Mutual funds are often described as pooled investments. When an investor buys the units in a mutual fund the money is pooled with that of other investors whose goals are similar. A professional fund manager uses this money to buy stocks, bonds, or money market instruments that make up the fund’s portfolio of investments.
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.
Fund Manager invests the fund’s capital in profitable avenues and attempt to earn a return for the fund’s investors. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them.
Benefits Of Mutual Funds
Mutual fund investing offers important advantages especially for individuals who prefer not to be involved directly in the hectic and time consuming process of studying companies and then placing execution orders with brokers tracking price moment of stock.
- Professional Management
Mutual Funds keep a team of experienced and skilled professionals for the investment decision making. Team consists of dedicated fund management and investment research team which analyze the performance and prospects of companies and selects suitable investments to achieve the objectives of the fund. The Fund Manager has the experience and resources necessary to follow the markets, select investments, and track their performance.
- Diversification
Diversification is one of the most important benefits of mutual fund investing as it reduces investment risk of concentration. In simple terms it can be explained through below phrase: Do Not Put All the Eggs in One Basket.
Mutual Funds invest in companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. Because of diverse range, the ups and downs of any one security have less effect on the fund’s overall performance. However, though diversification can help reduce the risk and enhance the stability of investment, it does not guarantee loss prevention.
- Liquidity
Liquidity simply means being able to access your money when you need it. With mutual funds you can buy and sell units easily, move money among different funds, and redeem.
- Affordability
As a small investor, you may find that it is not possible to buy shares of companies with high share price. Such companies have low share base and high profits as a result investors allocate them higher price. Mutual funds access to pool funds allows buying securities in market in every price category. Through mutual funds investors can enjoy a diversified portfolio by investing as low as Rs 5,000.
- Tax Benefits
Compared to other investment options, Mutual fund still remains the most tax efficient investment option managed by professional fund managers with strong track record of outperforming the benchmark.
Investments held by investors for a period of 6 years or more qualify for exemption from Capital Gains Tax.
- Convenience
Investors remain occupied with their daily task and find it difficult to follow market on daily basis. Mutual funds on other hand acts on your behalf and monitor your investment on minute to minute basis. Being expert in their area, they are also better equipped to make decision on timely basis.
- Return Potential
Due to their expertise in investment decision making and availability of dedicated resources, Mutual Funds have the potential to provide a higher return in medium to long term. Mutual funds also have advantage of diversification which reflects in better returns in long term.
- Transparency
Mutual funds are watched by regulators, settlement house (stock exchange), trustee, auditors and in our case Shariah auditor also. Multiple levels oversee and audit builds trust of investor as it makes investment process very transparent.
In addition to this, the Fund also prepares and discloses periodic financial statements, which provide an in-depth review of all the major activities undertaken by the fund over the period.
- Flexibility
Mutual Funds provide various value added services which makes it very easy for investors to manage and track their investments. They can even invest or redeem in mutual fund by just sitting at home through online transactions.
Mutual funds have goal based plans such as Systematic Investment Plans (SIP) and Savings Plans which are convenient for investors to invest and achieve their long term objectives such as kids’ education or marriage.
- Choice Of Schemes
Mutual Funds offer a variety of product schemes to suit your varying needs and financial goals.
- Well Regulated
All Mutual Funds are registered with SECP and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SECP. In addition to that, mutual funds assets are placed with trustee to further ensure investors asset protection.
Shariah compliant mutual funds’ operations are oversight by a renowned Shariah Advisor to ensure the compliance with the Shariah guidelines.
How Does A Mutual Fund Operate?
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.
Which Funds Are Right For You?
Your optimal mutual fund portfolio will depend on your investment goals, your time frame, and your risk tolerance.
Your Investment Goals
Why are you investing? People invest for a lot of good reasons:
- Retirement
- Children’s education
- Buying a house
- Helping protect retirement savings against inflation
- Earning additional current income
Before you invest, you need to ask yourself what you want to accomplish.
Your Time Frame
How much time till you will need the money? By dividing your goals into long- and short-term, you’ll make selecting the right investments a lot easier:
- Long-term investing gives you the opportunity to go for potentially higher returns by taking on more risk.
- Short-term investing generally means you need to focus on preserving the value of your principal with more conservative investments.
Your Risk Tolerance
How much risk are you willing to take? Every investment involves some degree of risk. You have to decide how you feel about risk:
- If you are looking for higher returns then you may have to invest in equity funds with higher volatility..
Risks Involved With Investing In A Mutual Fund?
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.
If you are looking to reduce risk then you will have to seek out for income or money market mutual funds that typically offer lower potential returns.
The main thing is that you find a comfortable balance between potential risk and potential earnings.
Tracking The Performance Of Mutual Funds
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 Lakson Investments. It is available on website on monthly basis.
FMR is available on the website for investors view or download. You can periodically refer to this document to keep track of your investments. Click here to read or download our Fund Managers Report.
Mutual Funds Returns
Mutual fund schemes offer returns to the investors in following ways:
- Dividend and/or Profit Income- A mutual fund may earn income in the form of dividend, or profit on the assets held in the portfolio. The income earned may be distributed by AMC to its unit holders.
- Capital Gains- The value of any asset or security held by a mutual fund may increase overtime. When a fund sells an asset or security at a price higher than the purchase cost, capital gains are realized by the fund. At the end of financial year, mutual funds distribute capital gains to its unit holders.
- Increased Net Asset Value- If the market value of a fund’s portfolio increases after the adjustment of expenses and liabilities it is reflected in the increased Net Asset Value of the fund. The higher the net asset value higher is the investment value.
Some Of The Costs And Expenses Involved In Mutual Fund Investing
The mutual fund incurs certain recurring expenses for managing the scheme which is charged to the scheme. Some of these expenses are:
- Administrative and establishment expenses in proportion to the scheme assets.
- Brokerage and other transaction costs.
- Fund management fees to the AMC.
- Fees for various service providers involved, such as Trustees, Registrar & Transfer Agents, Custodian and Auditors.
- Scheme advertising expenses and commissions to the distributors.
- Cost incurred on investor communication, account statements, dividend / redemption cheques.
- Fees pertaining to the listing of the scheme.
- Regulator fee
Lakson Managed Account:
An LMA is a portfolio of securities directly owned by the investor and managed according to a specific discipline and/or style by a professional investment manager. Money managers offer investors targeted strategies for their separate account assets.
In this account, funds are not pooled with the investments of other investors like they are, for example, in a mutual fund. Investors can choose from a range of approaches in order to create a portfolio that is oriented towards their individual investment goals.
We are here to help you in managing your investments by utilizing our skill, dedication and time. Take advantage of our customized Lakson Managed Account (LMA) services and delegate this responsibility to our qualified professionals. This account is specifically designed to nourish and flourish your investments through our experienced investment managers who take care of your investments diligently.
Services Offered Under SMAs
Lakson Investments provide high quality, customized Portfolio Management and Advisory Services to institutional clients and also to High Net Worth Individuals (HNWIs) under license by Securities and Exchange Commission of Pakistan. Lakson Managed Accounts include:
- Discretionary Portfolio Management
It includes Portfolio Management based on Investment Objective, Limitations, risk profile of the Investor, and also includes Investment Advisory service
Significant Features
- In accordance with the formal agreement and Investment Policy, Lakson Investments has full discretion over the ultimate investment decisions and strategies employed in the portfolio of its clients
- Investment portfolio is professionally constructed and managed while adhering to the Investment Policy stated upon mutual agreement
- Lakson investments is authorized to execute transactions; buy, sell or otherwise trade securities and other investments on behalf of its clients
- Portfolio management is driven by the client’s investment objective, permissible instrument choices, asset allocation and other terms of the Investment Policy throughout the process
- Client has a dedicated relationship manager for portfolio and performance reporting
- While taking advantage of investment opportunities in the most efficient way, Lakson Investments consistently aims at providing superior risk adjusted returns to its clients
- Non- Discretionary Portfolio Management
It includes Risk profiling, suggestion of Asset Allocation and Execution of Trade (choice and timing of Investment decision remains with client)
Significant Features
- Lakson Investments performs risk profiling, suggest asset allocation and execute Trade Transactions. However, full discretion over choice and timing of Investment Decisions remains with the client
- The client may consider rebalancing option based on portfolio manager’s suggestions in the events of deviation from the investment objective and desired risk levels
- Lakson Investments also performs portfolio strategy review for its clients so that they may seek advice on asset allocation, changes in risk tolerance and investment objective, and other conditions of the Investment Policy
- Non-Discretionary portfolio management services are otherwise similar to the discretionary portfolio management services
Private Equity Fund:
- “Private Fund” means an arrangement which has the purpose of pooling funds from one or more Eligible Investors for investment in a portfolio of securities or other financial assets for profit, income or other returns and where participants of the funds, neither have day to day control over the management of fund property, nor the right to give directions in respects of such management and which is established and operated by the Private Fund Management Company.
Lakson Private Equity & Venture Capital Funds:
- “Private Equity and Venture Capital Fund” means a Private Fund established in a closed-end structure for investment mainly in securities or financial assets other than derivatives of an unlisted company or for turning around a listed company or listed and unlisted SME or an unlisted company engaged in business of investing in developing a new product or process or expansion of business.
- Private equity fund (PE) invests capital in a company that is not publicly listed or traded.
- Venture capital fund (VC) provides funding to startups or other young businesses that show strong potential for long-term growth.
Lakson Investments launched private equity fund which is led by senior team of partners with extensive domestic and international experience.
Lakson Investments is managing one of the Pakistan’s leading VC funds which invest in high growth technology businesses. The Fund has made several invests across a range of sectors and adds value to high growth early stage companies by allowing them leverage the vast operational experience of the Lakson Group
Industry Association
Mutual Funds Association of Pakistan
CFA society Pakistan
Central Depository Company (Trustee)
