September 16, 2011

[UNDERSTANDING MUTUAL FUNDS

Assignment # 1 Subject: Portfolio Management

Submitted to Mr.Faisal Aziz Dated:18-09-2011 Submitted By Rana Faheem Haider (Id # 54169)

September 16, 2011

[UNDERSTANDING MUTUAL FUNDS

DEFINITION:
Mutual funds are part of what is known as the financial services industry. This industry includes two basic types of financial institutions: depository and non-depository. Mutual funds subsist in non-depository institution. Mutual fund is a market where an individual investor purchase or sell shares/bonds and get economic earnings.

TYPES OF MUTUAL FUNDS:

1. Money Market Fund 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 2. 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. 3. 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. 4. 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
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September 16, 2011

[UNDERSTANDING MUTUAL FUNDS

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 lowlevel 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.

5. 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."

6. 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. 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.

September 16, 2011

[UNDERSTANDING MUTUAL FUNDS

7. 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.

September 16, 2011

[UNDERSTANDING MUTUAL FUNDS

EXAMINE THE FUNDS OFFERED BY THE VARIOUS INSTITUTIONS.

MINIMUM INVESTMEN T NAV RISK PROFILE NET ASSETS PER UNI T Exempt on Open endislamic Open ARIF HABIB ISLAMIC FUND end sharia complian t asset allocatio n Low risk investmen ts to provide safe and consistent halal returns. Pkr 50.00 Not mention Rs.5000 Pkr 350mn 44.5 9 Not mention Pkr 100 2.0% of average annual net assets 1 unit High Pkr216.74mn 40.3 4 distribution of 90% of profits as dividends TAXATION

FUND NAME

FUND TYPE

PAR VALUE

MANAGEMEN T FEES

JS ISLAMIC FUND (JS ISF)

ABL ISLAMIC CASH FUND (ABL-ICF)

Open end shariah complian t Not mention Rs.5000

Tax exemption as per current tax law