Investment Companies

Investment Companies
(Part - 1)

By
Mohammad Samie
MBA2010-01

Brief Revision
Revising Investment Physical Assets excluded from the scope of investments Financial Assets include like:
The loan by Citibank to an individual to purchase the car, Bonds, Ordinary Shares, etc.

Types of Investors
Retail Investors VS Institutional Investors

For Your Information

Muriel Siebert, known as "the first woman of finance", is the president and founder of Siebert Financial Corp. She was also the first woman to own a seat on the New York Stock Exchange, and the first woman to serve as superintendent of banks in the state of New York.

Investment Companies by Definition

NOTE: Please avoid confusion between the shares of the mutual fund and the shares in which the fund managers may invest the pooled up money of the fund.

Companies Covered under this head

Mutual fund companies
Open Ended Mutual Fund Companies Closed-Ended Mutual Fund Companies

Unit Trust Companies

Investment companies Generically

Insurance Companies Pension Fund Companies Commercial Banks are clustered under this head

To be focused

Investment Companies VS Investment Banks Fundamental focus varies Investment banks primarily deal with:
Underwriting securities Acting as primary dealers

For your information

National Bank of Pakistan, Standard Chartered Bank (Pakistan) Limited, United Bank Limited, Habib Bank Limited, JS Bank Limited, Pak Oman Investment Co. Ltd., NIB Bank Limited, Citibank N.A., MCB Bank Limited, The Royal Bank of Scotland and Faysal Bank Limited.

http://dailytimes.com.pk/default.asp?page=2010\06\30\story_30-6-2010_pg5_5

Mutual Fund Companies

Heap up the investors money for shares (units). Fund Managers execute funds management

Mutual Fund Companies in Pakistan

Open Ended Fund

Fund Managers manage it Open to new investments and withdrawals A pro rata share with each investor Net Asset Value (NAV) of the fund
NAV = Market Value of Securities Liabilities No. of shares outstanding NAV = 215,000,000 15,000,000 10,000,000 = Rs.20/share

When is NAV determined? And when investments and withdrawals are be valued?

Numerical Explanation
How new shares would be issued?
When Portfolio price remains constant When Portfolio price doesnt remains constant

Rules Deduced
Number of shares would be increased when net new investment is increased and vice versa. NAV would change due to the change in price of portfolio.

Closed Ended Fund

(in comparison with Open Ended Fund)

Subsequent investment and withdrawals Subsequent Treatment of Shares Determination (Affected) of price per share

Examples of Open and Closed Ended Fund

Fund Name
Meezan Sovereign Fund Alfalah GHP Alfa Fund Pakistan Income Fund Askari Income Fund Al-Meezan Mutual Fund Ltd PICIC Energy Fund Prudential Stock Fund WE Balanced Fund

Company
AL-MEEZAN INVESTMENT MANAGEMENT LTD AL FALAH GHP INVESTMENT MANAGEMENT LTD ARIF HABIB INVESTMENT MANAGEMENT LTD ASKARI ASSET MANAGEMENT LTD. AL-MEEZAN INVESTMENT MANAGEMENT LTD PICIC ASSET MANAGEMENT COMPANY LTD PRUDENTIAL FUND MANAGEMENT LTD WE INVESTMENT MANAGEMENT LTD

Type
Open-Ended Fund Open-Ended Fund Open-Ended Fund Open-Ended Fund Closed-Ended Fund Closed-Ended Fund Closed-Ended Fund Closed-Ended Fund

Unit Trust
Unit Certificates are fixed Unlike open and closed ended funds, no active management exercised Unlike open and closed ended funds, have fixed termination date

Brief Benefits of Mutual Funds

Risk Reduction via Diversification Saving of time, cost and efforts Professional Management

Parties Involved in a Mutual Fund

Fund Mangers/Investment Advisors Distributors Custodian Independent Public Accountants Transfer Agents

Charges of Mutual Funds

Sales Charges Annual Operating Expenses

Sales Charge
Also called as load One time charge In which case is it charged? In case where an intermediary (sales agent) is involved

Ways of Charging Load

Front End Load Deduction at the time of shares purchase Back End Load - Deduction at the time of shares redemption
Level Load - Constant load is charged each year

Annual Operating Expenses

Expenses charged annually 3 categories
Management Fee Distribution Fee Other Expenses
Note: Fee percentages vary from fund to fund and from company to company.

JiJi Time
(Refreshment)

Investment Companies
(Part - 2)

By:
Muhammad Sohail Arshad
MBA2010-07

Insurance Companies
Financial Protection from the risk of loss A contract between two parties in exchange for consideration (Premium) One party is ready to bear the risk (Insurance Company) Other party whose risk is being covered (Policyholder)

How Insurance Works?

Based on the principle of Risk Pooling
Example :
Houses in a village = 1000 Value of 1 House = Rs. 40,000/Houses burning in a yr = 5 Contribution = Rs. 300/-

Premium
Amount paid to insurance for bearing of risk Types of Premium
Single premium: Fixed/level premium Flexible/adjustable premium

Premium on the basis of time period

Monthly Quarterly Semiannually Annually

Types of Insurance
Life Insurance (Risk Insured Is Death) Term Insurance
For A Specified Time Period No Payouts If Policyholder Not Die No Cash Value

Cash Value Life Insurance

Whole Life Insurance With Cash Value

Contd
Health Insurance
Risk insured is medical treatment

Property & Casualty Insurance

Car insurance House or building insurance

Contd
Liability Insurance
Risk insured is litigation

Disability Insurance
Risk insured is inability of employed person to earn

Contd
Investment Oriented Products
Guaranteed Investment Contract
In return of a single premium Guaranteed owner principal repayment and a fixed or floating interest rate

Annuity
Guaranteed rate of return buildup Tax benefits if not withdrawn before maturity

Insurance Company
Individual vs. Group insurance Fundamental aspect of insurance company
Uncertainty in time and magnitude of payments Long lag between receipts and payments

Forms of Insurance Companies

Stock Insurance Company
Shareholder and policyholder are two separate elements

Mutual Insurance Company

Policyholders are owners of the company

Structure of Insurance Company

Three structural components
Home office component Investment component Distribution component

Income Vs Expense
Incomes
Primary Source Is Premiums Secondary Source Is Investment Returns

Expenses
Insurance Claims Operating Expenses

Profits
Difference Between Incomes And Expenses

Pension Fund Companies

Understanding Pension Plan

Pension Plan
Contributions towards a Pool Of Funds (Pension Fund) Investment of pension fund

Pension Fund Management

In-house Management Financial Intermediaries (Pension Fund Manager)
Insurance Companies & Asset Management Companies

Regulatory Authority Is Securities and Exchange Commission Of Pakistan(SECP)

Types of Pension Plans

Qualified & Unqualified Pension Plans Defined-benefit Plan Defined-contribution Plan

Types of Pension Plans

Defined-benefit Plan
Retirement benefits are guaranteed No contribution from employee side Specified contribution of employer Example:
Gratuity

Defined-contribution Plan
Contribution of employer is pre defined Retirement benefits are not guaranteed No obligation for the performance of fund on employer Investment options are selected by employees Maintained on an individual account basis Example:
Provident Fund

Cash Balance Plan

Hybrid pension plan Retirement benefits are pre-defined Maintained on an individual account basis

Superannuation funds (Pension):

Either Defined benefit or Defined Contribution Plan Employee is paid when reaches superannuation age

EMPLOYEE OLD AGE BENEFIT SCHEME (EOAB)

Private Sector Employees Scheme managed by the Federal Government

Regulation
License pension fund managers and authorize schemes. Measure performance against benchmarks. Publish comparative performance. Order special audit. Carry out inquiry/inspection. De-authorize manager and fund

Regulation
Segregation Of Pension Fund
Equity Sub-fund Debt Sub-fund Money Market Sub-fund

Investment Plans

Based On Proportion Of Each Sub Fund

Very Conservative (money Market & Debt Sub-fund) Conservative ( Up To 80% Money Market And Debt Subfund) Balanced (equitable Mix Of Three Sub-funds ) Aggressive (Up To 80% Equity Sub Fund)

Charges & Deductions:

Management Fee Not To Exceed 1.5% Per Annum Front Load 3% No Load On Transfers

Investment Instruments:
Shares, Bonds, Asset backed securities, Stock mutual fund, Bond mutual fund, Income mutual fund, Growth mutual fund, Income & growth mutual fund, Fund of funds, etc.

References
Book(s) and Report(s) consulted:

Foundation of Financial Markets and Institutions

(Third Edition) By:
Frank J. Fabozzi Franco Modigliani Frank J. Jones Michael G. Ferri

Reporting Practices for the Private Pension Sector

By:
Mr. Hasnat Ahmad (Securities and Exchange Commission of Pakistan)

Pension Mandate of Securities & Exchange Commission of Pakistan

By:
Akif Saeed (Securities & Exchange Commission of Pakistan) [14 April 2006]

Websites: www.investopedia.com www.investorwords.com www.dailytimes.com.pk www.bloomberg.pk www.mutualfundspakistan.com www.hraide.com www.profit.ndtv.com www.eobi.gov.pk www.secp.gov.pk

Insurance Guide For Inventors Issued By SECP

(Securities & Exchange Commission of Pakistan)