Mutual Funds in PakistanSubmitted to : Mam Tooba

Presenter Name

Anam Afzal Aqsa Omer Ayesha KhanChandni SaleemKomal AbdullahMaryam Mustaf

Mutual Funds

A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities.

Each investor owns shares, which represent a portion of the holdings of the fund.

Money earn from a mutual fund in three ways:

1) Income is earned from dividends on stocks and interest on bonds.

2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.

3) If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit.

History of mutual funds in PakistanMutual funds in Pakistan are registered and legally established in the form of a Trust, under the Trust Act of 1882.

The mutual fund industry is regulated by, the Securities and Exchange Commission of Pakistan (SECP) which licenses each Asset Management Company in strict compliance with the NBFC Rules, 2003 and requires all AMC’s to obtain an independent rating.

Mutual funds introduce in Pakistan in 1962, with the public offering of National Investment T rust followed by the establishment of the Investment Corporation of Pakistan (ICP) in 1966.

Difference between conventional investments in banks from investments in mutual fund

the main differences is that Mutual Fund returns are tax-free returns .

whereas conventional investments in banks are subject to 10% withholding tax which means in real terms you get less than the quoted returns.

advantages offered to Mutual Fund Open-End Fund holders is that they can redeem their funds anytime they want too except for certain specialized funds

whereas in Banking Sector you can’t withdraw your invested money before maturity without paying a penalty.

investment banks generally offer fixed rates on Certificate of Deposits or Investments;

whereas mutual fund returns are variable; thus giving the investor the opportunity to earn beyond expected returns.

Encourage general public to invest in mutual funds

The general public can be encouraged to invest in mutual funds through :

investor education awareness campaigns electronic and print media seminars, workshops and conferences for wide scale public dissemination of information on mutual funds.

Impact of volatile stock market on Fund Managers

Fund managers uses various tools and strategies to mitigate volatility in Returns and provide better returns to investors even in time of market volatility.

The fund managers generally hold a medium to long term perspective of the market and therefore may be subject to temporary fluctuations in prices of stocks which tend to stabilize over the medium to long term.

Portfolio management

It is the art and science of making decisions about investment (asset) mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk vs. performance.

Portfolio management is all about : strengths, weaknesses, opportunitiesand threats

in the choice of debt vs. equity, domestic vs. international,

growth vs. safety, and numerous other tradeoffs encountered in the attempt to maximize return at a given appetite for risk.

size of Mutual Funds Sector in terms of investments in rupees and number of funds

Mutual Funds As of September – 06 (source MUFAP):

No of funds Total net Assets(Rs in Billion)

Open end funds 29

Close end funds 18

Total 47 Approx 187

steps are taken by MUFAP to protect interests of its members

MUFAP has developed guidelines in the area of advertising and

communications for Asset Management, Investment Advisory Services &

Mutual Funds in Pakistan to promote fair competition among investment

firms.

MUFAP has also adopted the CFA Institute Asset Manager Code of

Professional Conduct. This Code sets forth minimum ethical and

professional standards for providing asset management (including

investment advisory) services to clients.

The goal of this Code is to provide a useful framework for all asset

managers to provide services in a fair and professional manner.

MUFAP is striving to achieve inter alia the following:

To promote a cadre of well trained Agents and distributors and to implement a programme of training and certification for all intermediaries and other engaged in the industry.

To promote best practices in the mutual fund industry.

To interact with the Government, Securities and Exchange Commission of Pakistan (SECP), State Bank of Pakistan and other bodies on all matters relating to the Mutual Fund industry.

Impact of global funds sector on the Pakistani industry.

Not much impact of global funds sector on the Pakistani industry because international funds who come to Pakistan don’t exactly invest in mutual funds.

rather they invest in stocks directly, therefore I don’t see any direct link between the two, however Pakistani mutual fund industry can not remain isolated from developments taking place internationally and is adapting the international trends and best practices.

Current issues of funds management

1. Inadequate regulatory framework to cater for new products and growing needs of investors.

2. Limited investment options.

3. Lack of awareness among the general public

Future of mutual fund sector The future outlook of the mutual funds industry is very promising and

encouraging. The industry holds several exciting opportunities for both

corporate and individual investors including the retired persons.

mutual fund industry is generating keen interest among a growing number of investors. It is attracting fund managers and leading players of industrial and corporate sector as sponsors

it has been providing versatile and attractive investment avenues to the

general public while paying comparatively better returns based on dividend yields and capital gains.

Role of government to promote mutual fund’s sector

Mutual Funds Association of Pakistan is playing a pioneering role in the promotion of mutual fund sector in Pakistan by acting as a facilitator between the market participants and the regulators.

It disseminates essential information on various funds, the fund managers, the stock market as well as the regulatory environment under which open and closed-end.

MUFAP is also striving to achieve the following:

To enhance the professional and ethical standards in all areas of operation of Mutual Fund industry to ensure that they are in line with international best practices.

To provide a centre of excellence for the development of knowledge and understanding of the Mutual Fund industry.

To promote public understanding of mutual funds and engage in promotional activities to ensure ongoing education of the public on Mutual Fund related issues.

Impact of global funds sector on the Pakistani industry

Not much impact

they invest in stocks directly

There is not any direct link between the two

Pakistani mutual fund industry can not remain isolated from developments

Pakistanis adapting the international trends and best practices.

Current issues of funds management

1. Inadequate regulatory framework to cater for new products and growing needs of investors.

2. Limited investment options.

3. Lack of awareness among the general public.

Approaches to Portfolio Management (Fund Management Style)

Mutual funds are classified into two categories in terms of the fund management style i.e.

1. actively managed funds and

2. passively managed funds

(popularly referred to as index funds).

ACTIVELY MANAGED FUNDS

To select invest-worthy stocks from across sectors and market segments.

The sole intention of actively managed funds

To identify various investment opportunities in the market

In active fund management two basic fund management styles are;

1. Growth Investment Style

2. Value Investment Style

Growth Investment Style

the fund’s manager pick and choose those shares for investment

whose earnings are expected to increase at the rates that exceed the normal market levels

They tend to reinvest their earnings and generally have high P/E ratios and low Dividend Yield ratio.

Value Investment Style

funds manager looks to buy shares of the companies

which he believes are currently undervalued in the market,

but whose worth he estimates will be recognized in the market valuation eventually.

PASSIVELY MANAGED FUNDS

On the contrary, passively managed funds/index funds are aligned to a particular benchmark index

like KSE 100 index KSE 30 index.

The endeavor of these funds is to mirror the performance of the designated benchmark index,

by investing only in the stocks of the index with the weight age.

Types of Mutual Funds in Pakistan

1. Open-End Funds 2. Closed-End Funds

Close-end fund Open-end fund Issues redeemable units Not necessarily listed Does not conduct general

meetings of unit holders No voting rights of unit holders Each time, units are directly

acquired from or sold to the company through their authorized offices

Units are traded at NAV

Issues irredeemable shares Listed Conducts AGMs Bestow voting rights to

shareholders Shares are acquired from the

company on initial public offer and from existing shareholders afterwards

Shares are trades at market price rather NAV reported by the fund manager

Mutual fund and pakistan

MUFAP (mutual fund association of pakistan) is the trade body for pakistan,s multi billion rupees asset management industry.

MUFAP 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 for the general public.

. Mutual Funds were initially overseen by the Corporate Law Authority (“CLA”) under its Securities Wing.

The money our members manage is in a wide variety of investment vehicles including stocks, bonds, money market instruments, government securities and bank deposits

Continue……..

The CLA, then a division of the Ministry of Finance, was gradually transformed and made independent as the Securities and Exchange Commission of Pakistan (“SECP”) as part of the Capital Market Development Program (CMDP) initiative of the Asian Development Bank undertaken for Pakistan.

MUFAP’s role is to establish the essential codes and standards within the industry to ensure the trust and confidence of investors and build the industry as a whole.

The CMDP envisaged formation of four types of Self-Regulated Organizations (“SROs”) to function under the SECP:

Stock Exchanges recognized as separate SROs;Mutual Funds Association of Pakistan (MUFAP);Leasing Association of Pakistan (LAP); andModaraba Association of Pakistan (MAP).

Taxation on mutual fundsThe income of mutual funds is exempt from Income Tax.

If not less than 90% of the income of the year.

As reduced by capital gains is distributed amongst the unit holders as dividend or bonus units.

Taxation on unit holdersHolders of mutual funds are subject to Income Tax on dividend income received from a mutual fund (excluding the amount of dividend paid out of capital gains on listed securities) as under:

Public Company and Insurance Company 5%.If received by any other person, including a non-resident 10%.

Continue……Capital gain on disposition of units in a mutual fund is exempted from tax.

Till such time that capital gain on sale of securities listed on the stock exchanges is exempt from such tax.

Tax creditAs funds are listed at the stock exchanges, unit holders of the mutual funds, other than a company, are entitled to a tax credit under section 62 of the Income Tax Ordinance.

The amount on which tax credit is allowed is the lower of (a) amount invested in purchase of new units,(b) fifteen percent of the taxable income of the unit holder,(c ) Rupees Five Hundred Thousand (PKR. 500,000), and is calculated by applying the average rate of tax of the unit holder for the tax year.

RULES GOVERN MUTUAL FUNDS IN PAKISTAN

There are two rules govern mutual funds in Pakistan:

1)Investment Companies and Investment Advisors' Rules, 1971. (Govern closed-end mutual funds).

2) Asset Management Companies Rules, 1995. (Govern open-ended mutual funds).

MUTUAL FUND COMPANIES IN PAKISTAN

There are three mutual fund companies in pakistan:

National Investment Trust Limited.

Product & Investment Strategy.

Meezan Balanced Fund.

NATIONAL INVESTMENT TRUST LIMITED

The National Investment Trust Limited (NITL) is formed in 1962.

Funds under management of Rs. 81.301 billion.

NIT's distribution network comprises of 22 branches.

Authorized bank branches all over Pakistan.

And Arab Emirates Investment Bank (AEIB) in Dubai.

PRODUCTS & INVESTMENT STRATEGY

The National Investment Unit Trust (NIUT) is largest and oldest mutual fund.

On June 30, 2011, NIUT had funds under management of Rs. 40.464 billion.

NIUT had approximately 56,195 unit holders.

The Trust constituted under the Trust Deed on 12 Nov 1962.

National Investment Trust Ltd (NITL) as Management Company.

National Bank of Pakistan as Trustee.

MEEZAN BALANCED FUND

Meezan Balanced Fund is the first Shariah compliant balanced fund in Pakistan.

The investment objective of MBF is to generate long term capital appreciation as well as current income .

MBF invests 40-60% of the funds in stocks which provides capital appreciation.

MBF is a closed-end balanced fund .

Under the Non-Banking Finance Companies.

It was launched on December 20, 2004 .

Asset management companies in PakistanNational Investment Trust.

AKD Investment Management LTD.

Al-Meezan Investment Management LTD.

Arif Habib Investment Management LTD.

Askari Asset Management LTD.

Atlas Asset Management LTD.

BMA Asset Management LTD.

NBP Capital LTD.

Dawood Capital Management LTD.

Thank YOU …. !!!

Any Questions …. ???