1. What are Mutual Funds?

Suppose Ali and Ahmad live in the same neighborhood. Here are their personal circumstances:

Ali has savings of Rs. 3500 and wants to invest. He works as a consultant and thus, his income is quite variable. Ali’s top priority is to keep getting regular or steady income in the future.

Ahmad has Rs. 1500 and is looking for investment opportunities. He is worried that the amount may be too small for investment. He also wants to enjoy a decent but regular source of income.

Considering the above-mentioned circumstances of Ali and Ahmad, they decide to go to a firm called Money X. This firm is known for making customized investment plans for people in this neighborhood. Money X recommends Ali and Ahmad to combine their funds so that it has more buying power. While Rs. 1500 is a small amount, the combined amount of Rs. 5000 is sufficient to buy a variety of low-risk securities . In this case, Money X collects money from Ali, Ahmad and 5 other people from the neighborhood. All investors have a mutual goal of earning steady income in the future. Money X formulates a ‘Fund P’ that uses this ‘pooled’ money and invests it in various government-issued securities and bank deposits. Money X ensures that these securities aren’t risky and that they provide steady income to the fundholders. Thus

Mutual Fund is an investment vehicle that pools money from various investors and utilize those funds in purchasing a basket of securities including stocks, bonds, commodities, cash, savings accounts and even other mutual funds.

1.1. Why Invest in Mutual Funds?

You must be wondering why Ali and Ahmad didn’t buy the government-issued securities or put their money in savings account themselves? Here are some of the reasons to invest into Mutual Funds in Pakistan: