Should I Invest In A Mutual Fund - If you have never invested, you have money in your pocket that you can save for at least three years, we want to introduce you to a simple investment method called "investment fund".
The name mutual fund can sound intimidating to most people who are not familiar with investment products. Investment funds have the following advantages:
Should I Invest In A Mutual Fund
A mutual fund is a collective investment scheme that pools money from many investors. An Asset Management Company (AMC) duly licensed by the Securities and Exchange Commission of Pakistan (SECP) invests money on your behalf in securities or other financial assets for profit/profit and income.
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In Pakistan, most mutual funds are open-end funds. Each open share represents the investor's proportional ownership of the fund's undivided portfolio. Each certificate holder has shares equally with other investors. Investors purchase mutual fund units from the fund itself or from banking/financial companies authorized to act as distributors/sales agents. Shares of mutual funds are not traded on the secondary market like PSX.
As per the rules, an independent trustee registered with the SECP holds all the assets of the mutual funds. It is the duty of the trustee to ensure that the AMC invests the funds of the fund in accordance with the approved investment policy and the permitted investments of the mutual fund and that all assets of the mutual fund, including cash, are registered. Custodian or by his order.
Fund managers of asset management companies are supported by dedicated research teams responsible for monitoring portfolio performance.
You don't have to worry about the day-to-day management of your portfolio. The diversification offered by mutual funds is simply not achievable by a small investor with limited mutual funds.
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Mutual funds can provide you with regular income and an opportunity to grow your savings through repeated investments. The benefits of investing in mutual funds are as follows:
The Asset Management Company (AMC) evaluates investment opportunities by researching, selecting and monitoring the performance of securities purchased by the Fund. AMCs employ qualified investment professionals who make informed investment decisions on your behalf. This is not easy for a person without special knowledge.
By spreading your investments across multiple securities and investment sectors, a mutual fund can help reduce your risk if a company or industry fails. Diversity can be succinctly summed up as, “Don't put all your eggs in one basket.
Mutual funds are designed for investors who do not have a lot of money to invest and set relatively low rupee amounts for initial purchases and subsequent monthly purchases. For example, you can add funds in fixed amounts like PKR 1000-5000 per month or other intervals. Mutual funds buy and sell large amounts of securities at the same time. Your transaction fees and management fees are shared with other certificate holders
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Mutual fund holders can easily convert their units into cash on any business day. They will immediately receive the current value of their investment within six business days. Investors do not need to find a buyer, the fund redeems (repurchases) the shares at the current net asset value (NAV).
The SECP conducts continuous monitoring of mutual funds by submitting reports that mutual funds are authorized to submit to the SECP on a regular basis. In addition, SECP conducts on-site inspection of AMCs.
Mutual fund performance is closely monitored by various publications and rating agencies, making it easy for investors to compare fund performance. As a unit holder, you will get regular updates like daily NAV as well as information about fund holdings and fund manager's strategy.
Investing in mutual fund schemes entitles the investor to tax deductions, which increases the overall return on savings.
Should You Invest In A Mutual Fund Nfo?
In Pakistan, the SECP in consultation with the Mutual Funds Association of Pakistan (MUFAP) has developed criteria for classification of open-ended mutual funds as well as investment limits. In general, the greater the potential profit, the greater the risk of loss. The SECP has approved the following categories of Mutual Funds:
A mutual fund invests in stocks, commonly known as stocks/shares, that are subject to the risk of volatility associated with the stock market. Although this fund is the most risky, it can provide maximum long-term growth with capital appreciation. A mutual fund must invest at least 70% of its net assets in listed equity securities by category. Net assets remaining from the equity plan may be invested in cash or near-cash instruments.
The focus of these funds is to provide investors with a steady stream of fixed income. They invest in short-term and long-term debt instruments such as Term Financial Certificates (TFC) issued by companies and government securities such as Investment Bonds and Pakistan Investment Bonds (PIB). An income fund is considered less risky than an investment fund. Therefore, the possibility of capital increase is limited. To meet liquidity needs, income funds must hold at least 25% of net assets in cash and/or near-cash instruments.
These funds invest in short-term fixed income securities such as treasury bills, government bonds, certificates of deposit and commercial paper. A money market fund aims to maintain high liquidity by investing in low-risk, short-term instruments and is generally a safer investment. The returns generated by money market funds are likely to be much less volatile than other types of mutual funds. Money market funds are ideal for new investors because they are the easiest to follow and understand.
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A balanced fund provides investment growth as well as regular income by investing in stocks and fixed income securities. The regulatory framework requires that balanced funds invest 30-70% of their net assets in listed equity securities. The remainder can be invested in other permitted investments.
The investment fund invests in other investment funds. Each fund of funds should divide itself according to the investment objective such as investment fund of funds, income fund of funds, etc. These funds manage a diversified portfolio of equity, balanced, fixed income and money market funds.
Islamic Funds invest in Shariah Compliant Securities i.e. Shares, Sukuk (Islamic Bonds) and Sukuk GOP Ijara etc. which may be approved by the Shariah Advisor of such Funds. These funds may be offered in the same categories as traditional funds.
This fund class may invest its net assets in a number of securities and investment types specified in its offering document. Asset allocation funds are generally considered high-risk funds because they can invest up to 90% of their net assets at any one time in stocks.
Why Should You Invest In Mutual Funds?
Under a capital-backed fund, the initial investment amount is protected. This fund places the majority of the investment amount in the form of a term deposit in the bank, and the rest of the net assets are invested in accordance with the permitted investments listed in the investment proposal document. Capital-backed funds, unlike other funds, have a fixed maturity date that is agreed upon by the parties.
Index funds invest in securities to reflect a market index, such as the PSX KSE 100. An index fund buys and sells securities to reflect the composition of a selected index. The performance of the fund tracks the performance of the underlying index. At least 85% of net assets must be invested in securities that form the selected index or a subset of it. Net asset balances are held in cash or near-cash instruments such as bank deposits (excluding term deposit receipts (TDR)) and treasury bills with a maturity of more than 90 days.
The goal of an aggressive income fund is to achieve high returns by investing in fixed income securities while gaining exposure to moderate or lower quality assets. These funds typically invest in a portfolio of various securities including government securities, fixed income debt securities, deposits with bank(s), investment certificates and commercial paper, etc. At least 10% of net assets are held in cash or close to cash. Instruments such as bank deposits and treasury bills with a maturity of up to 90 days.
Commodity funds allow retail investors to take advantage of commodities and commodity futures, such as gold, through pooled investments. During the year, at least 70% of net assets should be invested in commodities or commodity futures based on the three-month average daily investment.
Why You Should Invest In Balanced Mutual Fund?
Mutual funds differ in investment objectives, strategies, risks and costs. Before choosing the right category of mutual funds for your savings, you should know your investment goals. Your financial goals are determined by your income and spending levels, financial independence, age, lifestyle, family obligations, and other factors. Here are some questions to ask yourself and possible answers to help you choose the right mutual fund.
Possible answers: I need regular income. need to buy a house, finance a wedding; Educate your children; or a combination of all these needs.
Possible answers: I cannot accept any risk, or I am willing to accept the fact that there may be short-term losses for long-term gains.
Possible answers: I need a regular cash flow. Do I want to grow myself?
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