A mutual fund is an investment vehicle that collects money from many investors and invests the collected pool of money in various investment avenues. The Fund itself is managed by experienced professionals, who dedicatedly monitor the performance of the Fund and manage it accordingly, on an ongoing basis.
A highly regulated financial institution that structures and manages various mutual funds.
The fee is charged by the asset management company (AMC) for managing the Fund. This fee is usually quoted on an annual basis and is calculated as a percentage of net assets under management.
As per SECP, the categorization of the open-end Collective Investment Schemes (CIS) is made on the basis of investment parameters including eligible asset classes with pre-specified risk profiles is imperative to enable the investors to make an informed decision and to bring uniformity in the mutual fund’s industry for comparing the performance of various open-end CIS. In this regard CIS can be classified as follows:
Open funds continually create new units or redeem issued units on demand. The unit holders can buy the units of the Fund or may redeem them on a continuous basis at the prevailing Net Asset Value (NAV) by simply contacting the AMC.
Closed-end funds have a fixed number of shares outstanding and do not redeem when investors want to sell; instead, the shares trade in the secondary markets (stock markets). Its market price is determined by demand and supply and is not directly tied to its net asset value. In order to buy or sell units of a close-ended Mutual Fund, the investor shall need to contact the broker and not the AMC.
An asset management company on behalf of the Fund collects money from many investors and invests it in various investment avenues like shares, bonds, etc. This Fund is managed by investment professionals who understand the market well and try to achieve the Fund’s investment objective by taking sound investment decisions on behalf of the Fund. Investors get units of the Mutual Fund according to the amount they have invested and the return from investment gets reflected in the price of their units.
Some of the major benefits of investing in a mutual fund are: –
Mutual funds are closely regulated by the Securities and Exchange Commission of Pakistan (SECP). SECP’s primary purpose is to protect the interests of capital market investors. Each and every mutual fund comes under the regulatory purview of SECP.
SECP has provided elaborate investment guidelines and requires thorough reporting by AMCs to ensure the prudent functioning of mutual funds. It stipulates how investors’ money should be invested and also how these investments are to be valued on an ongoing basis.
Mutual Funds Association of Pakistan (MUFAP), a trade body of mutual funds, also involves itself in devising compliance and best practices guidelines in the industry to ensure professional ethics.