A mutual fund is a collective investment scheme, which specializes in investing a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. A fund’s portfolio is structured and maintained toÂ match the investment objectives stated in its prospectus. One of the main advantages ofÂ funds is that they giveÂ small investors access toÂ professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult to create with a small amount of capital.
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1) Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all of theÂ income it receives over the year to fund owners in the form of a distribution. 2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. 3) If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in price. Then can sell your mutual fund shares for a profit.
This sector is grown in Pakistan few years ago and hold around 55.3 % share in total assets of the non banks financial sectors in FY08. Net assets under management grown more than 13 times in a shorter span of time from FY02 to FY08.Average pay out for investor in FY08 was 18 % Liberalization has helped to facilitate entry of the private sector in the mutual funds industry. Historically, the industry was dominated by public sector funds. However, creation of an enabling legal framework to allow mutual funds to be set up in the private sector and transfer of ICP-managed closed end funds to two private sector investment advisers in FY03 boosted the number and size of funds under the management of the private sector, increased competition and efficiency of the sector and enhanced the quality of fund management. It also provided opportunity to financial institutions, like banks and brokerage firms, to diversify into fund management through subsidiaries and associated companies.
The public sector open-end mutual fund, NIT, by its sheer size continues to have a significant share of 31.0 percent in the net assets of the sector. As of end-June FY07, the mutual funds sector comprised of 66 funds with 47 open-end funds and19 closed-end funds. The number of funds increased to 95 by end-FY08. Open-end funds dominate the sector, due to investors’ preference for ease of exit and the flexibility this investment option offers. By end-FY08, the share of open-end funds in the net assets of the mutual funds sector was 86.0 percent as compared to the share of closed-end funds at 14.0 percent.
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