Mutual FundMutual Fund

Mutual Fund

Mutual funds are a general term for funds that allow you to pool your money with that of other investors and are managed by a team of investment professionals. The term may vary across countries, but mutual funds may also be referred to as collective investment schemes, unit trusts or simply as funds. The pooling of your money generally creates greater buying power so you are able to invest in a wider range of investments than possible for most individual investors.

Each investor in a fund owns units (or shares) which represent a part of a fund’s portfolio holdings. Mutual funds can be categorized by the type of assets they invest in (such as shares, bonds, cash or other securities). You can refer to the mutual fund’s prospectus and fact sheets to get a better understanding of their respective investment objectives and policy (for example, type and mix of investments) and past performance.

Open-end funds

Can issue and redeem units at times specified to meet subscription or redemption requests made by investors. Generally, buying and selling of units take place directly between investors and the fund or its agents. The price per unit of an open-end fund will vary in proportion to the fund’s net asset value, and therefore reflect the fund’s performance.

Close-end funds

These funds issue only a fixed number of units or shares, and do not issue new units or shares even as investor demand grows. Unit or share purchases take place in the secondary market, and prices are determined by investor demand. Units or shares of these funds are often traded at a premium or discount to the fund’s net asset value.

Fee of the Mutual Funds

Can Mutual funds charge various fees and it is best to refer to the fund’s prospectus or fact sheets to understand what you are being charged.

1.Management fee

2.Front End Load

3.Back End Load

4.Annual Fee

There are many types of mutual funds, but broadly speaking they can be divided into four main categories:

1.Equity (Stock) Funds

As the name suggests, Equity Funds consist mainly of stock investments and are the most common type of mutual funds. Often Equity Funds focus on a particular type of investment strategy, such as Growth, Value, Large Caps and Small Caps or themes such as Property, Energy and Healthcare. The funds can be invested globally, regionally or in single countries.

2.Bond (Fixed) Funds

Invest mainly in debt instruments including government bonds, corporate bonds or mortgage-backed securities. The return that a Bond Fund may have can vary depending on the type of bond. Typically, Bond Funds that invest in short-term bonds tend to be less volatile. Bond Funds that invest in corporate bonds generally do so to obtain higher yields, thus carrying greater risk.

3. Money Market Funds

Seek to maintain a stable net asset value by investing in the short-term, high-grade securities sold in the money market. These are generally the safest, most stable securities available, including Treasury bills, certificates of deposit and commercial paper.

4.Hybrid Funds

Invest in a mix of stocks and bonds and may also hold money market instruments which can vary proportionally over time or remain fixed. They may be further sub-divided into Balanced Funds, Asset Allocation Funds and Lifecycle Funds.

Disclaimer: Investments in Investment Products are subject to market risks. Past performance should not be taken as a guarantee of future performance and no representation or warranty, express or implied, is made regarding future performance. Please read the Terms & Conditions carefully to understand the investment policy and the risks involved. Bank Alfalah Limited is only the ‘Distributor’ of these investment in Pakistan. Bank Alfalah Limited for any opinion expressed herein or any liability for any consequences, financial or otherwise, arising from the subscription or acquisition of these products. Investors should make their own appraisal and consult their own financial, legal, taxation and other professional advisors prior to any subscriptions.