Safe And Profitable Investment Options For Beginners – If you have never invested, have money in your pocket that you can save for at least three years, we want to introduce you to a simple way of investing called Mutual Funds.
The name mutual fund can seem intimidating to many people who are unfamiliar with investment products. The funds have the following advantages:
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A mutual fund is a collective investment scheme that pools the money of many investors. An Asset Management Company (AMC) that is fully 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 unit represents the investor’s equal ownership of an undivided account; each shareholder shares the dividends equally with other shareholders. Investors purchase fund units from the fund itself or from banks/financial institutions authorized to act as distributors/dealers. Open shares are not traded on a secondary market such as the PSX.
According to the rules, an independent trustee registered with the SECP is entitled to hold all the assets of the fund. The manager must ensure that the AMC invests the fund in accordance with the agreed investment policy and the investment policy of the mutual fund, and that all assets of the mutual fund, including cash, are registered in the name of the manager or on behalf of the manager. .
Fund managers at asset management companies are supported by research teams that monitor fund portfolio performance.
You don’t need to worry about daily portfolio management. The diversification offered by mutual funds simply cannot be achieved by the small investor with limited investment funds.
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Mutual funds can provide you with regular income and the ability to grow your savings through reinvestment. Here are the benefits of investing in mutual funds:
Asset Management Companies (AMCs) evaluate investment opportunities by researching, selecting and monitoring the performance of the schemes purchased by the fund. AMC employs professional investment professionals who make investment decisions on your behalf. This is not an easy task for a person without special skills.
By spreading your investments among other securities and investments, mutual funds can help reduce your risk if one company or sector fails. This difference can best be described as, “Don’t put all your eggs in one basket
Mutual funds attract investors who do not have a lot of money to invest by setting small rupees for initial purchases and monthly purchases. For example, you can add money with a fixed amount. PKR 1000-5000 per month or other ranges. Funds buy and sell large volumes of securities simultaneously. Your transaction costs and administrative fees are shared with other site owners
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Shareholders can easily convert their shares into cash on any business day. They will instantly receive the value of their investment within six business days. Investors do not need to look for a buyer, the fund redeems (repurchases) shares at current asset value (NAV).
The SECP continuously monitors mutual funds through reports that the funds are permitted to submit to the SECP on a regular basis. In addition, the SECP conducts on-site inspections of AMCs.
Different publications and rating agencies carefully analyze each other’s fund performance, making it easier for investors to compare fund performance. As a unit holder, you receive regular updates such as daily NAV as well as information about the fund manager’s investment and strategy.
Investing in mutual fund schemes allows investors to take advantage of tax benefits that increase the overall return on their savings.
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In Pakistan, the SECP in consultation with the Mutual Funds Association of Pakistan (MUFAP) has developed guidelines for the classification of open-end funds with investment restrictions. As a general rule, the higher the probability of return, the higher the risk of loss. SECP recognizes the following types of mutual funds:
A mutual fund invests in stocks, commonly known as shares/units, which are exposed to the volatility risk associated with the stock market. Although this fund is the riskiest, it can provide moderate long-term growth through capital appreciation. A mutual fund, according to the classification, must invest at least 70 percent of its assets in mutual securities. Other assets in the settlement may be invested in cash or near-cash.
These funds are aimed at providing investors with a stable income stream. They invest in short-term and long-term debt instruments such as term financial certificates (TFCs) issued by companies and government securities such as government bonds and Pakistan Investment Bonds (PIBs). Income funds are considered less risky than equity funds. Therefore, the ability to demonstrate value is limited. Mutual funds must hold at least 25% of their assets in cash and/or financial instruments to meet liquidity requirements.
These funds invest in short-term financial instruments such as treasury bills, government bonds, bonds and commercial paper. The objective of a money market fund is to maintain high income by investing in short-term, low-risk instruments, and this is generally the safest investment. The returns on money market funds can be very low compared to other types of funds. Financial instruments are suitable for new investors because they are the least complicated to track and understand.
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A balanced fund provides investment growth and regular income by investing in equities and fixed income securities. The rules stipulate that mutual funds invest from 30% to 70% of their assets in equity securities. The remaining amount can be invested in other approved investments.
The Fund invests in certain funds. Each fund of funds should be classified by investment objective like equity fund of funds, income fund etc. These funds operate in various portfolios of equity, balance, fixed income and money market money.
Islamic funds invest in Shariah Compliant companies i.e. Shares, Sukuk (Islamic Bonds) and GOP Ijara Sukuk etc. which may be approved by the Shariah Adviser of such funds. These funds can be issued using various traditional methods of financing.
This group of funds may invest its assets in the types of investment plans and schemes specified in its offer documents. Asset allocation funds are generally considered high-risk funds because of their potential to invest up to 90% of their assets in stocks at any given time.
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The initial investment amount is kept in the protected fund. This fund places a significant portion of the amount invested in the bank in the form of time deposits, while the rest of the net assets are invested in accordance with the investments permitted in the instrument of issue. Funds with protected capital, unlike other mutual investment funds, have a mutually agreed term.
An index invests in indices that match a market index, such as the PSX KSE 100. An index fund buys and sells securities in a way that reflects preferences. The accounting results follow the development of the balance sheet. At least 85% of the user’s assets must be invested in securities that include the selected index or its component. Net asset balances are held in cash or cash equivalents, such as bank deposits (excluding depository receipts (TDRs) and treasury bills that are less than 90 days old).
The objective of a passive income fund is to generate high returns by investing in fixed income securities while having exposure to lower quality asset classes. These funds typically invest in various portfolios, including government bonds, interest-bearing bonds, deposits with bank(s), investment bonds, and commercial bonds, among others. such as bank deposits and treasury bills with maturities not exceeding 90 days.
Commodity mutual funds allow small investors to benefit from returns on commodities and futures contracts such as gold by pooling stocks. This year, at least 70% of assets must be invested in commodities or futures based on the quarterly investment target, which is calculated daily.
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Funds differ based on investment objectives, strategies, risks and costs. Before choosing the right type of mutual fund for your savings, you need to know your investment goals. Your financial goals are determined by your level of income and expenses, financial independence, age, lifestyle, family obligations and other factors. Here are some questions you should ask yourself and possible answers to help you choose the right mutual fund.
Answer options: I need a constant income; you need to buy a house, finance a wedding; my children’s education; or combine all these needs.
Possible answers: I cannot afford to take risks or I am willing to accept that there may be short-term losses for long-term gains.
Answer options: I need regular cash; or I want to grow my own
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