A salaried person, during such a time, can invest in a type of mutual fund known as a Capital Preservation Fund, such as the Meezan Capital Preservation Plan (V) to ride the volatility of the market safely and prudently and simultaneously protect their capital.
To learn more about mutual fund basics, click here.
Benefits of investing in mutual funds
Mainstream options for the average person are either to place their savings with a bank, or to invest them in the stock market.
However, most salaried people usually do not have the time or the expertise to make complicated investment decisions that will also be good for them — especially when it comes to investing in the stock market, which may be up today but down tomorrow.
A major benefit of investing in a mutual fund is that it relieves you of the daily hassle of managing your investments, as you give over that responsibility to a professional.
The second benefit of investing in a mutual fund is the tax credit it offers.
In Pakistan, these credits can go up to 20pc if the investor commits their money to the fund for 24 months (two years) or more. In addition, you can get up to 30% additional savings through Voluntary Pension Funds (VPS) such as Meezan Tahaffuz Pension Fund (MTPF)
Wondering how much tax you can save with mutual funds? You can calculate your tax savings by checking out Al Meezan's tax savings calculator.
This added tax benefit greatly amplifies the investor's return from the mutual fund.
How can I invest in mutual funds?
In Pakistan, investing in mutual funds is relatively easy. To begin with, you need to get an account made with an Asset Management Company such as Al Meezan. The sales associates will manage all your required documents and Al Meezan’s advisers will even collect the documents from your door steps.
The ease in paperwork provided by Al Meezan Investments made it a top preference for salaried individuals. Al Meezan has the largest investor base in Pakistan with over 75,000 investors.
How do I select an investment plan?
Your plan must be based on investment objectives and risk appetite.
For example, if an investor wants to save for a car (or place their savings in a fund that is easily accessible at any given point in time), they should invest in a cash fund. An example of this is the 'Meezan Cash Fund'.
However, if the person is looking to invest for their child’s college education or are looking for long-term savings, a balanced fund (where investments are balanced between stocks and other assets e.g. bonds) such as the 'Meezan Balanced Fund', or an equity fund (stock market focused), such as the 'Meezan Islamic Fund' or the 'KSE Meezan Index Fund', would be ideal.
Capital preservation funds on the other hand provide the best of both these worlds. They allow you to access your investment when required.
With capital preservation plans, Al Meezan aims to keep your capital secure, while aiming to achieve capital growth as an additional benefit.
Other ways to analyse mutual funds
1. Performance
Another thing you want to look at is the 'Performance Ranking' of a fund among its peers.
Rather than looking at a fund’s performance in isolation, it should be compared with similar funds on a monthly, quarterly, and annual basis.
A fund that is consistently in the top quartile or decile should be preferred over others.
The past performance of funds managed by an asset management company is a good indicator to see if your savings are in good hands.