Mutual Fund Performance in Bull and Bear Market: The Case of Pakistani Mutual Fund

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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.

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