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INDIRECT

INVESTMENTInvestment Companies and Evaluating

Performance of Funds

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Refers to buying and selling the shares ofintermediaries that hold securities in portfolio◦ It includes Investment Companies and Mutual Funds

◦ Decision for direct or indirect investing is very

important to the investors.◦ Active investors or Passive Investors.

◦ olds !hares"o#nership in portfolio companies.

◦ !hareholders also pay e$penses

◦

%hat is the benefit to the holders of shares ofinvestment companies&

INDIRECT INVESTMENTING

8/13/2019 Lecture 03 Indirect Investing & Performance of MFs

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An 'investment company' is a company(corporation) business trust) partnership) orlimited liability company* that issuessecurities and is primarily engaged in the

business of investing in securities. An investment company invests the money it

receives from investors on a collective basis)and each investor shares in the profits and

losses in proportion to the investor+s interestin the investment company.

Investment Company

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A investment company is a financial serviceorgani,ation that sells shares of itself to thegeneral public and uses the funds to investin the securities mar-et.

%ith the holding of large funds theinvestment company develops the portfolio.

Reason being that the investment company

#ishes to diversify the ris-. a$ provision

Investment Company

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Investment companies could be bothprivately and publicly o#ned

Investment companies typically offer

investors a variety of funds and investmentservices. It includes a closed/end fund or an open/

end fund or 0nit investment trust.

Investment Company

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Company types

Managed Investment Companies (Active*

◦ 1pen End Funds

◦ Closed End Funds

0n Managed Investment Companies(Passive*

◦ 0nit Investment Funds

◦ a$ Advantage

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Company types

0nit investment trusts2 ypically holds anunmanaged) fi$ed/income portfolio◦ Assets not actively traded once purchased◦ rust ceases to e$ist #hen securities mature◦ Passive investment◦ 0I are !pecified◦ Diversification to Investors◦ Minimum operating cost

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Managed Investment Companies

(Active*◦1pen End Funds

◦Closed End Funds

Company types

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3o additional shares sold after first timeoffering (IP1*◦ 4imit of Authori,ation of Capital

◦ !hares listed on stoc- mar-et

◦ !hare prices determined by trade in a secondarymar-et

◦ Price may not e5ual 3et Asset 6alue of the shares◦ 3et Asset 6alue2 otal mar-et value of the security

portfolio divided by total shares 1R Formula.◦ 3A6 also changes #ith the change in the prices of the

shares in the portfolio of the fund.

Closed-end investmentcompanies

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Asian !toc-s Atlas Fund F.Cap.Mut.Fund First Da#ood Mutual Fund 7olden Arro# 8! 7ro#th Fund

Mee,an 9al Fund Pa-.Premier Fund Pa-istan !trategic PICIC Energy PICIC 7ro#th PICIC Inv.Fund

Prudential.!. Fund 4td. !afe#ay Mutual ri/!tar Mutual 0P/4arge Capital Fund Al/Mee,an Fund

Examples o Closed Funds in!a"istan

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It is a managed fund #ith defined ob:ective A type of mutual fund that does not have

restrictions on the amount of shares the fund#ill issue.

If demand is high enough) the fund #illcontinue to issue shares no matter ho# manyinvestors there are.

1pen/end funds also buy bac- shares #hen

investors #ish to sell. he capitali,ation changes of the open ended

mutual funds.

#pen Ended InvestmentCompanies

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Company si,e constantly changes he ma:ority of mutual funds are open/end Mutual fund is popular name of open end

investment company 3o limit of capitali,ation ypes of funds are specific e.g.)

◦ E5uity fund

◦ 9alanced fund"hybrid fund

◦

Money mar-et fund◦ Pension fund

◦ Fi$ed income fund

◦ Inde$ed fund

#pen Ended InvestmentCompanies

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 – 3et Asset 6alue2 otal mar-et value of the securityportfolio divided by total shares 1R Formula.

 – 3A6 also changes #ith the change in the prices of theshares in the portfolio of the fund.

 – 3o# the 5uestion arises ho# these funds generateprofit or earn money (C7 and Div*

For#ard 4oad"sales 4oad

9ac-#ard 4oad"Purchase load 3o 4oad funds

E$ample

$pplication o N$V Concept

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 he investment companies aremanaged under the 3on 9an-ingFinance Company regulation ;<<=

 he regulations are revised and notifiedin ;<<> by the !ECP.

Asset Management !ervices 4icense Investor Advisor 4icense

Mana%ement o InvestmentCompanies

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 he investment companies arecorporations

In trust form (ype of business*

aving board of trustees (9oDs* 9os may be formed as separate 9ut other 9oDs can also act as 9os for

that fund he 9os #ill appoint the fund manager

have AM!4

Mana%ement o InvestmentCompanies

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 reynor Performance Measure!harpe Performance Measure

 8ensen Performance Measure Information Ratio PerformanceMeasure

Evaluatin% !erormance oMutual Funds

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%rite do#n the basic procedure for formation

of 39FC under !ECP latest Regulations and1ne e$ample of the structure and formation ofany 39FC operating in Pa-istan.

&ee"ly $ssi%nment

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T'$N( )#*+