Investment Avenues In Pakistan

INVESTMENT AVENUES (SECURITIES) IN PAKISTAN

There are a large number of investment avenues for investors and savers in Pakistan. Some of them are marketable and liquid while others are non marketable. Some of them are highly risky while some others are less risky or almost riskless. Investment avenues (securities) in Pakistan are given bellow;

1. GOVERNMENT OF PAKISTAN DEBT SECURITIES

Details Diversified investment opportunity. Potentially higher return than that offered on traditional term deposits and saving accounts. Wide range of investment tenors to fit investor appetite. Highly liquid instruments with ease of entry and exit. Virtually nonexistent credit risk as GOP Debt Securities are Government-backed. Issued in the form of scripless bonds and maintained in custody by State Bank of Pakistan (SBP) with Standard Chartered Bank (Pakistan) Limited (SCBPL) acting as sub-custodian. Transactions on a delivery versus payment (DVP) basis to ensure swift processing. Minimum Investment Amount offered by SCBPL is PKR 1,000,000/-. Applicable custodial charges are as per bank's Schedule of Charges (SOC). Product Offering

Pakistan Investment Bonds (PIBs)

Long-term, coupon bearing instruments with semi-annual (six monthly) coupon payments. Available maturities upto 10 Years. Auction schedule and targets for fresh PIBs issuance announced by SBP on a quarterly basis.

Treasury Bills
Short-term, highly liquid zero-coupon Government Debt Instruments.

By: Muhammad Asghar Arain

2K10/BBA/27

Investment Avenues In Pakistan

Sold at discount to face value. Tenors upto 1 Year. Auction conducted by SBP on a fortnightly basis.

Ijarah Sukuks
Shariah Compliant Bond Issued by the Pakistan Domestic Sukuk Company Limited, wholly owned by the Government of Pakistan (GoP). Coupon based instruments with semi-annual profit payments, benchmarked to the latest weighted average yield of the 6 month T-Bill auction. Maturity tenor is normally 3 years or as advised by SBP.

Securities can be bought through the following investment avenues.

Secondary Market Purchase / Sale Possibility to buy and Sell securities on market based yields. Instruments sourced from Secondary Market. Wide variety of tenors available. Ease of entry and exit highly liquid market. Non Competitive Bids (NCB) Avenue to participate in the Primary auction for individual and small institutional investors. NCB will be accepted at weighted average yield as per the current auction by SBP. Bids to be submitted to SCBPL two days prior to the auction date. Maximum size of non-competitive bids for an investor will be 0.25% of the pre-announced auction target or PKR 25.0M, whichever is higher (subject to availability of funds with SCBPL). Submission of multiple bids in an auction in a single tenor would be treated as void. Competitive Bidding Investors can participate in the Auction through Competitive Bids. Investors have the flexibility to decide the yield, where they would like to bid for the security. No limit on participation amount (subject to availability of funds with SCBPL). SBP can reject bids at their discretion and as a result customers bid may not be accepted.

By: Muhammad Asghar Arain

2K10/BBA/27

Investment Avenues In Pakistan

2. CASH EQUIVALENTS (MONEY MARKET INSTRUMENTS)
These are short-term, low risk investments that have high liquidity. These include: 1. Bank deposits Savings Account: A bank account to deposit money for safe-keeping and earning a small return. Fixed-Term Deposits: A deposit account that offers a certain rate of return if you keep an amount of money for a certain period of time. Money can be withdrawn at the end of the term with interest or during the term of the account without receiving interest. Bank Certificates of Deposit: A deposit account that offers interest payment monthly, quarterly or at maturity if you make an investment for a certain period of time. You will have to forgo future return if you withdraw your funds ahead of time. 2. Money Market Instruments: These are financial products with high liquidity and short maturity (1 year or less), such as government Treasury bills. Return: Low

How to Invest
SAVINGS ACCOUNT: Obtain account opening form from your desired banks branch. Fill out details on the form and attach required documents. (A valid NIC is necessary.) Charges applicable on different features you opt for with the Savings Account (e.g. ATM/debit card, SMS services, etc.) SAVINGS ACCOUNT for Youngsters under 18 : Obtain an account opening form from the bank. Fill out details and attach required documents. Your parents/guardians will authorize and operate the account till you turn 18. TERM/FIXED DEPOSITS : Obtain a Term Deposit Account form from your desired bank. Attach all required documents with the form. Specify term for your deposit. Available tenors range from 7 days to 3 years General minimum requirement to open a term deposit account is Rs.50,000.
By: Muhammad Asghar Arain

2K10/BBA/27

Investment Avenues In Pakistan

3. FIXED INCOME/INTEREST (BONDS)
These are debt instrument that provides fixed periodic returns and repayment of principle at maturity. The investor (bondholder) knows in advance the number and amount of payments of a fixed-income security. General public can invest in them through mutual funds. Fixed-income securities include: 1. Government Bonds 2. Corporate Bonds or TFCs 3. Sukuks or Islamic Bonds Return: Low-to-Medium Risk: Low

How to Invest
GOVERNMENT SECURITIES : Open an IPS (Investors Portfolio Securities) account with one of the following banks http://www.mcb.com.pk/uploads/FCG/docs/Investment%20Portfolio%20Securities%20Account (s).pdf Open an account by filling out an Account Opening Form Attach the required documents You can request for different modes of transaction, requested via request forms. Charges are applicable on account opening, each transaction and safe keeping CORPORATE BONDS/TFCS: TFCs are bought via corporate members of the stock exchange (e.g. brokers at KSE) These include security brokerages e.g. AKD, JS Group, Global Securities, etc. Contact these security brokerage and the equity dealer will guide you from there on

By: Muhammad Asghar Arain

2K10/BBA/27

Investment Avenues In Pakistan

ISLAMIC BONDS/SUKUK Islamic Mutual funds invest in Sukuks List of mutual fund providers are present here: http://www.mutualfundspakistan.com/amc.aspx

4. EQUITY
It is an investment in the ownership of a company, through buying shares. Returns on this form of investment include dividends and capital gain or loss (increase or decrease in the value of the shares). These can be in the form of common shares or preferred shares For example buying share/stocks of MCB or Engro listed on Karachi Stock Exchange. These also include private equity funds for example JS Groups Private Equity Fund which seeks capital from investors, and invest in new high growth potential firms. Return: High Risk: High

HOW TO INVEST
There are approximately 654 companies listed. You can invest or trade in shares via phone or internet; you can contact your bank or a registered broker Select a registered broker or agent. Go to: http://www.secp.gov.pk/SMD/smd_brkr_agnt.asp Broker will simply take your order and execute it for you (execution only stockbroker) or buy and sell shares for you without asking for your approval first (discretionary broker) Minimum deposit requirement is Rs25,000 depending upon the broker. Commissions are taken on each trade. Do your research and begin trading

5. MUTUAL FUNDS
An investment instrument that collects funds from investors to create a portfolio of stocks, bonds, short-term money market instruments, and/or other securities. These funds are professionally managed and require a trustee who has custody over the assets of the mutual fund. Return: Medium (Depends on the type of mutual fund) Risk: Medium (Depends on the type of mutual fund)

By: Muhammad Asghar Arain

2K10/BBA/27

Investment Avenues In Pakistan

HOW TO INVEST
Go to detailed information related to commodity trade: http://www.pmex.com.pk Select a commodities broker : http://www.pmex.com.pk/invester/registered-broker.php Contact the broker and submit the account opening form Minimum trading amount (around Rs. 25,000) varies between brokers, and commission is charged on each trade. You will receive details related to your account at NEXT Trading Terminal.

6. PENSION FUNDS (VPS)

A pension fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they reach the end of their working years. VPS is a self-contributory pension savings scheme open to all Pakistani nationals over 18 years old holding a valid NTN or CNIC. The range of retirement ages between 60-70 years. VPS is portable, that is, the individuals account will stay with the investor even if they change jobs. There is strict regulation and VPS is overseen by the SECP. Tax refund on contributions, investment income and gains accumulate tax-free, tax is paid at the stage pension is drawn. Asset Allocation of VPS The scheme has three sub-funds: Equity Sub-Fund : invest principally in shares/stocks Debt Sub-Fund : core holdings include fixed income investments Money-market Sub-Fund : short term securities The participants wealth/assets will be allocated as per your return objectives and levels of risk aversion

The riskiness of an equity fund is the highest, but the probability of greater returns is also high here

By: Muhammad Asghar Arain

2K10/BBA/27

Investment Avenues In Pakistan

HOW TO INVEST
Voluntary Pension System Enroll in a voluntary pension scheme at an Asset Management Company Choose between Pakistan Pension Fund and Pakistan Islamic Pension Fund Pay initial price of R.100 Minimum investment of Rs.1000 http://www.mcbah.com/pension_funds/pakpensionfund.aspx

7. LIFE INSURANCE
Life insurance is a type of saving instrument which a person can take advantage of in order to protect himself and his family from a future financial crisis. An example is Whole Life Insurance which is a life insurance policy that remains in force for the insured's whole life and requires (in most cases) premiums to be paid every year into the policy. Some of the factors that influence the premium to be paid to reach a certain assured sum are: Gender Age Payment Mode Current incomes Spouses income (if any)

HOW TO INVEST
Select an insurance company of your choice from the following list on: http://www.secp.gov.pk/ID/id_registeredentities.asp Contact them to ask about their policies and schedule.

By: Muhammad Asghar Arain

2K10/BBA/27