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A mutual fund is a type of professionally managed collective investment that pools money from
many investors to purchase securities. They are sometimes referred to as "investment
companies" or "registered investment companies.
Mutual funds must be registered with the Securities and Exchange Commission of Pakistan.
These funds are overseen by a board of directors (or board of trustees if organized as a trust
rather than a corporation or partnership) and managed by a registered investment adviser.
The Net Asset Value (value of a share of the mutual fund) is calculated daily based on the total
value of the fund divided by the number of shares currently issued and outstanding. It changes
daily depending on the change in the size of the fund.
Benefits
Mutual funds are not taxed on their income and profit in Pakistan
One of the main advantages of mutual funds is that they give small investors the access to
professionally managed, diversified portfolios of equities, bonds and other securities, which
would be quite difficult (if not impossible) to create with a small amount of capital. Each
shareholder participates proportionally in the gain or loss of the fund. Mutual fund units, or
shares, are issued and can typically be purchased or redeemed as needed at the fund's current
net asset value (NAV) per share, which is sometimes expressed as NAVPS.
Improvement of risk profile over a direct investment
To earn a superior risk adjusted rate of return by investing in a blend of short, medium, and
long-term instruments, both within and outside Country.
There are the following types of mutual funds
Closed-ended funds generally issue shares to the public only once, when they are created
through an initial public offering. Their shares are then listed for trading on a stock exchange.
Investors who no longer wish to invest in the fund cannot sell their shares back to the fund (as
they can with an open-ended fund). Instead, they must sell their shares to another investor in
the market; the price they receive may be significantly different from net asset value. It may be
at a "premium" to net asset value (meaning that it is higher than net asset value) or, more
commonly, at a "discount" to net asset value (meaning that it is lower than net asset value).
Unit investment trusts or UITs issue shares to the public only once, when they are created.
UITs generally have a limited life span, established at creation. Investors can redeem shares
directly with the fund at any time (as with an open-end fund) or wait to redeem upon termination
of the trust. Less commonly, they can sell their shares in the open market.
Unit investment trusts do not have a professional investment manager. Their portfolio of
securities is established at the creation of the UIT and does not change.
The exchange-traded fund or ETF is often structured as an open-end investment company,
though ETFs may also be structured as unit investment trusts, partnerships, investments trust,
guarantor trusts or bonds (as an exchange-traded note). ETFs combine characteristics of both
closed-end funds and open-end funds. Like closed-end funds, ETFs are traded throughout the
day on a stock exchange at a price determined by the market. However, as with open-end
funds, investors normally receive a price that is close to net asset value. To keep the market
price close to net asset value, ETFs issue and redeem large blocks of their shares with
institutional investors.
Classification of Funds on the basis of Mode of Investment
Mutual funds are normally classified by their principal investments, as described in the
prospectus and investment objective
Money market funds invest in money market instruments, which are fixed income securities
with a very short time to maturity and high credit quality. Investors often use money market
funds as a substitute for bank savings accounts, though money market funds are not
government insured, unlike bank savings accounts.
Bond funds invest in fixed income or debt securities. Bond funds can be subclassified
according to the specific types of bonds owned (such as high-yield or junk bonds, investmentgrade corporate bonds, government bonds or municipal bonds) or by the maturity of the bonds
held (short-, intermediate- or long-term).
Stock or equity funds invest in common stocks which represent an ownership share (or equity)
in corporations
Hybrid funds invest in both bonds and stocks or in convertible securities. Hybrid funds may be
structured as funds of funds, meaning that they invest by buying shares in other mutual funds
that invest in securities. Most fund of funds invest in affiliated funds (meaning mutual funds
managed by the same fund sponsor), although some invest in unaffiliated funds (meaning those
managed by other fund sponsors) or in a combination of the two
The worlds top equity funds list ranked (in 2012)
Lack of awareness in general public as they dont know much about mutual funds
Location of Funds manager is far from the investor i-e in Karachi. The investor if wants
to redeem his investment needs to wait for long hours because of procedural formalities.
Investors have a myth in their mind that a Mutual fund works like a bank and they are not
familiar with these funds so they prefer the banks that they know much about.
Today the funds are tax free but the policies may change
Chances of loss of investment as they work on the basis of Profit and Loss sharing.
They pay usually 1 to 2% more than bank rate so people dont take risk for such a little
margin.
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