mutual fundsmufap.com.pk/pdf/presentations/2012/presentation1.pdf · 2 contents -...

MUTUAL FUNDS An Avenue for Savings and Investments

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Contents

- Introduction/Benefit

- Structure of Mutual Funds

- Types of Mutual Funds

- Status of Mutual Fund Industry in Pakistan

- Status of Mutual Fund Industry Globally

Introduction/Benefit

4

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

5

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

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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

Structure of Mutual Funds

Structure of Mutual 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

ISLAMIC FUNDS

MONEY MARKET

FUNDS INCOME FUNDS

STOCK FUNDS

BALANCE FUNDS

FUND MANAGEMENT

MANAGEMENT FEE

ASSET

MANAGEMENT

COMPANY

ASSET

ALLOCATION

FUNDS

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Operations of Funds by Management Company & Trustee

MANAGEMENT

COMPANY

REGULATOR - SECP

TRUSTEE/

CUSTODIAN

INV

EST

OR

S,

INST

ITU

TIO

NA

L /

RE

TA

IL

FUNDS /

SCHEMES

SALES

REDEMPTIONS

• Bank Deposits

• T-Bills

• TFCs

• Equities RETURNS

INVESTMENTS

Manages all

investments in Funds

All Assets are in the

custody of the Trustee

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Types of Mutual Funds

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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

Fund Category Volatility/

Risk

Investment

Time

Investment Avenues

Banks T-Bills TFCs/

Sukuks Equities

Money Market Very Low Short or Long Yes Yes No No

Income Moderate Medium Yes Yes Yes No

Balanced / Asset

Allocation Moderate Medium-Long Yes Yes Yes Yes

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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• 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

Risk Disclaimer

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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

Status of Mutual Funds Industry in Pakistan

Mutual Fund Industry in Pakistan

132

305

159

191

237

299

4763

2131

24 20

-

50.0

100.0

150.0

200.0

250.0

300.0

350.0

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

Rs

. in

Billio

n

GROWTH OF MUTUAL FUNDS IN PAKISTAN

Open-end Close-end

17

Money

Market37%

Income

31%

Equity28%

Balanced

2%

Asset Allocation

1%

Capital Protected

1%

OPEN END FUNDS - CATEGORYWISE SIZE -Rs. 299 Billion as on 31/12/2011

Equity 79%

Income6%

Balanced15%

CLOSE END FUNDS - CATEGORYWISE SIZE -Rs.20 Billion as on 31/12/2011


179

368

180

222

261

318 6.0%

10.3%

4.7%5.1%

5.1%

5.4%

0%

3%

6%

9%

12%

-

100

200

300

400

500

600


Perc

en

tag

e o

f B

an

k D

ep

osit

s

Pak R

s. in

Billio

n

MUTUAL FUNDS VS BANK DEPOSITS - PAKISTAN


Status of Mutual Funds Industry Globally

3,339

5,490

4,193

7,953

6,782 6,876 14%

18%

11%

18%

13%

12%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


Perc

en

tag

e o

f B

an

k D

ep

osit

s

Ind

ian

Ru

pee i

n T

illi

on

MUTUAL FUND INDUSTRY VS BANK DEPOSITS - INDIA

Mutual Fund Industry in India

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14.2%

18.0%

11.4%

18.3%

13.3%

11.8%

6.0%

10.3%

4.7%5.1% 5.1% 5.4%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

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

MUTUAL FUND AS % OF BANK DEPOSIT - INDIA VS PAKISTAN

India Pakistan

Mutual Fund Industry – India vs Pakistan

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Worldwide Mutual Fund Assets

18.9218.16

20.34

22.38 22.95 23.12

21.44

23.7024.70

25.62 25.93

23.13

-

5.0

10.0

15.0

20.0

25.0

30.0

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

WORLDWIDE MUTUAL FUND ASSETSTrillios of U.S. dollars, end of quarter

2008 2009 2010 2011

23

11,004

9,043

5,868 5,638

4,933 4,746

3,0192,693

-

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

2011: Q2 2011: Q3 2011: Q2 2011: Q3 2011: Q2 2011: Q3 2011: Q2 2011: Q3

WORLDWIDE MUTUAL FUND ASSETSBillions of U.S. dollars, end of quarter

MoneyMarketEquity Bond Balanced/ Mixed


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Equity39%

Bond24%

Money Market21%

Balanced/ Mixed12%

Other/ Unclassified

4%

PERCENT OF WORLDWISE MUTUAL FUNDASSETS BY TYPE OF FUND, 2011:Q3


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PERCENT OF WORLDWIDE MUTUAL FUND ASSET

BY REGION, 2011:Q3

Africa

Asia/Pacific,

13%

Europe, 32%

America, 55%

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Thank You