A Collective Investment Scheme (i.e. a mutual fund) is an investment vehicle comprising a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, commodities, money market instruments, securities, treasury bills and other capital markets instruments. A Collective Investment Scheme is established under Non-Banking Finance Companies and Notified Entities Regulations, 2008 by way of a trust deed that offers for sale of its units and entitles the investor on demand to receive his proportionate share of the net assets.
A Voluntary Pension Scheme (VPS), a retirement scheme established under VPS Rules, 2005 by way of a trust deed, is a pool of investment owned by investors and managed by a licensed Pension Fund Manager. Pension Fund provides a regular source of income to maintain the living standard, health and other post retirement expenses. A Pension Fund can help Participants to accumulate the savings to achieve the financial security they desire after retirement. A pension fund may comprise of four sub-funds i.e. Equity Sub Fund, Debt Sub Fund, Money Market Sub Fund and Commodities Sub Fund.
All assets of the Collective Investment Scheme/Voluntary Pension Scheme are held by an independent trustee whereas the Asset Management Company/Pension Fund Manager only serves as a Portfolio Manager. The Trustee performs the functions of the custodian of the assets of the Fund and ensures that the Fund Manager takes the investment decisions within the defined investment policy of the collective Investment Scheme/Voluntary Pension Scheme. Under Pakistan law, banks and central depository companies, approved by the SECP, can act as trustee to Collective Investment Schemes/Voluntary Pension Scheme.
At present Central Depository Company (CDC) is acting as Trustee of most of the funds of the industry. The Securities & Exchange Commission of Pakistan (SECP) is the regulator of mutual funds industry and is very stringent in issuing licenses to fund management companies, especially in the case of Collective Investment Scheme (CIS). The SECP also carries out continuous monitoring of mutual funds. Mutual Funds are required to file periodic reports with the SECP whereas SECP also conducts on-site inspections of the AMCs on regular basis.
Considering the critical and sensitive nature of the business, there are several checks and balances which ensure the vigilant performance of duties by the Trustee. The basic documents that govern the operations of this department are as follows:
The document through which a Fund is originated and which defines rights and obligations of the three parties involved, namely unit holder, AMC/PFM and the trustee. Trust deeds are approved by the Securities & Exchange Commission of Pakistan (SECP).
This document is a link between the prospective investors and the Fund (Management Company & Trustee) and is governed by the Trust Deed. The Management Company prepares this document, which is reviewed by the Trustee and approved by the SECP.
NBFC Rules & NBFC Regulations and Directives
All the activities performed by the AMC on behalf of the Fund and executed by the Trustee/Custodian are governed by the NBFC Rules & Regulations, Directives, Circulars and Notifications issued by SECP.
Voluntary Pension Scheme (VPS)
All the activities performed by the Pension Fund Managers on behalf of the Fund and executed by the Trustee are governed by the VPS Rules issued by SECP.
Standard Operating Procedures
Comprehensive operating procedures exist to ensure smooth performance of all trustee functions.
Frequently Used Terminologies
AMC OR ASSET MANAGEMENT COMPANY means company that invests its clients’ pooled fund into securities that match its declared financial objectives. Asset management companies provide investors with more diversification and investing options than they would have by themselves.
AUTHORIZED INVESTMENTS means as defined in relevant Offering Document.
BACK-END LOAD means a Processing Charge deducted by AMC from the Net Asset Value (NAV) at the time of redemption of units in determining the Redemption Price.
CUSTODIAL AGREEMENT” shall mean the Custodial Services Agreement between the Fund Manager and the Custodian.
DEALING/BUSINESS DAY means any day on which dealing of the Collective Investment Scheme can be carried out as per Offering Document.
CLOSED-END SCHEME where an Investment Advisor, as defined in the Rules, with the permission of SECP arranges with a trustee to launch a closed-end trust and collect funds from individual investors through the issuance of units. These units, once issued cannot be redeemed back to the fund; however, they can be sold to and traded with other prospective investors just like shares of an ordinary listed company. However, where the investment advisors consider it appropriate to increase the capital base of a fund, they can do so only by way of issuance of right share, similar to the case of listed company.
CONSTITUTIVE DOCUMENTS means the Offering Document, Trust Deed or such other documents as defined in the Regulations.
CONTINGENT LOAD means Load payable by the Unit Holder at actual basis to the extent of loss incurred by fund due to disinvestments if Units are redeemed by any major Unit Holder in such period of time that the Management Company believes may adversely affect the interest of other Unit Holder(s). Any Contingent Load received will form part of the Trust Property.
CUSTODIAN means a bank, the Central Depository Company, or any other Depository for the time being appointed by the Trustee with the approval of the Management Company to hold and to protect the Fund Property or any part thereof as custodian on behalf of the Trustee; the Trustee may also itself provide custodial services for the Fund with the approval of the Management Company at competitive terms, as part of the normal line of its business.
CUT-OFF TIME / BUSINESS HOURS means the day time for dealing in Units of the Fund. The Cut-Off Timing/Business Hours are usually mentioned in Offering Document.
CONVERSION OR EXCHANGE OF UNITS means a portfolio of securities managed by an Investment Advisor under an agreement entered into with a client on a duly notarized stamp paper of applicable value and whereby investment decisions are made and executed by the NBFC on behalf of its client.
DISCRETIONARY PORTFOLIO means a portfolio of securities managed by an Investment Advisor under an agreement entered into with a client on a duly notarized stamp paper of applicable value and whereby investment decisions are made and executed by the NBFC on behalf of its client.
FRONT-END LOAD means the sales and processing charges, included in the Offer Price of Units at the time of issuance of fresh units.
FUND PROPERTY means the aggregate proceeds of the sale of all Units at Offer Price and any Transaction Costs recovered in the Offer or Redemption Prices after deducting there from or providing there against the value of Redemption, Front-end Load, Back-end Load, Duties and Charges (if included in the Offer Price or Redemption Price) applicable to the issue or redemption of Units and any expenses chargeable to the Fund ; and includes the Investment and all income, profit and other benefits arising there from and all cash and other assets movable or immovable and property of every description for the time being held or deemed to be held upon trust by the Trustee for the benefit of the Unit holders pursuant to the Trust Deed but does not include any amount standing to the credit of the Distribution Account.
HOLDER OR UNIT HOLDER means the investor for the time being entered in the Register as owner of a Unit or a fraction thereof including investor jointly so registered pursuant to the provisions of the Deed.
INVESTMENT means any Authorized Investment forming part of the Fund Property.
NBFC RULES mean Non-Banking Finance Companies (Establishment and Regulation) Rules 2003 as amended from time to time.
NET ASSETS means the excess of assets over liabilities of the Fund, such excess being computed in the manner specified in the relevant Trust Deeds.
NET ASSET VALUE means per unit value of the Fund arrived at by dividing the net assets by the number of units outstanding.
NON-DISCRETIONARY PORTFOLIO means a portfolio of securities managed by an NBFC under an agreement entered into with the client on a duly notarized stamp paper of applicable value whereby investment decisions are executed by the NBFC on written instructions of the client.
OFFERING DOCUMENT means a published document containing information on a Collective Investment Scheme to invite the public for purchase of certificates or units in that scheme.
OPEN-END MUTUAL FUND An open-end Mutual Fund is different from a closed end fund in that it does not have a fixed capital. Instead the units of an open end scheme are regularly issued by and redeemed back to the fund thereby its capital continuously fluctuates. Where the units of a closed end scheme may be launched at their face value or at premium, the units of an open end scheme are issued and redeemed at their Net Asset Value (NAV).
REGISTRAR means an organization appointed to perform the Registrar Functions.
REDEMPTION FORM means a standardized form prescribed by the AMC to be duly filled by the investor to redeem Units and will be stated in this Offering Document.
REDEMPTION OF UNITS means the request initiated by the investors to redeem the units of the Collective Investment Scheme at the applicable Net Asset Value.
REDEMPTION PRICE means the amount to be paid to the relevant holder of a unit upon redemption of that unit.
REGULATIONS mean Non-Banking Finance Companies and Notified Entities Regulations, 2008 and the Schedules and Forms attached to it as amended/replaced from time to time.
SALE OF UNITS means the investor initiate’s the request to purchase units of the Collective Investment Scheme at the applicable Net Asset Value.
“SUB-CUSTODIAN” shall mean Citibank N.A or any other banking company within the meaning of the Banking Companies Ordinance, 1962, appointed by the Custodian for Safe Custody and handling for Physical shares on its behalf.
“SUB-CUSTODY AGREEMENT” shall mean the Direct Custodial Services Agreement signed between the Custodian and the Sub-Custodian.
“SUB-CUSTODY ACCOUNTS” shall mean the Sub-custody Account to be established and maintained separately for each Mutual Fund for physical securities.
TRUST DEED OR DEED means the Trust Deed of the Fund executed between the Management Company and the Trustee along with all the exhibits appended hereto.
UNIT means one undivided share in the Fund and where the context so indicates a fraction thereof.
VPS RULES mean Voluntary Pension System Rules 2005 as amended from time to time.