1. Indirect Investing

2. Indirect Investing
Alternative to direct investment in or ownership of securities
Refers to buying and selling the shares of intermediaries that hold securities in portfolio
Shares are ownership interest in portfolio entitled to portfolio income
Shareholders also pay expenses

3. Investment Companies
Financial firm that sells shares to the public and uses the proceeds to invest in marketable securities
Acts as conduit for distribution of dividends, interest, and realized gains
Can elect to pay no federal taxes on distributions
Offers professional management

4. Company Types
Unit investment trusts: Typically holds an unmanaged, fixed-income portfolio
Assets not actively traded once purchased
Trust ceases to exist when securities mature
Passive investment

5. Company Types
Closed-end investment companies: No additional shares sold after initial public offering
Share prices determined and trade in a secondary market
Price may not equal Net Asset Value of the shares
Net Asset Value: Total market value of the security portfolio divided by total shares

6. Company Types Asian Stocks Fund First Capital Mutual Fund
Golden Arrow Stock Fund
Investec Mutual Fund
Pakistan Premier Fund
Pakistan Capital Mkt Fund
Prudential Stock Fund
Safeway Mutual Fund
Tri-Star Mutual Fund

7. Company Types
Open-end investment companies: Shares continue to be sold to the public at NAV after initial sale that capitalizes the company
Shares may be sold back to company at NAV
Company size constantly changes
Popularly called mutual funds

8. Company Types Open Ended Mutual Funds
National Investment Trust (NIT) in public sector
Pakistan Stock Market Fund (PSM)
Pakistan Income Fund (PIF)
Unit Trust of Pakistan (UTP)
UTP Islamic Fund
United Money Market Fund (UMMF)
Dawood Money Market Funds (DMMF)
Atlas Income Fund (AIF)
Meezan Islamic Fund (MIF)

9. Mutual Fund Categories
Money market mutual funds invest in portfolio of money market securities
Taxable or tax-exempt
Commercial paper important investment
Average maturity limit: 90 days
Investors pay a management fee but not a sales or redemption charge (load)
Not insured by the federal government

10. Mutual Fund Categories
Equity, bond, and income mutual funds invest in portfolio of securities consistent with the objectives of the fund
Objectives set by the company’s board
Disclosure of objectives to investors
18 major categories of investment objectives

11. Equity Funds
Most assets in equity funds rather than bond or income funds
Most equity funds are either:
Value funds, which invest in undervalued stocks as determined by fundamental financial analysis
Growth funds, which invest in stocks of firms expected to show future rapid earnings growth

12. Mutual Fund Categories
Income funds
Investments in fixed income securities which can be bonds, preferred shares etc. For example: Pak Investment bonds, saving certificates etc.
Hybrid Funds
Which invest in equity as well as in fixed income securities.

13. Net Asset Value
NAV - the net asset value of a mutual fund -- equal to the market value of the assets in the mutual fund portfolio divided by number of shares outstanding
NAV reflects the Fund that will be available to the shareholders if the Fund is liquidated and all liabilities are paid
Calculation of NAV on an Open-End Mutual Fund
Net Asset Value of fund = Sum of Market value of Shares + Liquid Assets /Cash + Dividends/interest – all Liabilities
NAV per unit = NAV of funds
No. of mutual fund shares outstanding

14. Cost Considerations
Closed-end fund prices may be at a discount or premium to NAV
Liquidation value different than price
“Load” funds charge a front-end fee to cover the costs of selling the fund to investors
May also be a redemption (back-end) fee or distribution fee (called 12b-1 fee)

15. Cost Considerations
All fees must be stated in the mutual fund prospectus
No-load funds are purchased at NAV directly from the investment company
No sales force expense to cover
Investors must seek out funds
Still an annual operating expense paid out of fund income

16. Performance Reported on a regular basis in the popular press
Measured over a given time period as a percent of initial investment
Total returns include reinvested dividends and capital gains
Average annual return reflects the mean compound growth rate of investment over a given time period

17. International Funds
Some mutual funds specialize in international securities
US investors can participate in emerging market economies
International funds or global funds emphasize international stocks
Single-country funds concentrate assets
Actively or passively managed

18. Exchange-Traded Funds
Basket of stocks that tracks the value of a sector, investment style, or market as a whole
Characteristics of index mutual funds and closed-end funds
Trades throughout the day on an exchange
Bond and equity indexes traded
Tax efficient: control over capital gains distributions

19. New Directions in Funds
Mutual fund “supermarkets”
Various mutual fund families can be purchased through a single source
Brokerage account may provide access
“Supermarket” managers earn fee
On-line investment services
Internet used to provide mutual fund information and make transactions

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