Investment Analysis & Portfolio management

Mutual Fund:
A mutual fund is a collective investment scheme, which specializes in investing a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money-market instruments, other securities, or even cash.

Advantages of Mutual Funds:

Major advantages of investing in mutual funds include: I. Professional Management: The fund manager is an investment specialist who manages the funds investment portfolio on a continuous basis. The fund managers job is to analyze the financial markets for the purpose of selecting those securities that best match a funds investment objectives. These professional has minimum degree of CFA. Means those persons are hired who maintain these types of fund exectly. II. Liquidity: Mutual Funds provide the opportunity for long term growth without the requirement of any long term commitment, as mutual funds provide the option to redeem your investment on a daily basis. III. Tax Benefits: Under the current tax rules, 1 year above on investment, capital gains on sale of units as well as bonus units are exempted from taxes. Cash dividends are taxed at a maximum of 10% depending on the category of investor. Tax Rebate on investment. IV. Portfolio Diversification: Mutual Funds invest in a well-diversified portfolio of securities which enables small). With the help of portfolio diversification the investors have an opportunity to invest in those instruments which have less risky. V. Flexibility: Investors also benefit from the flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic investment and withdrawal is also offered to the investors in most open-end schemes. VI. Transparency: Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator.

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VII.

Choice of Schemes:

Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options. VIII. Safety: Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.

Followings are the types of mutual fund that are under as follow;

By Nature of Issue:
Funds can be open-ended funds or closed-end funds depending on their Nature;

i.

Open-Ended Mutual Funds:

A 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. Examples: Pakistan Stock Market Fund ABL Cash Fund. Atlas Stock Market Fund

ii.

Closed-End Mutual Funds:

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. Also known as a "closed-end investment" or "closed-end mutual fund."
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Examples: AKD Golden Fund Al-Meezan Mutual Fund. Pakistan Premier Fund Limited

By Investment Strategy:
Following are the sub-type of funds according to their investment strategy;

i.

Money Market Fund:

Money market funds invest in short-term (maturing within one year) interest bearing debt instruments. These securities are highly liquid and provide safety of investment, thus making money market funds the safest investment option when compared with other mutual fund types. However, even money market funds are exposed to the interest rate risk. Examples: HBL Money Market Fund IGI Money Market Fund Treasury Bills (Issued By Governments)

ii.

Fixed Income Fund

A fund that invests solely in fixed incomeinvestments, such as bonds or certificates of deposit. These funds are dependable and limit the amount of risk an investortakes on, although it could mean a lesser return that would be possible in a more risky fund. Examples: TFC (Term Finance Certificates) Bonds / Debentures Term Deposit Receipts

iii.

Equity Fund
A mutual fund which invests primarily in stocks, usually common stocks. Examples: Lakson Equity Fund NIT - Equity Market Opportunity Fund

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iv.

Balance Fund:
A mutual fund that buys a combination of common stock, preferred stock, bonds, and short-term bonds, to provide both income and capital appreciation while avoiding excessiverisk. The purpose of balanced funds (also sometimes called hybrid funds) is to provide investors with a single mutual fund that combines both growth and incomeobjectives, by investing in both stocks (for growth) and bonds (for income).

Examples:

BSJS Balance Fund Ltd Unit Trust Fund Meezan Balanced Fund

v.

Islamic Fund:
In case of Islamic Funds, the investment made in different instruments is to be in line with the Islamic Sharia Rules. The Fund is generally to be governed by an Islamic Sharia Board. And then there is a purification process that needs to be followed, as some of the money lying in reserve may gain interest, which is not desirable in case of Islamic investments.
Examples: NIT Income Fund HBL Islamic Money Market Fund Meezan Islamic Fund

vi.

Fund Of Funds:
A "fund of funds" (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. This type of investing is often referred to as multi-manager investment.

Or

A mutual fund that invests in other mutual funds.

Examples:

AKD Opportunity Fund HBL Stock Fund Pakistan Capital Market Fund

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Vii. Government Securities fund:

Bonds, notes, and other debt instruments sold by a government to finance its borrowings.These are generally long-term securities with the highest market ratings. This includes short-term Treasury bills, medium-term Treasury notes, and long-term Treasury bonds. A government debt obligation (local or national) backed by the credit and taxing power of a country with very little risk of default. Example: UBL Government Securities Fund ABL Government Securities Fund Pak Oman Government Securities Fund

By Dividened Distribution :
i. Income Fund:

A type of mutual fund that emphasizes current income, either on a monthly or quarterly basis, as opposed to capital appreciation. Such funds hold a variety of government, municipal and corporate debt obligations, preferred stock, money market instruments, and dividendpaying stocks. Examples: Atlas Income Fund AKD Income Fund Askeri incom Fund Pakistan Incom Fund

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ii.

Growth Fund:

Growth funds are offered by every investment company. The primary objective of such funds is to seek long-term appreciation (growth of capital). The secondary objective is to make one's capital investment grow faster than the rate of inflation. Dividend income is considered an incidental objective of growth funds. Candidates likely to participate in growth funds are those willing to accept moderate to high risk in order to attain growth of their capital and those investors who characterize their investment temperament as "fairly aggressive."

Examples: United Growth & Income Fund PICIC Growth Fund ABAMCO Growth Fund

Resources:http://www.mufap.com.pk/ http://www.cdcpakistan.com/UserPanel/AboutUs/ViewContent.aspx ?m=au&type=0049

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