What are Mutual Funds?
A Mutual Fund is a collective investment scheme, which specializes in investing a pool of money collected from investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
How does a Mutual Fund Operate and regulated?
Mutual Funds are operated by Asset Management Companies (AMCs) which exists in the form of a public limited company registered under Companies Ordinance, 1984. The AMC launches new funds through the establishment of a Trust Deed, entered between the Asset Management Company and the Trustee, with due approval from the SECP under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the “Rules”). The Trustee performs the functions of the custodian of the assets of the Fund. The trustee ensures that the Fund Manager takes the investment decisions within the defined investment policy of the mutual fund. Under Pakistan law, banks and central depository companies, approved by the SECP, can act as trustee. At present Central Depository Company of Pakistan (CDC) acts as a Trustee of most of the funds of the industry.
The Securities & Exchange Commission of Pakistan (SECP) is the regulator of mutual funds industry and is very stringent in issuing licenses to fund management companies, especially in the case of Collective Investment Scheme (CIS). The SECP also carries out continuous monitoring of mutual funds through reports that the mutual funds have to file with the SECP on a regular basis. In addition, SECP conducts on-site inspections of the AMCs.
Benefits of Investing in Mutual Funds? OR Why You Should invest in Mutual Fund?
Mutual funds make saving and investing simple, accessible, and affordable. The advantages of Mutual Funds include the following:-
Mutual Funds units are easy to buy.
Mutual Fund unit holders can convert their units into cash on any working day. They will promptly receive the current value of their investment. Investors do not have to find a buyer; the fund buys back (redeems) the units.
By investing the pool of unit holders’ money across number of securities, a mutual fund diversifies its holdings. A diversified portfolio reduces the investors’ risk. It would be difficult for an average investor to buy varied securities to achieve the same level of diversification as is available with investment in mutual fund.
– Professional Management
The Asset Management Company evaluates all opportunities that arise in the market, carefully examines them and then takes an informed decision for investment. Whereas it is not an easy task for an individual and even for corporate company if investing is not their core business.
What are different types of funds?
These are mutual funds which continually create new units or redeem issued units on demand. They are also called Unit Trusts. The Unit holders buy the Units of the fund or may redeem them on a continuous basis at the prevailing Net Asset Value (NAV). These units can be purchased and redeemed through Management Company which announces offer and redemption prices daily.
These funds have a fixed number of shares like a public company and are floated through an IPO. Once issued, they can be bought and sold at the market rates in secondary market (Stock Exchange). The market rate is announced daily by the stock exchange
How exactly is NAV calculated?
How do Mutual Funds determine their Unit Price?
A fund’s Net Asset Value (NAV) represents the price per unit. The NAV is equal to the market worth of assets held in the portfolio of a Fund, minus liabilities, divided by the number of units outstanding.
NAV = Current Market Value of all the Assets – Liabilities Total Number of Units Outstanding
In order to determine the sale price of the unit sales load is added to the NAV. In case there is no sales load the NAV will be the sale price as well as the redemption price. The sale and redemption price is declared on a daily basis by the Funds and can be viewed on their websites.
Can overseas investors also open an account with MCBAH Savings?
Yes they can, by simply contacting MCBAH via email or our toll-free number.
What is the difference between growth units, income units and Bachat Units?
Growth unit: The investment remains in the Fund until the investor submits a redemption form to encash part or whole of the investment.
Income unit: The investor opts to withdraw a certain amount from the investment at regular intervals.
Bachat unit: While the investor may redeem the investment at any point in time, it is advised that the investment is kept intact for a longer time period in order to gain maximum returns and minimize risk. The investor is not charged any FEL, and 0% BEL will be charged if the amount is not redeemed before 2 years.
How can I start my savings with MCBAH Savings?
Individuals: The individual investor is required to provide the following at the designated sales points of the Asset Management Company
– Copy of CNIC
– Application / Account opening Form
– Purchase of Units Form
– Zakat Affidavit (Optional)
– KYC Form
– FATCA Form
– Cheque in favour of Trustee of the Fund
Corporate: The corporate/ Provident/ Pension Fund investors are required to provide the following;
– Memorandum and Article of Association/ Trust deed
– Board / Trustee Resolution approving the investment
– Application/Account Opening Form
– Purchase of Units Form
– Power of Attorney and/or relevant resolution of board of directors/ trustee delegating authority to any of its officer to invest
– NTN of the institution with tax status
– CNIC of the officer to whom the authority has been delegated
– Cheque in favour of Trustee of the Fund
What is a Benchmark?
A benchmark’s performance is determined based on past performance of the fund and is considered as an average rate of return for that year in particular. A Mutual Fund’s performance is compared with the benchmark in order to find out whether the Fund performed better than the market.
Can I invest in multiple funds in MCBAH Savings?
Yes, Anyone can invest in multiple funds.
Is there a minimum time period of investment in MCBAH Savings?
All our schemes are open-ended which makes it easy for investors to redeem their investment amount instantly. However, our Fund Managers suggest that you should keep your investment for a longer time period in order to get better returns.
How do I use online investment for additional investment in MCBAH Savings?
By simply logging on to your Web Bachat account and transferring money via your online banking portal or .
What is the minimum amount for online investments?
You can start with as low as Rs. 500
Will Zakat be deducted on my investment?
Yes, Zakat will be deducted unless Zakat Exemption Declaration form is submitted with the transfer agent.
What is load?
Amount collected by a mutual fund when it sells units.
Front-end load: The fee is collected when an investor buys the units.
Back-end load: The fee collected when the investor sells back the units. Some funds do not charge any load and are called No Load funds
What is the procedure to withdraw investments?
Withdraw money from your account anytime you want. Redemption payments are made to the investors within a period of a maximum 6 working days, either through a cross-cheque or through a bank transfer by submitting the Redemption form at designated Sales Points of an AMC.
What is Rupee Cost Averaging?
By investing on regular intervals, you average out any market ups and downs and accumulate them for better returns.
Tax Savings Benefits?
According to Section 62 of the Income Tax Ordinance, 2001, a “resident’ tax payer other than a company, is entitled to tax credit on investment in new shares offered to public by a public company listed on a stock exchange in Pakistan. This tax credit is available on the lower of (a) the amount of actual Cost of Investment (b) 20% of Taxable Income for the tax year or (c) Rs. 1 million. The tax credit availed on acquisition of such shares will be need to be paid back, if such shares are disposed off within
24 months of the date of acquisition. Units of Mutual Funds are covered under the definition of shares as per Income Tax Ordinance, 2001.
What is Shariah compliant investment?
Funds which meets all the requirements of Shariah law and the principles articulated for “Islamic mode of financing.”
Islamic modes of financing are as follows:
How is Shariah Compliant Investment regulated?
Shariah compliant investment is Riba free, asset backed financial activity governed by the principles of Islamic Shariah. Funds must follow a variety of rules, including investing only in Shariah-compliant companies, appointing a Shariah board, carrying out an annual Shariah audit and purifying certain prohibited types of income, such as interest, by donating them to a charity.