Which of the following statements is true of mutual fund dividend distributions?

  What gets changed   Existing value – Sample   Revised value - Sample   Where all this will reflect   Scheme name ABC Mutual Fund - Regular - Dividend (Payout / Reinvestment)

ABC Mutual Fund - Regular - Daily Dividend (Payout / Reinvestment)

ABC Mutual Fund - Regular - Weekly Dividend (Payout / Reinvestment)

ABC Mutual Fund - Regular - Daily IDCW (Payout / Reinvestment)

ABC Mutual Fund - Regular - Weekly IDCW (Payout / Reinvestment)

1. What are "dividend distributions"?

A mutual fund may receive dividend or interest income from the securities it owns; it is required to pay out 90% of its accounting income excluding unrealized capital gain to its investors. This may be in the form of cash dividend or bonus units depending on the type of units held in the fund. Dividend distributions can be made monthly, quarterly or on a yearly basis.

2. What is meant by "Class of Unit" offered by a mutual fund?

Mutual funds issue various classes of units that invest in the same pool of securities and will have the same investment objectives and policies. Each class of unit will have different unit holder services and/or distribution arrangements with varying loads, therefore each class will likely have different performance results.

3. What is the difference between forward and backward pricing?

NAV of mutual funds is calculated daily using either forward or backward pricing mechanism. Forward pricing is when the NAV for issuance and redemption of units in a mutual fund is determined as the next computed NAV after the request for issuance or redemption has been placed. In contrast, in backward pricing, the last computed NAV is used for issuance and redemption of units in a mutual fund. It is mandatory for all mutual funds, except money-market funds, to adopt forward pricing mechanism.

4. What should I think about before investing in a mutual fund?

Mutual funds differ in terms of investment objectives, strategies, risks and costs. When choosing a mutual fund the following should be considered:

• Risk profile
• Fees and expenses
• Investment Objective
• Time Horizon
• Tax consequences
• Past performance of the AMC/fund

5. What should an investor look for in an offering document?

SECP has prescribed minimum disclosures in the offering document. An investor, before investing in a Fund, should carefully read the offering document. Due care must be given to portions relating to main features of the fund, risk factors, initial issue expenses and recurring expenses to be charged to the fund, entry or exit loads, investment objectives and restrictions, sponsor's track record, educational qualification and work experience of key personnel including fund managers, performance of other funds launched by the AMC in the past.

6. Are non-resident Pakistanis (NRPs) eligible to invest in mutual funds?

Yes, non-resident Pakistanis can also invest in mutual funds. Necessary details in this respect are given in the offering documents of the funds which can be obtained directly from the AMC, through its website, or through a distributor, if any, located in the country of the investor.

7. How to obtain a list of distributors?

A list of distributors normally appears in the offering document which is given to all investors. Additional information on the distributors can be obtained directly from the AMC.

8. Does the investor get a certificate for investment in a mutual fund?

The investor gets a statement of account as evidence of investment in a mutual fund. Unit certificates are only issued upon request by the investor by completing a prescribed application form and paying a fee.

9. When will the investor receive statement of account?

AMCs usually dispatch statements of accounts to the investors whenever there is activity in their account, i.e. purchase, redemption, transfer, pledge, etc. AMCs also generally send account statements on a regular basis such as monthly, quarterly, or bi-annually.

10. How to know the performance of a mutual fund fund?

The performance of a fund is reflected in its net asset value (NAV) which is disclosed on daily basis. Although the past performance of a fund is not indicative of its future performance, it is useful to compare the fund's performance to its benchmark and other funds with similar investment objectives. The NAVs are also available on the websites of mutual funds. All mutual funds are also required to disclose their NAVs on the website of Mutual Funds Association of Pakistan (MUFAP) www.mufap.com.pk. Currently, the website of MUFAP provides a performance summary wherein month-to-date and year- to-date returns of all mutual funds are displayed. Monthly performance of a mutual fund may also be tracked via the Fund Manager report.

11. What are the factors that influence performance of mutual funds?

The performance of mutual funds is primarily driven by investment decisions made by the AMC. Further, performance of mutual funds is a function of the performance of the underlying debt and equity markets as well as the economy as a whole. Equity funds, for instance, are influenced to a large extent by movements in the stock markets whereas money market and income funds are influenced by interest rates, credit quality, and liquidity.

12. Are mutual fund advertisements and other marketing materials reliable?

The Securities & Exchange Commission of Pakistan (SECP) vets and approves all advertisements and marketing materials published by the AMCs in newspapers or on their websites to ensure that they do not contain any misleading information. However, contents of the fund manager report are not approved by the SECP.

13. How is the AMC compensated for its services?

The AMC charges a management fee based on a fixed percentage of the net assets of the fund. The AMC is entitled to a remuneration of an amount as permissible by the SECP and stipulated in the regulatory framework.

14. Are returns from mutual funds taxable?

Under the Income Tax law in Pakistan, the Fund is regarded as a public company for tax purposes. The income of the mutual fund is exempt from tax, if not less than ninety percent (90%) of the accounting income for the year, is distributed amongst the Unit Holders as dividend(cash or stock). The ninety percent (90%) of the income is calculated after excluding capital gains whether realized or unrealized.

Cash dividends received by investors are subject to 10% withholding tax.

Above information regarding taxes on mutual fund investment is based on the current tax regime, for specific advice on tax matters, investors are advised to contact a Tax Advisor before investing in mutual fund.

15. If mutual fund is wound up, what happens to money invested?

In case of winding up of the fund, the assets are distributed among its unit holders in the proportion of investment in the fund.

Which of the following statements are true of mutual fund dividend distributions?

Which statement is true regarding mutual fund distributions?

Which of the following statement is true about mutual fund?

What happens when a mutual fund pays a dividend?