Investment Companies - Final

8/4/2019 Investment Companies - Final

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Investment Companies


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Investment Companies(Part - 1)

By

Mohammad Samie

MBA2010-01


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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.


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Types of Investors

Retail Investors VS Institutional Investors


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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 firstwoman 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.


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Investment Companies by Definition


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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.


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Companies Covered under this head

Mutual fund companies

Open Ended Mutual Fund Companies

Closed-Ended Mutual Fund Companies Unit Trust Companies


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Investment companies Generically

Insurance Companies

Pension Fund Companies Commercial Banks

are clustered under this head

To be focused


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Investment Companies VS Investment Banks

Fundamental focus varies

Investment banks primarily deal with:

Underwriting securities

Acting as primary dealers


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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


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Mutual Fund Companies

Heap up the investors money for shares

(units). Fund Managers execute funds management


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Mutual Fund Companies in Pakistan


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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 andwithdrawals are be valued?


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Numerical Explanation How new shares would be issued?

When Portfolio price remains constant

When Portfolio price doesnt remains constant


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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.


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Closed Ended Fund(in comparison with Open Ended Fund)

Subsequent investment and withdrawals

Subsequent Treatment of Shares Determination (Affected) of price per share


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Examples of Open and Closed Ended Fund

Fund Name Company Type

Meezan Sovereign Fund AL-MEEZAN INVESTMENT MANAGEMENT LTD Open-Ended Fund

Alfalah GHP Alfa Fund AL FALAH GHP INVESTMENT MANAGEMENT LTD Open-Ended Fund

Pakistan Income Fund ARIF HABIB INVESTMENT MANAGEMENT LTD Open-Ended Fund

Askari Income Fund ASKARI ASSET MANAGEMENT LTD. Open-Ended Fund

Al-Meezan Mutual Fund Ltd AL-MEEZAN INVESTMENT MANAGEMENT LTD Closed-Ended Fund

PICIC Energy Fund PICIC ASSET MANAGEMENT COMPANY LTD Closed-Ended Fund

Prudential Stock Fund PRUDENTIAL FUND MANAGEMENT LTD Closed-Ended Fund

WE Balanced Fund WE INVESTMENT MANAGEMENT LTD Closed-Ended Fund


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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


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Brief Benefits of Mutual Funds

Risk Reduction via Diversification

Saving of time, cost and efforts

Professional Management


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Parties Involved in a Mutual Fund

Fund Mangers/Investment Advisors

Distributors Custodian

Independent Public Accountants

Transfer Agents


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Charges of Mutual Funds

Sales Charges

Annual Operating Expenses


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Sales Charge

Also called as load

One time charge In which case is it charged?

In case where an intermediary

(sales agent) is involved


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Ways of Charging Load

Front End LoadDeduction at the time of

shares purchase

Back End Load - Deduction at the time of

shares redemption

Level Load - Constant load is charged each

year


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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.


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JiJi Time(Refreshment)


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Investment Companies(Part - 2)

By:

Muhammad Sohail ArshadMBA2010-07


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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)


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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/-


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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


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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


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Contd

Health Insurance

Risk insured is medical treatment

Property & Casualty Insurance

Car insurance House or building insurance


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Contd

Liability Insurance Risk insured is litigation

Disability Insurance

Risk insured is inability of employed person to earn


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Contd

Investment Oriented Products

Guaranteed Investment Contract

In return of a single premium

Guaranteed owner principal repayment and a fixed orfloating interest rate

Annuity

Guaranteed rate of return buildup

Tax benefits if not withdrawn before maturity


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Insurance Company

Individual vs. Group insurance

Fundamental aspect of insurance company

Uncertainty in time and magnitude of payments

Long lag between receipts and payments


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Forms of Insurance Companies

Stock Insurance Company

Shareholder and policyholder are two separate elements

Mutual Insurance Company

Policyholders are owners of the company


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Three structural components

Home office component

Investment component

Distribution component

Structure of Insurance Company


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Income Vs Expense

Incomes

Primary Source Is Premiums

Secondary Source Is Investment Returns

Expenses Insurance Claims

Operating Expenses

Profits Difference Between Incomes And Expenses


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Understanding Pension Plan

Pension Plan

Contributions towards a Pool Of Funds (Pension

Fund)

Investment of pension fund


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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)


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Types of Pension Plans

Qualified & Unqualified Pension Plans

Defined-benefit Plan

Defined-contribution Plan


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Types of Pension Plans

Defined-benefit Plan

Retirement benefits are guaranteed

No contribution from employee side

Specified contribution of employer

Example:

Gratuity


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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

Defined-contribution Plan


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Cash Balance Plan

Hybrid pension plan

Retirement benefits are pre-defined

Maintained on an individual account basis


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Superannuation funds (Pension):

Either Defined benefit or Defined Contribution Plan

Employee is paid when reaches superannuation age


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EMPLOYEE OLD AGE BENEFIT SCHEME (EOAB)

Private Sector Employees Scheme managed by the

Federal Government


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Regulation

License pension fund managers and authorizeschemes.

Measure performance against benchmarks.

Publish comparative performance.

Order special audit.

Carry out inquiry/inspection.

De-authorize manager and fund


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Regulation

Segregation Of Pension Fund

Equity Sub-fund

Debt Sub-fund

Money Market Sub-fund


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Investment Plans

Based On Proportion Of Each Sub Fund

Very Conservative (money Market & Debt Sub-fund)

Conservative ( Up To 80% Money Market And Debt Sub-fund)

Balanced (equitable Mix Of Three Sub-funds )

Aggressive (Up To 80% Equity Sub Fund)


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Charges & Deductions:

Management Fee Not To Exceed 1.5% PerAnnum

Front Load 3%

No Load On Transfers


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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.


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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 SectorBy:

Mr. Hasnat Ahmad

(Securities and Exchange Commission of Pakistan)

Pension Mandate of Securities & ExchangeCommission of Pakistan

By:

Akif Saeed(Securities & Exchange Commission of Pakistan) [14 April2006]

Insurance Guide For Inventors Issued By SECP(Securities & Exchange Commission of Pakistan)

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


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Documents

Investment Companies - Final