F.A.Q
What is an Asset Management Company (AMC)?
What is a mutual fund?
What is the SECP?
What is a trustee?
What types of funds are available in Pakistan?
What is an open-end fund?
What is a closed-end fund?
What categories of funds are available in Pakistan?
Are mutual funds insured?
What are the factors that influence the performance of Mutual Funds?
What are loads?
Are there any additional charges?
What kind of risk is involved with mutual funds?
As a new investor how do I select a particular scheme?
What is a Unit?
What is NAV?
Why should I invest in mutual funds?
Are there any Tax benefits?
How is it Different to a Bank?
Investor Services function of a mutual fund and reports available to an investor?
Can investors buy units jointly?
How secure is my investment with POAMCL?
Where can I get an application form?
How do investors take entry into the fund for the first time?
How do I purchase additional units of POAMCL?
How do I know the status or position of my units?
How do investors take their money out of the fund?
How do investors change their account details or transfer between funds?
Can I invest in any currency?
What is the mode of payment?
Can the dividends be reinvested?
Will Zakat be deducted at source?
How and When is my profit/ return realized?
What is an Asset Management Company (AMC)?
An Asset Management Company (“AMC”) is a specialized financial institution that provides asset management services to both institutions and individuals. In Pakistan, AMCs are licensed and regulated by the Securities and Exchange Commission of Pakistan (SECP) under the Non-Banking Finance Companies Rules, 2003 and Notified Entities Regulations, 2007.
What is a mutual fund?
A mutual fund is an investment vehicle comprising a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments, securtiies, treasury notes and other capital markets instruments. In Pakistan, Mutual funds are legally established in the form of a Trust, under the Trusts Act of 1882 (preferred & new system) or a company formed under The Companies Ordinance 1984 (old system). All assets of the mutual fund are held by an independent trustee and the AMC only serves as a portfolio manager for the mutual fund.
What is the SECP?
The Securities and Exchange Commission of Pakistan (SECP) was established under Securities and Exchange Commission of Pakistan Act, 1997, with a mandate to regulate the corporate sector, capital markets, insurance companies and other non-banking finance companies. The SECP has oversight of various external service providers to the corporate and financial sectors, including chartered accountants, credit rating agencies, corporate secretaries, brokers, surveyors and other related entities.
The predecessor to the SECP was the Corporate Law Authority (CLA).
What is a trustee?
The SECP has strict criteria regarding the appointment of the Trustee, bearing the best interests of the Unit Holders in mind. For funds to be launched by POAMCL (LI), Central Depository Company of Pakistan Limited (CDC) is the proposed trustee. CDC was incorporated in 1993 to manage and operate the Central Depository System (CDS). The aim of CDC is to operate as a central securities depository on behalf of the financial services industry and to contribute to the country's ability to support an effective capital market system which will attract institutional and retail level investors from Pakistan and abroad.
What types of funds are available in Pakistan?
What is an open-end fund?
What is a closed-end fund?
Open-end Funds: Continually issue new units and redeem outstanding units on investor request. The unit holders buy units of the fund and may redeem them at the published Net Asset Value (NAV). Typically, these funds have a perpetual lifespan. The asset management company launches the fund and continues to remain the counter party in the sales and purchase transactions with the unit holder, as in if the investor wishes to buy or sell units of the fund they contact the AMC which then submits the information to the Trustee.
Closed-end Funds: Fixed number of share certificates issued by the fund, the units trade in the stock markets. Market price of the unit certificates is determined by their demand and supply and they are not necessarily traded at the NAV. Though many of these funds have a perpetual lifespan, others have a limited lifespan. The asset management company launches the fund and no longer remains the counter party in the sales and purchase transactions with the unit holder, so when an investor wishes to buy or sell units of the fund they have to find a buyer or seller on the stock exchange.
What categories of funds are available in Pakistan?
Money-Market Funds: These funds can invest only in government backed treasury bills (sovereign backed paper) and short-term bank deposits. The POAMCLMoney Market Fund invests only in treasuries and short-term bank deposits with highly rates banks only.
Fixed Income Funds: These funds primarily invest in securities that offer a fixed-return such as bank deposits, treasury bills (T-bills), term-finance certificates (TFCs) and other money market instruments. In comparison to equity funds, the element of risk is low and so is the return. These funds carry a minimum level of risk and provide competitive returns based on an underlying fixed-income portfolio.
Equity Funds: These funds invest in the domestic equity markets. Traditionally Equity Funds have produced returns greater than Fixed Income and Money Market funds, however they have a much greater risk attached to them and can experience negative returns. They are generally highly correlated with the stock index and the LEF is benchmarked with the KSE 100.
The POAMCLEquity Fund (LEF) has a very competent research team who work with a fund manager within the parameters set by the Investment Committee to actively manage the equity fund. The fund invests only in highly rated companies which offer an upside opportunity for the fund.
Balanced Funds: These funds carry a mix of equity and fixed income securities in their portfolio. The element of risk is moderate and the tends to be better than fixed- income funds because of the equity component in their portfolio. There is usually a minimum allocation for asset classes covered by the fund.
Asset Allocation Funds: These funds invest in a mix of equity and fixed income securities. Unlike balanced funds, these funds are aimed at taking advantage of shifts in macro-economic trends by investing in asset classes that are projected to gain the most. There is no minimum allocation for asset classes.
Fund of Funds: These funds invest in other mutual funds.
Islamic Funds: These funds invest in Shariah Compliant instruments and securities
Islamic Fund of Funds: These funds invest in other Islamic mutual funds.
Are mutual funds insured?
Mutual funds by virtue of their portfolio investments (listed and trade-able securities and instruments) are market driven, and are not insured in Pakistan. However, globally some mutual funds are in fact insured (80% or 70% of portfolio value), currently these funds are not offered in Pakistan
However, several AMC’s now offer capital protected funds. Speacial Managed Accounts (“SMA”)s can build a protected portfolio for investors with a minimum investment of PKR 5 mn.
What are the factors that influence the performance of Mutual Funds?
The performance of a mutual fund is directly influenced by its portfolio investments. For example, the performance of an equity fund is the result of its investments in stocks, and hence is influenced by the performance of the stock market and in particular the stocks in the portfolio.
Interest rates and the credit quality influence the performance of Income Funds. As interest rates fall, prices of underlying securities rise and vice versa thus affecting the value of the portfolio.
What kind of risk is involved with mutual funds?
Investments in Mutual Funds are subject to market risks. The value of the units may go up or down based on the investment portfolio of the fund and market conditions. A fund that aims to achieve a high level of growth will be more volatile than one whose objective is to preserve the original capital. Complete details regarding the risk associated with the investment in the fund are provided in the offering document.
As a new investor how do I select a particular scheme?
Choice of any scheme would depend to a large extent on the investor preferences.
Investors interested in: Should invest in:
High return and high risk Equity Funds
Regular Income & Capital stability (low risk & medium to long term horizon) Income Funds
Regular Income & Capital stability (low risk & short-term horizon) Money Market Funds
An important aspect while selecting a particular scheme is the duration of the investment. Depending on your time horizon you can select a particular scheme. Besides all this, factors including management quality, sponsor background, objective of the fund, independent rating, and returns given by the funds on different schemes should be taken into account while selecting a particular scheme.
What is a Unit?
“Unit” means one undivided share in the Trust. Each Unit Holder has a beneficial interest in the Scheme proportionate to the Units by such Unit Holder.
Why should I invest in mutual funds?
Mutual funds are an easy, convenient and affordable way of gaining access to capital markets. Each investor has a stake in the assets and earnings of the fund in proportion to the amount of their investments. The benefits of mutual funds include:
Professional Management: The AMC appoints a team of investment professionals, assisted by qualified research analysts, to manage the portfolio of the fund in conformity with the Investment Objective of the fund.
Diversification: Mutual Fund portfolios usually consist of multiple investment positions/vehicles across sectors and companies, and are thus better able to mitigate risk by virtue of the their diverse portfolio. In short, a mutual fund does not put “all its eggs in one basket” instead it invests in many securities, some of which may rise while other may fall. This reduces the risk an investor faces while investing in one or two securities.
Liquidity: Liquidity is the ability to readily access your money in an investment. Open ended mutual funds provide a unique opportunity to investors in liquidating their investment at a redemption price determined through the NAV methodology. In Pakistan, the investor can get his/her money back within six business days of the redemption date. POAMCLFunds generally strive to provide redemption proceeds within 3 business days.
Reduction of transaction costs: A direct investor bears all the costs of investing such as brokerage costs, and custody of security costs. When going through a fund, you have the benefit of economies of scale; the fund pay lesser costs because of larger volumes, a benefit passed on to its investor. Costs including but not restricted to Technology Infrastructure, Investor Services, Research, et al are borne by the management company, in this case POAMCL Limited.
Convenience: Investors can choose for automatic reinvestment or periodic distribution of the earnings of their units in the fund. Further, the investors don’t need to open CDC Accounts or to transfer their units through a brokerage. Mutual funds also offers a wide variety of services including account statements at any time on the investors request, , dedicated investor support and designated Investment Centers for added convenience. Investors can also switch from one fund to another at any time.
Time: Generally an investor does not have the time to actively manage portfolios. We are POAMCLFunds have a team of dedicated professionals who are relentlessly researching and analyzing stocks, visiting companies to meet management, determining business cycle ups and downs, studying macroeconomic trends, forecasting interest rate fluctuations and interpreting fiscal as well as monetary policy measures to see how they affect the movement of securities.
Are there any Tax benefits?
Under the applicable tax laws, investors in Mutual funds are exempt from Capital Gains Tax , while investments in bank deposits and other fixed income instruments (TFC’s, Treasury Bills, Sukuks, Commercial Paper, etc. all are subject to taxation).
An investment in any POAMCLFund will also allow an individual to lower what they pay in taxes. The applicable tax laws provide for tax credit incentive to salaried investors and self-employed investors.
This means that on of no taxes on capital gains from investments in a Mutual Fund, the salaried and self-employed investors also get the additional benefit in the form of a tax credit, under the Income Tax Ordinance of 2001, when filing their annual tax returns. The Tax Credit can be obtained by purchasing units of any Mutual Fund and holding the investment for a period of one year.
The salaried investor can claim the tax credit (up to PKR 60,000 per year) by providing proof of investment in the form of a Mutual Fund accounts statement to the company’s payroll department when their salary is paid..
The self-employed investor can also avail themselves of the tax credit (up to PKR 75,000 per year) at the end of the year when they file their taxes.
Investors are advised to consult their tax advisor prior to making an investment decision.
Can investors buy units jointly?
Yes. However, this requires a joint account.
How secure is my investment with POAMCL?
Mutual funds are regulated by the Securities and Exchange Commission of Pakistan which is a government regulatory authority. There are several entities involved in the operations of a mutual fund, each with its own mandate and specialized function to safeguard investor interests as well as enforce and set rules to maximize investor interests.
Four separate and independent entities ensure transparency and compliance with applicable rules and regulations to safeguard the interest of investors. These independent entities include:
The Securities & Exchange Commission of Pakistan (SECP)
The Auditors
The Trustee
The Stock Exchange
|
