Income Multiplier FundAlfalah GHP Value FundAlfalah GHP Islamic FundAlfalah GHP Stock FundAlfalah GHP Capital saved FundAlfalah G HP 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 telamon 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 suppuration FundFaysal Income egression FundFaysal Asset Allocation FundFaysal Savings Growth FundFaysal Money Market FundFaysal Islamic Savings Growth FundFaysalHabib Asset ManagementFirst Habib Income FundFirst Habib Cash FundFirst Habib Stock FundHabibHBL Asset ManagementHBL Income FundHBL Multi Asset Fund