Money market

The following are the Money Market instruments in Pakistan: 1) Pakistan Investment Bonds (PIBs) 2) Federal Investment Bonds (FIBs) 3) Market Treasury Bills (MTBs) 4) Term Finance Certificates (TFCs) 5) Certificate Of Investments (COIs) 6) Certificate Of Deposits (CODs) 7) Commercial Papers (CPs) 8) Foreign exchange platform (forex

Mutual Funds

Mutual Funds & Types 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 and similar assets. A fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. One of the main advantages of funds is that they give small investors 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. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Open-ended fund units are issued and can typically be purchased or redeemed as needed at the fund's current net asset value (NAV) per share whereas closed-end funds are listed on the stock exchanges and can be freely traded. Types of Mutual Funds (By Structure) Funds can be open-ended funds or closed-end funds depending on their structure. Open-ended Funds These funds are in a continuous process of issuing shares/ units on demand and redeeming shares/ units on demand. The shares/ units do not trade on a market. The number of shares/ units outstanding varies each time the net asset valuation calculation is carried out, which is daily for most open-ended funds. Closed-end Funds Closed-end funds issue a specific number of shares. Their capitalization is fixed. The shares are not redeemable, but are readily transferable and traded on either a stock exchange or the over-the-counter market. The price of a closed-end fund share fluctuates based on investor supply and demand. Closedend funds are not required to redeem shares and have managed portfolios.

Types of Mutual Funds (By Objective) Open-ended or closed-end funds can be of several types; however the most basic classifications are stock funds, income funds, hybrid funds or specialty funds. Further classifications evolve as each fund pursues diverse investment strategies for instance: Islamic Equity Funds, Sector Funds, Global Equity Funds, High Yield Debt Funds, Aggressive Equity Funds, Income Funds and so on.

Stock Funds Income and Money Market Funds Hybrid Funds Pension Funds Islamic Funds Specialty Funds

Not too many years ago, mutual funds were simply broad-based investment instruments created to simplify the intricacies involved in investing in separate securities. They also provided a greater measure of safety through broad diversification and the kind of top notch professional management that is usually out of reach for the small investor. Today, however, mutual funds are highly specialized and offer almost unlimited diversity. The types of mutual fund portfolios available run the gamut from conservative to aggressive, from stocks to bonds, from domestic to international portfolios, from taxable to tax-free, and from virtually no-risk money market funds to high-risk options funds. The great variety of mutual funds available makes it possible to select a fund, or several funds, which precisely various types of funds and their primary objectives are described below. (They are arranged in order of increasing risk factors) Money Market Fund We begin with a discussion of money market funds for several reasons: 1. They are the safest for the novice investor; 2. They are the easiest, least complicated to follow and understand; 3. Almost without exception, every mutual fund investment company offers money market funds; 4. Money market funds represent an indispensable investment tool for the beginning investor. 5. They are the most basic and conservative of all the mutual funds available; Money market funds should be considered by investors seeking stability of principal, total liquidity, and earnings that are as high, or higher, than those available through bank certificates of deposit. And unlike bank cash deposits, money market funds have

no early withdrawal penalties. Specifically, a money market fund is a mutual fund that invests its assets only in the most liquid of money instruments. The portfolio seeks stability by investing in very short-term, interest-bearing instruments issued by the state and local governments, banks, and large corporations. The money invested is a loan to these agencies, and the length of the loan might range from overnight to one week or, in some cases, as long as 90 days. These debt certificates are called "money market instruments"; because they can be converted into cash so readily, they are considered the equivalent of cash. To understand why money market mutual funds is recommended as an ideal investment, let me reemphasize just seven of the advantages they offer: 1. Safety of principal, through diversification and stability of the short-term portfolio investments 2. Total and immediate liquidity, by telephone or letter 3. Better yields than offered by banks, 1% to 3% higher 4. Low minimum investment, some as low as $100 5. Professional management, proven expertise 6. Generally, no purchase or redemption fees, no-load funds Income Funds The objective of income mutual funds is to seek a high level of current income commensurate with each portfolio's risk potential. In other words, the greater the risk, the greater the potential for generous income yields; but the greater the risk of principal loss as well. The risk / reward potential is low to high, depending upon the type of securities that make up the fund's portfolio. The risk is very low when the fund is invested in government obligations, blue chip corporations, and short-term agency securities. The risk is high when a fund seeks higher yields by investing in long-term corporate bonds, offered by new, undercapitalized, risky companies.

Who should invest in income funds? Investors seeking current income higher than money market rates, who are willing to accept moderate price fluctuations Investors willing to "balance" their equity (stock) portfolios with a fixed income investment Investors who want a portfolio of taxable bonds with differing maturity dates Investors interested in receiving periodic income on a regular basis. Income and Growth Funds The primary purposes of income and growth funds are to provide a steady source of income and moderate growth. Such funds are ideal for retirees needing a supplement source of income without forsaking growth entirely. Growth and Income Funds

The primary objectives of growth and income funds are to seek long-term growth of principal and reasonable current income. By investing in a portfolio of stocks believed to offer growth potential plus market or above - market dividend income, the fund expects to investors seeking growth of capital and moderate income over the long term (at least five years) would consider growth and income funds. Such funds require that the investor be willing to accepts some share-price volatility, but less than found in pure growth funds. Balanced Funds The basic objectives of balanced funds are to generate income as well as long-term growth of principal. These funds generally have portfolios consisting of bonds, preferred stocks, and common stocks. They have fairly limited price rise potential, but do have a high degree of safety, and moderate to high income potential. Investors who desire a fund with a combination of securities in a single portfolio, and who seek some current income and moderate growth with low-level risk, would do well to invest in balanced mutual funds. Balanced funds, by and large, do not differ greatly from the growth and income funds described above. Growth Funds 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. Growth funds are best suited for investors interested primarily in seeing their principal grow and are therefore to be considered as long-term investments - held for at least three to five years. Jumping in and out of growth funds tends to defeat their purpose. However, if the fund has not shown substantial growth over a three - to five-year period, sell it (redeem your shares) and seek a growth fund with another investment company. 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." Index Funds The intent of an index fund is basically to track the performance of the stock market. If the overall market advances, a good index fund follows the rise. When the market declines, so will the index fund. Index funds' portfolios consist of securities listed on the popular stock market indices. It is also the intent of an index fund to materially reduce expenses by eliminating the fund portfolio manager. Instead, the fund merely purchases a group of stocks that make up the particular index it deems the best to follow. The stocks in an index fund portfolio rarely change and are weighted the same way as its particular market index. Thus, there is no need for a portfolio manager. The securities in an index mutual fund

are identical to those listed by the index it tracks, thus, there is little or no need for any great turnover of the portfolio of securities. The funds are "passively managed" in a fairly static portfolio. An index fund is always fully invested in the securities of the index it tracks. An index mutual fund may never outperform the market but it should not lag far behind it either. The reduction of administrative cost in the management of an index fund also adds to its profitability. Sector Funds As was noted earlier, most mutual funds have fairly broad-based, diversified portfolios. In the case of sector funds, however, the portfolios consist of investment from only one sector of the economy. Sector funds concentrate in one specific market segment; for example, energy, transportation, precious metals, health sciences, utilities, leisure industries, etc. In other words, they are very narrowly based. Investors in sector funds must be prepared to accept the rather high level of risk inherent in funds that are not particularly diversified. Any measure of diversification that may exist in sector funds is attained through a variety of securities, albeit in the same market sector. Substantial profits are attainable by investors astute enough to identify which market sector is ripe for growth - not always an easy task! Specialized Funds Specialized funds resemble sector funds in most respects. The major difference is the type of securities that make up the fund's portfolio. For example, the portfolio may consist of common stocks only, foreign securities only, bonds only, new stock issues only, over - the - counter securities only, and so on. Those who are still novices in the investment arena should avoid both specialized and sector funds or the time being and concentrate on the more traditional, diversified mutual funds instead. Islamic Funds In case of Islamic Funds, the investment made in different instruments is to be in line with the Islamic Shairah Rules. The Fund is generally to be governed by an Islamic Shariah 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

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