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.
Student Answer: Professional management and diversification are the major reasons investors purchase mutual funds, as well as they are easy to invest in for beginning investors or those who lack large amount of money as required by other types of investments. Investment companies are employed with experienced and profession fund managers who research and devote a lot of time to finding the perfect securities for their investment portfolios. The diversification allows for gains, even in a loss, because one investment in a mutual fund can offset the loss of another by it’s gains. Basically, your investments are scattered around and offer somewhat of a safety net for your
Can We Keep Our Promises? The purpose of this paper is to provide a summary of the article called “Can We Keep Our Promises?” by Robert D. Arnott, and to help better understand the three key risks facing each investor. Robert Arnott describes risk and return as “having two sides of the same coin” meaning risk is inseparable from return. Arnott points out the most important risks that are faced by managers of company pension plans: underperforming other corporate pension funds (their peers), losing money (mostly associated with portfolio standard deviation or volatility), and underperforming the values of pension obligations and therefore losing actuarial ground.
Over the previous five years, the return of the ProIndex fund have outperformed the S&P 500 index, as the 5-year-return is nearly 3 times than the benchmark and the annualised return is nearly 2 times than the benchmark. It means ProIndex fund has a significant increase in value within that period. However, the ProIndex Fund has a higher standard deviation which means it is more risk than the S&P 500 index. Especially for the annualised standard deviation, it is approximately 10% higher than the benchmark. The correlation coefficient between the ProIndex and benchmark is about 0.65 which means both two variables are positive changing consistently, but there are still some other factors which have impacts on the relationship between two variables as the correlation is less than 1. Furthermore, the higher beta, 1.0132, which is more than 1 and it may be one of the reasons for high risk as well since it is more sensitive to the market change. It means that the ProIndex fund would increase by 1.0132% if the market increased by 1%.
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.
i.e. a. Fama, Eugene F. “Market Efficiency, Long-Term Returns, and Behavioral Finance.” Journal of Financial Economics 49, no. 1 (September 2011). 3 (1998): 283–306. i.e. a. Daniel K., Hirshleifer D. & Subrahmanyam A. 1998. The.
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
To maximize optimum performance of our investment portfolio, we placed a certain percentage of equity in different sectors of the stock market.
In the paper published by Xiong (2010), it is presented that a portfolio’s total return can be disintegrated into three components: the market return, the asset allocation policy return in excess of the market return, and the return from active portfolio management. The asset allocation policy return refers to the fixed asset allocati...
In 2003, Capital Market Authority (CMA) was established under the Capital Market Law (CML) to act as regulatory supervisor for the capital market. Capital Market Authority regulate and supervise different critical issues such as market conduct, merger and acquisitions, corporate governance, and issuance of financial tools such as mutual funds, IPOs and Sukuks “Islamic bonds”. Thus, the establishment of CMA defined a new stage of financial liberalization in the country. CMA established the legal and regulatory platform to open up the Saudi capital market, support the privatization effort and increase public participation in the market while promoting efficiency and transparency. Furthermore, in March 2007, Tadawul exchange was re-incorporated as joint stock Company with a capital of USD 320 million to increase autonomy for the exchange. After the formation of CMA, the Saudi capital market continuously evolving in term of breadth, depth and complexity. In March 2010, the number of listed companies increased to 139 from 76 back in 2001 as local companies started to look at capital markets to fund their future financing needs. Due to the increasing in investors participation, Tadawul’s total market capitalization at a compound annual growth rate “CAGR” of 34.8% to SAR 1.9 trillion which about USD 507 billion between 2003-2007. Due to the financial crisis in 2008-2009 the market capitalization for Tadawul declined to SAR 1.2 trillion, which about USD 320 billion. Between the years of 2003-2007, the stock market activity grew in a fast pace without interruption in term of value, volume, and market cap along with rising in the number of transactions. The total trading volume of shares on Tadawul Stock Exchange increased at a CAGR of 11.4% between 2003-2009. The
My interest in financial management developed as a student at the Institute of Finance and Economics, where accounting was my major. My teacher of the financial management, in her lectures,noted the importance of the development of the stock market in Mongolia, a necessary factor for increasing national production.
Choosing two profitable stocks amongst a myriad of potential alternatives is a daunting task to say the least. In order to narrow my choices from thousands to two, I examined several aspects of companies I was interested in. Among these were, company overview, alpha and beta ratings, price ratios, price charts, and company headlines. After evaluating this information, I chose Intuit INC (INTU) listed on the NASDAQ and Johnson and Johnson (JNJ) listed on the NYSE.
For an organisation to rise fund, they usually tend to look at the stock market and capital market to do it so. This is two markets are usually seemed similar by the investors as they both contributes to the development of an economy. But there are significant difference between them. The capital market is a market that consist of stock market as well as the bond market. As a result, the capital market provides a long-standing finance using the debt capital and the equity capital. Capital markets divided into two sectors known as primary markets and secondary markets. The primary market is where securities are issued for the first time whereas the secondary market is where securities that have been already issued are traded among investors (Difference...
...t Efficiency and Stock Market Predictability" [Online] Available On: http://www.e-m-h.org/Pesa03.pdf [Accessed On 5 december, 2011].
Mutual funds will let small investors have more choices than they would have when investing on an individual level. The money from several investors is invested in different companies so that the risk is minimized. The strategy in this type of investment is to assure that a profit is made from some of the businesses so that if one should fail, others will still do well. You should really research where your money will be going and what kind of track record the businesses have had in terms of gains before investing.
Financial theories are the building blocks of today's corporate world. "The basic building blocks of finance theory lay the foundation for many modern tools used in areas such asset pricing and investment. Many of these theoretical concepts such as general equilibrium analysis, information economics and theory of contracts are firmly rooted in classical Microeconomics" (Oaktree, 2005)