MUTUAL FUNDS

An Avenue for Savings and Investments

 Contents

- Introduction/Benefit
- Structure of Mutual Funds
- Types of Mutual Funds
- Status of Mutual Fund Industry in Pakistan
- Status of Mutual Fund Industry Globally

2
Introduction/Benefit
 Introduction to Mutual Fund

What is a Mutual Fund?

Mutual fund is a pool of money belonging to a group of investors, who entrust it
to a Fund Manager for making prudent investments on their behalf, strictly in
accordance with the Investment Guidelines as laid down in the Constitutive
Documents of the Fund.

Key Advantages of Investing in Mutual Funds

• Professional Investment Management
• Diversification
• Convenience and Flexibility
• Liquidity and Easy Withdrawal
• Regulatory Protection
• Protection through Trustee
• Taxation Benefits

4
 Advantages of Money Market Funds (MMFs)
Versus Bank Deposits & NSS

• Money Market Funds (MMFs) are like a current account of a bank –

withdraw any time without penalty
• MMFs returns are much higher than bank deposits. Average bank
deposit rate is 6% p.a., average return on MMFs is 10.5% p.a..
• The return of about 10% p.a. is even better than Term-Deposits
• Unlike NSS, there are no penalties on withdrawals, and much better
service
• Tax credits of up to Rs. 100,000 on open end mutual funds and
unlimited on pension funds, if investment horizon is longer than one
year versus 10% tax on bank deposits and some NSS Schemes

5
 Tax Benefits

 Mutual Funds required to withhold CGT as per below:

– 10% for less than 6 months holding
– 8% for 6 to 12 months holding
– Zero for more than 12 months holding
– Capital Gains separate block of income with full & final tax liability.

 Corporate Entities:
– Tax savings of 25%-35% as compared to bank deposits

 Individuals:
– Tax savings of 0-10% as compared to bank deposits
– Tax Rebates upto Rs.100,000/- on open end funds and unlimited on Pension
Funds

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Structure of Mutual Funds
 Structure of Mutual Funds

MONEY MARKET
INCOME FUNDS
FUNDS

MANAGEMENT FEE

ASSET
ISLAMIC FUNDS MANAGEMENT BALANCE FUNDS
COMPANY

FUND MANAGEMENT

ASSET
ALLOCATION STOCK FUNDS
FUNDS

1. Funds are separate legal entities owned by the investors

2. The AMC simply manages the funds on behalf of investors and charge a fee for that
3. Management fee ranges from 1% p.a. to 3% p.a. of assets under management
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 Operations of Funds by Management Company & Trustee

REGULATOR - SECP

MANAGEMENT TRUSTEE/
COMPANY CUSTODIAN

Manages all All Assets are in the

investments in Funds custody of the Trustee
INSTITUTIONAL / RETAIL
INVESTORS,

SALES • Bank Deposits

FUNDS / INVESTMENTS • T-Bills
SCHEMES • TFCs
RETURNS
REDEMPTIONS • Equities

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Types of Mutual Funds
 Types of Mutual Funds

 Conventional/Shariah Compliant Funds

 Open-end / Closed-end

 Sub-categories of Mutual Funds

• Money Market Funds
• Income Funds
• Asset Allocation Funds
• Balanced Funds
• Equity Funds
• Sector Specific Funds

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 Basic Characteristics of Mutual Funds

Investment Avenues
Volatility/ Investment
Fund Category
Risk Time TFCs/
Banks T-Bills Equities
Sukuks

Money Market Very Low Short or Long Yes Yes No No

Income Moderate Medium Yes Yes Yes No

Balanced / Asset
Moderate Medium-Long Yes Yes Yes Yes
Allocation

Equity High Long Yes Yes No Yes

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 How to choose a Mutual Fund?

• Rating/Quality of Sponsors
• Rating of Asset Management Company (AMC)
• Rating of Fund
• Highly Qualified & Experienced Management Team
• Successful Performance Track Record
• Ethical Reputation of the Management
• Disciplined Investment Methodology

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 Risk Disclaimer

• All investments in mutual funds are subject to market risks

• The NAV based prices of units and any dividend/returns

thereon are dependant on forces affecting the financial
markets. These may go up and down on market conditions

• Past performance is not necessarily indicative of future

results

• Please read offering document of the fund to understand the

investment policies and the risk involved

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 How to Start Investing?

• Determine your objectives of savings/investments which includes

- Return needs
- Time horizon
- Liquidity needs
- Risk Profiling of Investor
• Ask yourself whether you are an aggressive, moderate or a conservative
investor
• Select the mutual fund manager you trust
• Select the fund which you want to invest
• Monitor your investments on periodic basis

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Status of Mutual Funds Industry in Pakistan
 Mutual Fund Industry in Pakistan
GROWTH OF MUTUAL FUNDS IN PAKISTAN
350.0

305 299
300.0

250.0 237
Rs. in Billion

200.0 191

159
150.0 132

100.0
63
47
50.0
31 24
21 20

-
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11

Open-end Close-end

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 Mutual Fund Industry in Pakistan

OPEN END FUNDS - CATEGORYWISE SIZE - CLOSE END FUNDS - CATEGORYWISE SIZE -
Rs. 299 Billion as on 31/12/2011 Rs.20 Billion as on 31/12/2011
Asset Capital Balanced
Allocation Income 15%
Protected 6%
1% 1%
Balanced
2%

Equity Money
28% Market
37%

Income
31% Equity
79%
 Mutual Fund Industry in Pakistan
MUTUAL FUNDS VS BANK DEPOSITS - PAKISTAN
600 12%

10.3%
500

Percentage of Bank Deposits

9%

400
Pak Rs. in Billion

368

6.0%
318
300 5.4% 6%
5.1% 261
4.7%
222 5.1%
200 179 180
3%

100

- 0%
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
Status of Mutual Funds Industry Globally
 Mutual Fund Industry in India
MUTUAL FUND INDUSTRY VS BANK DEPOSITS - INDIA
9,000 20%
18% 18%
7,953 18%
8,000

6,782 6,876 16%

7,000
14%

Percentage of Bank Deposits

13% 14%
Indian Rupee in Tillion

6,000
5,490 12%
11% 12%
5,000

4,193 10%
4,000
3,339 8%

3,000
6%

2,000
4%

1,000 2%

- 0%
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11

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Mutual Fund Industry – India vs Pakistan
MUTUAL FUND AS % OF BANK DEPOSIT - INDIA VS PAKISTAN
20%
18.0% 18.3%
18%

16%
14.2%
14% 13.3%
11.8%
12% 11.4%
10.3%
10%

8%
6.0%
6% 5.1% 5.1% 5.4%
4.7%
4%

2%

0%
Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11

India Pakistan

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 Worldwide Mutual Fund Assets
WORLDWIDE MUTUAL FUND ASSETS
Trillios of U.S. dollars, end of quarter
30.0

25.62 25.93
24.70
25.0 23.70
22.95 23.12 23.13
22.38
21.44
20.34
20.0 18.92
18.16

15.0

10.0

5.0

-
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2008 2009 2010 2011

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 Worldwide Mutual Fund Assets
WORLDWIDE MUTUAL FUND ASSETS
Billions of U.S. dollars, end of quarter
12,000.0
11,004

10,000.0
9,043

8,000.0

5,868 5,638
6,000.0
4,933 4,746

4,000.0
3,019
2,693

2,000.0

-
2011: Q2 2011: Q3 2011: Q2 2011: Q3 2011: Q2 2011: Q3 2011: Q2 2011: Q3
Equity Bond Money Market Balanced/ Mixed

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 Worldwide Mutual Fund Assets
PERCENT OF WORLDWISE MUTUAL FUND
ASSETS BY TYPE OF FUND, 2011:Q3
Money Market
21%
Balanced/ Mixed
12%

Other/
Bond
Unclassified
24%
4%

Equity
39%

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 Worldwide Mutual Fund Assets
PERCENT OF WORLDWIDE MUTUAL FUND ASSET
BY REGION, 2011:Q3

Africa
Asia/Pacific,
13%

America, 55%

Europe, 32%

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Thank You