A Mutual Fund is a single portfolio of investments where investors put their money to be managed by an asset management company on behalf of its many investors. This allows each investor access to a professional managed pool of funds.
Individuals and corporate investors can invest directly, without professional oversight, in the market. However, they may face the following constraints:
While reviewing your mutual fund options, be sure to evaluate your:
What do you want from your mutual fund investment? Are you saving for your retirement, your children’s college or investing money for future generations? The answers to these questions can help you narrow down which funds would work best.
Mutual funds are typically better suited for long term investors. If you think you will need your money in the near future, say within three to five years, then a mutual fund may not be the best option. This is because the return in that amount of time, once removing the cost of fees, may not be enough to make the investment worth it.
Determine how comfortable you are with risk and invest accordingly. Understanding your risk tolerance can help you select funds with strategies and asset allocations that fit this profile.
Mutual fund investing provides significant benefits, particularly for individuals who prefer to avoid direct involvement in the demanding and time-consuming tasks of researching companies, placing trade orders with brokers, and monitoring stock price fluctuations.
Identify your financial goals and related investment objectives. For example, for a retirement goal, that may be 15 years away, capital growth would usually be the investment objective. But for a retired person, generating regular income could be the objective. Similarly, other financial needs require identifying relevant investment objectives.
Choose a mutual fund that suits your investment objective.
Make your investment in the chosen mutual fund. You will receive units which will represent your investment in the fund. The number of units you get will depend on your investment amount and the NAV on the day you make the purchase.
Number of units you get = Your investment value / NAV on the day you make the purchase
Each mutual fund scheme adheres to a specific investment objective while investing the money collected from investors. The investor is allotted units for his investment amount depending on the prevailing NAV of the fund.
The value of each unit of the fund is calculated based on the current market price of all the assets held by the fund. This price is called the Net Asset Value (NAV) of the fund.
The total of assets held by the mutual fund at any point of time is called its Assets under Management (AUM). At launch, the AUM is equal to pooled funds collected from the investors. As time passes, funds are invested in assets whose value changes on daily basis reflecting in profits/losses. At the same time, new investments keep coming in, and existing investors redeem or dividend is paid to them.
Like any other market linked investment, mutual funds too are subject to price fluctuation, liquidity, credit risks, etc. Mutual funds however, minimize these risks through diversification and professional management. Performance of mutual funds is dependent on the investments in the portfolio.
Your optimal mutual fund portfolio will depend on your investment goals, your time frame, and your risk tolerance.
Why are you investing? People invest for a lot of good reasons:
Before you invest, you need to ask yourself what you want to accomplish.
How much time till you will need the money? By dividing your goals into long and short-term, you will make selecting the right investments a lot easier:
How much risk are you willing to take? Every investment involves some degree of risk. You have to decide how you feel about risk:
The main thing is that you find a comfortable balance between potential risk and potential earnings.
Open-end funds continually create new units or redeem issued units on demand of investors. The unit holders can buy the units of the fund or redeem them on a continuous basis at the prevailing Net Asset Value (NAV) by simply contacting the Asset Management Company (AMC) and the AMC will facilitate in the particular transaction.
Closed-end funds have a fixed number of shares outstanding and do not redeem if investors want to sell; instead, the shares trade in the secondary markets (stock market, e.g. PSX).
Its market price is determined by demand and supply and is not directly tied to its net asset value. In order to buy or sell units of a close ended Mutual Fund, the investor shall need to contact the broker and not the AMC.
Periodic monitoring of the performance of the mutual fund schemes you have invested in is important as it enables you to take timely decisions in case you need to convert or exit from the fund. There are useful tools which can help you to monitor your mutual fund investments. A Fund Managers Report (FMR) is one such valuable document published by Al Meezan. It is just like a performance report card that indicates the health of the scheme by enlisting details and performance of each of the schemes managed by us. It is usually published on a monthly basis.
FMR is available on the website for investors to view or download. You should periodically refer to this document to keep track of your investments. Click here to read or download our Fund Managers Report.
There are many websites and financial news sources that provide analysis and reviews of mutual fund schemes. These reports can be helpful in understanding the performance of a mutual fund and making informed investment decisions.
The mutual fund incurs certain recurring expenses for managing the scheme which is charged to the scheme. Some of these expenses are: