Mutual Funds: Rao Aziz

Mutual Funds
Rao Aziz
Mutual Fund
A mutual fund is a professionally
managed type of collective
investment scheme that pools
money from many investors and
invests it in stocks, bonds, short-
term money market instruments,
and/or other securities
Mutual Fund flow cycle
Source: AMFI
Mutual Fund Basic Terminology
An Asset Management Company is the fund

house or the company that manages the
money.
The Mutual fund is a trust registered under the
Pakistan Trust Act. It is initiated by a sponsor.
A sponsor is a person who acts alone or with a
corporate to establish a mutual fund. The
sponsor then appoints an AMC to manage the
investment, marketing, accounting and other
functions pertaining to the fund.
• NAV - The Net Asset Value is the price of a unit of a
fund. When a fund comes out with an IPO, it is
priced Rs 10. Later, depending on the value of the
investments, this price could rise or fall
– Mutual funds only calculate their NAVs once per trading

day, at the close of the trading session.
• Portfolio -This is the term given to all the
investments made by the fund as well as the
amount held in cash.
• Load - This is a fee that is charged when you buy or
sell the units of a fund.
– The load is a percentage of the NAV.
– According to the new SECP regulations, the entry/exit load
would be removed.
• Corpus - The total amount of money invested
in the fund is called the corpus
• AUM - Assets Under Management is the total
value of all the investments currently being
managed by the fund.
Let's say the corpus is Rs 12,000 but, due to a rise
in the price of the shares it has invested in, the
value of the units has increased. So the Rs
12,000 invested is now worth Rs 15,000. This
figure is referred to as AUM.
• NFO - A New Fund Offering is the term given to
a new mutual fund scheme.
How to invest in a mutual fund
A one-time Periodic
outright investments(
payment SIP)
●
If you invest directly in the fund, you just ●
Here, every month, you commit to investing,
hand over the cheque and you get your say, Rs 1,000 in your fund. At the end of a year,
fund units depending on the value of the you would have invested Rs 12,000 in your fund.
●
Let's say the NAV on the day you invest in the
units on that particular day. first month is Rs 20; you will get 50 units.
●
Let's say you want to invest Rs 10,000. All ●
The next month, the NAV is Rs 25. You will get 40
you have to do is approach the fund and units.
buy units worth Rs 10,000. There will be ●
The following month, the NAV is Rs 18. You will
two factors determining how many units get 55.56 units.
●
So, after three months, you would have 145.56
you get.
units. On an average, you would have paid
●
The Net Asset Value is the price of a unit around Rs 21 per unit. This is because, when the
of a fund. Let's say that the NAV on the NAV is high, you get fewer units per Rs 1,000.
day you invest is Rs 30. So you will get When the NAV falls, you get more units per Rs
333.33 units (Rs 10000 / 30). 1,000.
Advantages of Mutual Funds
• Professional Management
• Diversification
• Convenient Administration
• Lower Transaction costs
• Transparency
• Liquidity
• Mobilizes savings into the market
Basis for Classification
Sectoral funds are most risky

Risk
●
●
Money market funds are least risky
Tenor Equity funds require a long investment horizon

●
●
Liquid funds are for short term liquidity needs
●
Equity funds suit growth objective
Investment Objective ●
Debt funds suit income objective
Different type of Funds
• Mid-cap funds: Mid cap funds are those mutual
funds, which invest in small / medium sized
companies
• Equity funds: Equity mutual funds are also
known as stock mutual funds. Equity mutual
funds invest pooled amounts of money in the
stocks of public companies. Eg- MCB, Arif Habib
• Bond Funds: A mutual fund that invests in
several different types of medium and long-term
government securities in addition to top quality
corporate debt.
Different type of Funds
• Real estate Stocks: These are from firms
involved in real estate such as builder, supplier,
architects and engineers, financial lenders, etc.
• Venture Capital Funds: Venture Capital Mutual

Funds invest in the start-up and new
companies.
Tax Benefits
• Section 10(33) of the Income Tax Act, 1961 :
The dividend received by the investors from
the scheme will be exempt from income tax
for all categories of investors under Section
10(33) of the Income Tax Act, 1961
• Wealth Tax Benefits: Mutual Fund units are
exempt from Wealth Tax.
The Road Ahead
• The Mutual fund industry is expected to increase
its share from present 6.5% of GDP to 21% in
next 10 years. The size of the industry is expected
to grow to 1,65,000 crore
• The Steps taken by the SBP for Financial inclusion
and the Financial Literacy of the Rural Sector is
likely to mobilize the savings of the Households
into the Financial Markets.
– The Mutual Funds is the most likely route provided the
risk averse nature of the Indian Investors.
• The growing GDP of the country is likely to
increase and the key driver to utilize this growth
would be the product innovation to cater to the
needs of investors with different risk appetite.
THANK YOU

Mutual Funds: Rao Aziz

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Mutual Funds

An Asset Management Company is the fund

– Mutual funds only calculate their NAVs once per trading

Sectoral funds are most risky

Tenor Equity funds require a long investment horizon

• Venture Capital Funds: Venture Capital Mutual

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