Chapter 2
Overview of the Mutual Funds in Pakistan
2.1 History of Mutual Fund
There are main two types of mutual funds are available open end and closed end funds for the Pakistani investors. Close End mutual funds are traded in stock exchange, directly every investor can buy or sell these funds in the stock market. Prices of these funds are determined on the basis of demand and supply of the shares rather than net assets value in case of closed end mutual funds.
In 1962, Government of the Pakistan established open end mutual fund with the name of National Investment Unit Trust (NITL) commonly known as NIT. Later, first closed end mutual fund in Pakistan was established in the year 1967 with the name of Investment Corporation of Pakistan (ICP) under the Government Ordinance. Presently both funds are regulated in different Act, according to this all the investment scheme in the country will be regulated by the Commission Investment Companies and Investment Adviser Rules 1971, closed end mutual funds are regulated under this act, while Open End funds are regulated under Assets Management Companies Rules 1995, which have been framed under the securities and exchange ordinance 1969.
Presently 23 closed end mutual funds available for the investors which are listed in Karachi Stock Exchange. NIT is oldest and one of the largest open end funds in Pakistan which having 52000 units holder with 19 branches and other authorized banks all over the country. Open end Mutual funds are not traded in the stock market; subscription and redemption of funds are acceptable on continuous basis. Investor can buy and redeems fund only to the issuing company and he unit prices of these funds are determined on the basis of Net Asset Value, whi...
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...s decisions. This difficult balance may only be achieved if institutional investors generally, and mutual funds particularly, are encouraged to play a significant role in corporate governance. Khan and Jawad (2008) without taken into account the risk factors the return of the funds cannot measure their true performance. When compare the return of the income funds in Pakistan these funds underperform the market at least 50 basis point. Rauf and Afza (2009) have showed that different attributes of funds like fund size, expenses, age turnover, loads and liquidity point to that among various funds these variables have significant impact on the performance of mutual funds in Pakistani market in recent past.
The previous empirical findings motivate to investigate in case of Pakistani mutual funds performance in particular in the latest period using different models.
"Financial Management in the International Business." Hill: International Business: Competing in the Global Marketplace, Sixth Edition. : The McGraw−Hill Companies, 2007. . Print.
The promising advantages. In spite the market prices can represent the most relevant information about the stocks it is not so easy to properly construe this information. No doubt, only the large enough sample size of the number of funds can present the key information. Only benchmark can properly measure how efficiently the market works. One more fact in support to the work of Advising Funds – the biased statistics, this fund belongs to the survived ones which always produce the better results than many non surviving funds.
As the newly promoted manager for Morningstar, Inc. and with the agency considering dropping stocks and bonds and focusing solely on mutual funds, I would have to think about the prospect of this venture and do some research of the agencies financial status in order to be able to thoroughly analyze this undertaking.
[13]. Stephen A. Ross, 2002. Neoclassical Finance, Alternative Finance and the Closed End Fund Puzzle, European Financial Management, Vol. 8, No. 2, 2002, pp. 129-137
According to Investopedia (Asset Allocation Definition, 2013), asset allocation is an investment strategy that aims to balance risk and reward by distributing a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon. There are three main asset classes: equities, fixed-income, cash and cash equivalents; but they all have different levels of risk and return. A prudent investor should be careful in allocating each asset class to his portfolio. Proper asset allocation is a highly debatable subject and is not designed equally for everybody, but is rather based on the desires and needs of the individual investor. This paper discusses the importance of asset allocation, the differences and the proper diversification within the portfolio.
Total Shareholder Return (TSR) is a critical key performance indicator (KPI) to measure portfolio performance as well as evaluate investment decision in firms which forms the crux of the research presented in this paper. TSR is a compounded and annualised measure including dividends paid to shareholders by Temasek however, it does not include capital injections by shareholders. Temasek is a long term investor and tracks its TSR over various time periods. Following gives Temasek’s portfolio performance
Hanif, Muhammad and Dar, Abubakar Javaid, Comparative Testing of Capital Asset Pricing Model (CAPM) and Shari’a Compliant Asset Pricing Model (SCAPM): Evidence from Karachi Stock Exchange - Pakistan (November 18, 2011). 4th South Asian International conference (SAICON-2012), Pearl Contenental Hotel, Bhurban, Pakistan, 05-07 December, 2012. Available at SSRN: http://ssrn.com/abstract=1961660 or http://dx.doi.org/10.2139/ssrn.1961660
These tests represent a comprehensive analysis of the financial performance of these funds over a recent 3-year period and enable us to investigate whether these funds offer investors returns which are significantly less than those available from investing in a broadly-based market portfolio that is not restricted to the selection of ethical securities. The tests also allow us to compare the performance of ethical with similar non-ethical funds and to study whether the fund managers attempt to time the market. Finally, some preliminary analysis on what determines ethical fund performance is conducted. The pairs analysis as follows:
In line with the globalisation of the financial market worldwide, in this project paper the issue of the functions of the securities firms and investment banks in Saudi Arabia and the functions of the securities firms and investment banks in United States of America will be discussed in detail.
incorporated in accordance with the Companies Act, 2013 to manage the funds of the mutual fund. The
3. Basing one’s decision solely on an asset allocation’s mean and variance is insufficient to base one’s decisions, in a world in which asset class returns are not normally distributed; and,
Researchable task in this study is whether stock asset returns are predictable, which has been a question of great attention emerged with financial econometrics since the earliest times. Mathematical models of asset pricing have an unusually rich history as compared to every other aspect of economic analysis. For tests of return predictability, information set is defined as the past history of stock prices, company characteristics, market characteristics and the time of the year. The Efficient Market Hypothesis was first introduced by Louis Bachelier, a French mathematician in 1900 in his dissertation. Efficient Market Hypothesis (EMH) means that security prices fully reflect all available information. The efficient market hypothesis has been divided into three categories depending on the information set these are weak, semi-strong and strong form.
Following the trend of economy, it is important to investors to understand that strong economy creates strong stock market. To elaborate further, as stock prices are increased by current and future expectations of earnings, thus without a strong economy it would be difficult for the companies to increase and sustain their earnings (Kong 2013). The economy development is usually calculated using the gross domestic product of a countries. On the other hand, a change is the stock price can also cause a major impact to the consumers and investors directly. Hence, a loss in confidence by investors can cause a downturn in consumer spending in the long term, which will also affect the economy’s output (Aysen 2011). The graph below shows the relationship of stock market price (KLCI) and the GDP of Malaysia in 2009. Thus, it can be concluded that the economy and the stock market has a positive relationship.
Ross, S.A., Westerfield, R.W., Jaffe, J. and Jordan, B.D., 2008. Modern Financial Management: International Student Edition. 8th Edition. New York: McGraw-Hill Companies.
This paper will define and discuss five financial theories and how they impact business decisions made by financial managers. The theories will be the Modern Portfolio Theory, Tobin Separation Theorem, Equilibrium Theory, Arbitrage Pricing Theory (APT), and the Efficient Markets Hypothesis.