What is a mutual fund
A mutual fund pools money from many investors and invests it in a basket of assets such as shares, government securities or deposits. Each investor holds units, and the value of a unit moves with the value of the fund's holdings. This page explains the basic structure and the main types available in Pakistan.
Units, NAV and who does what
When you put money into a mutual fund, you receive units. The number of units you get depends on the price at that time. The price of one unit is called the net asset value, or NAV. It is worked out by taking the fund's total assets, subtracting its liabilities, and dividing by the number of units in issue.
The NAV is usually calculated at the end of each working day. It rises or falls as the market value of the fund's holdings changes. A fund does not fix a return in advance. Your gain or loss depends on how the underlying assets perform, minus costs.
An asset management company runs the fund. It makes the investment decisions and handles the day to day operations. A separate trustee or custodian holds the fund's assets and oversees the manager. This split is meant to keep the fund's property apart from the manager's own money.
Open-end and closed-end funds
An open-end fund issues new units and buys back existing units on an ongoing basis. Investors deal with the fund itself, at the NAV, subject to any charges. The number of units changes as money comes in and goes out. Most funds offered to retail investors in Pakistan are open-end.
A closed-end fund issues a fixed number of units at launch and then lists them on a stock exchange. After that, investors buy and sell those units through the market, so the price is set by supply and demand. That market price can be above or below the NAV.
Both structures hold a portfolio of assets and both charge for management. The difference lies in how you enter and exit, and in how the price you pay is set.
Costs, loads and ETFs
Funds charge a management fee, which is taken from the fund's assets and reflected in the NAV. Some funds also apply a front-end load when you invest or a back-end load when you redeem. A load is a sales charge, and it reduces the amount actually put to work.
Read the fund's offering document and fee table before investing. Costs vary between funds and can affect your outcome over time. A fund with a higher fee needs better performance just to match a cheaper one.
An exchange traded fund, or ETF, also pools money and holds a portfolio, but its units trade on a stock exchange during the day like shares. A mutual fund is bought and redeemed through the fund or its distributor at the end of day NAV.
A common mistake is choosing a fund only by its past return and ignoring the fee, the load and the risk in the portfolio. Past performance does not indicate future results.
How to buy units
Three ways in. All three end with units registered in your name at the fund’s registrar; none of them changes what the fund holds.
Directly from the manager
Open an investor account on the manager’s site or at its office, and pay into the fund’s collection account.
You’ll neednational ID, a bank account in your name
Through a bank branch
Banks that distribute funds take the application at the branch and pass it to the manager. The fund and its price are the same.
You’ll needan account at that bank
Through an investment app
Licensed distribution apps show several managers’ funds in one place. Check that the app is on the regulator’s list of distributors.
You’ll needa phone number and ID for verification
The steps
Pick a category first
Money market, income, equity or mixed: the category decides how much the price can move, more than the fund name does.
Read the offering document
Fees, minimum investment, cut-off time and how redemptions are paid are in it. Our fund facts link to it.
Complete identity checks
Every route asks for the same know-your-customer checks before the first purchase.
You’ll needID, proof of address, tax number where it applies
Place the order before the cut-off
Orders received before the daily cut-off get that day’s NAV; later ones get the next.
Keep the confirmation
The registrar sends a confirmation with the number of units and the NAV they were issued at. It is your record of ownership.
Before you pay, check
Tax on fund income
How fund income is taxed depends on the type of fund and on whether you are on the tax authority's active taxpayer list. Read the current withholding rate card on the tax authority's site; we do not reprint it.
Sources 1
Every figure on this page points to one of these. The date is the day we read the source.
- 1AssociationNAV and returns list of open-end funds, MUFAPwww.mufap.com.pkfund categories and returns