Mutual fund is a kind of collective investment that is managed professionally. In Mutual funds, the money is collected from a large number of investors and then it is invested in bonds, stocks, and various other securities. The fund manager of Mutual fund collects the interest income which is then distributed among the individual investors on the basis of the number of units that they hold. Mutual fund's value of a share is calculated on a daily basis and is known as per share Net Asset Value (NAV).
Mutual Funds in Pakistan
“Mutual fund is a pool of money invested according to a common investment objective by an asset management company (AMC) on behalf of the fund’s investors”. A mutual fund can generate profits from three different sources, which are: Dividend, Capital Gains and Appreciation of Share Price. The figure below shows that mutual fund deals with the following entities; trustee, auditor, SECP, AMC and investor. A mutual fund provides liquidity, portfolio management expertise, risk diversification, and stability to stock market and it also mobilizes savings by attracting funds from small investors.
Classification of Mutual Funds
Classification of Mutual Funds has been done on the basis of their investment objective and structure. Classification of Mutual Funds has been done into main types such as Income Funds, Sector- Specific Funds, Large Cap Funds, Fixed- Income Funds, Interval Funds, Closed- End Funds, and Tax Saving Funds. Income Funds are a kind of mutual fund whose aim is to provide to the investors with steady and regular income. They usually invest their principal in securities such as corporate debentures, bonds, and government securities.
Sector- Specific Funds are funds that make investments in specified sectors only. They give importance to one sector only such as pharmaceuticals, software, infrastructure, and health care. Large Cap Funds are a kind of mutual fund that makes investment in the shares of large blue chip companies. Fixed- Income Funds makes investment in debt securities that have been issued either by the banks, government, or companies. They are also known as income funds and debt funds. Interval Funds are a…