Frequently Asked Questions NAFA Funds / Plans

What is a Mutual Fund?


A mutual fund is a trust. It pools money from like-minded investors and invests the money in a diversified portfolio of securities, through various schemes that address different needs of investors. The securities a mutual fund invests in is based on the investment objective of a particular scheme. Such objective is clearly laid down in the Offering document for that scheme. The fund adds value to the investment in two ways: income earned and any capital appreciation realized through sale. This is shared by unit holders in proportion to the number of units they own.

What are the different type of mutual fund schemes managed by NAFA?


Mutual Funds are Collective Investment Schemes (CIS) as per NBFC Rules and Regulations. Mutual fund schemes can be classified as follows:

By Structure

Open-ended schemes: An Open-end Fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units of the Funds from the Asset Management Company (AMC) at the related prices commonly known as Net Asset Value ("NAV").

Close-ended schemes: A Close-ended Fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the Stock Exchanges where they are listed.

NAFA manages open-ended schemes categorized into following Investment Objectives:

1. Money Market Schemes: The aim of Money Market Funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as Treasury Bills, Certificates of Deposit, Commercial Paper and Inter-Bank Call Money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are considered very low risk schemes.

2. Income schemes: The aim of Income Funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, TFCs, corporate debentures and Government securities. Income Funds aim to provide capital stability and regular income. These are considered low risk schemes.

3. Capital Protected schemes: The aim of Capital Protected Schemes is to earn a potentially high return than Money Market and Income schemes through some participation in equities, while providing principal protection.

4. Asset Allocation Schemes: The objective of Asset Allocation Funds is to generate regular income by investing in Debt & Money Market securities and to earn capital appreciation by investing in equity and equity related securities. Investment guidelines of this scheme are flexible to maximize the upside and protect the downside of the capital market movements.

5. Balanced schemes: The aim of Balanced Funds is to provide both growth and regular income. Such schemes invest both in equities and fixed income securities in the proportion indicated in their offering documents. These are ideal for investors looking for a combination of income and moderate growth. These are considered medium-risk schemes.

6. Equity schemes: The aim of equity funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. Growth schemes are ideal for investors who have a long term outlook and are seeking growth over a period of time. These are considered high risk investments.


All the above mentioned mutual fund schemes can either be managed in conventional manner or in a shariah compliant portfolio depending on investor's preference.

What are the benefits of investing in mutual funds?


There are many benefits of investing in mutual funds including the following:

  • Professional Management
  • Better return than conventional investment avenues
  • Diversification
  • Tax Benefit
  • Liquidity
  • One window operation
  • Regular income stream

 

What asset classes do different categories of mutual fund schemes invest in?


The Funds vary with respect to their objectives and types of eligible investments.

CATEGORY OF SCHEMES

DETAILS OF INVESTMENTS Money Market Income Balanced Equity Asset Allocation
Cash/T-Bills less than 90 days maturity 0%-100% 25%-100% 10%-70% 0%-30% 10-100%
Govt. Securities/ TDRs / Money Market Placements including COD/ COM/ Reverse Repo, Commercial Paper 0%-100% 0% - 75% 0% - 60% No 0-90%
CFS/ spread transactions No 0% - 40% 0% - 25% No 0-40%
TFCs/ Sukuks No 0% - 75% 0% - 60% No 0-90%
Listed Equities No No 30%-70% At least 70% on average 0-90%
Minimum Credit Rating Instrument AA BBB- A- Not Applicable BBB-
Minimum Credit Rating Bank/ DFI AA BBB- AA- Not Applicable BBB-
Minimum Credit Rating NBFC/ Modarba AAA BBB- AA Not Applicable BBB-
Time to Maturity of a single asset Max 6 Months No limit on time to maturity Not Applicable Not Applicable No limit on time to maturity
Weighted Average Time to Maturity of Fund Max 90 Days Max 4 years excluding Govt Securities Max 2 years (of non-equity assets) Not Applicable Max 4 years excluding Govt. Securities (of non-equity assets)

What are the names and characteristics of the Funds being managed by NAFA?

Sr. No. Name Type Launch Date
1 NAFA Income Opportunity Fund Income Fund April 21, 2006
2 NAFA Multi Asset Fund Balanced Fund January 19, 2007
3 NAFA Stock Fund Equity Fund January 19, 2007
4 NAFA Islamic Aggressive Income Fund Shariah Compliant Aggressive Income Fund October 26, 2007
5 NAFA Islamic Asset Allocation Fund Shariah Compliant Asset Allocation Fund October 26, 2007
6 NAFA Income Fund Income Fund March 29, 2008
7 NAFA Government Securities Liquid Fund Money Market Fund May 15, 2009
8 NAFA Savings Plus Fund Income Fund November 21, 2009
9 NAFA Riba Free Savings Fund Shariah Compliant Income Fund August 20, 2010
10 NAFA Asset Allocation Fund Asset Allocation Fund August 21, 2010
11 NAFA Financial Sector Income Fund Income Fund October 28, 2011
12 NAFA Money Market Fund Money Market Fund February 23, 2012
13 NAFA Islamic Principal Protected Fund II Shariah Compliant Capital Protected June 27, 2014
14 NAFA Government Securities Savings Fund Income Fund July 10, 2014
15 NAFA Islamic Principal Preservation Fund Shariah Compliant Fund of Funds January 9, 2015
16 NAFA Islamic Stock Fund Shariah Compliant Shariah Compliant Equity Fund January 9, 2015
17 NAFA Islamic Active Allocation Plan-I Shariah Compliant Fund of Funds January 15, 2016
18 NAFA Active Allocation Riba Free Savings Fund Shariah Compliant Income Fund January 18, 2016
19 NAFA Active Allocation Equity Fund Shariah Compliant Equity Fund January 18, 2016
20 NAFA Islamic Active Allocation Plan-II Shariah Compliant Fund of Funds March 04, 2016
21 NAFA Islamic Energy Fund Shariah Compliant Equity Fund April 21, 2016
22 NAFA Islamic Active Allocation Plan-III Shariah Compliant Fund of Funds June 28, 2016

How is investment in an Income Fund different from a Bank Deposit?

Bank deposit Investment in Income Fund
Return Return is low on current & savings deposits and is relatively high on term deposits. Return is the same for all investors whether they invest for a short or a longer period. This return is usually better than comparable bank deposits.
Income Tax Profit earned on bank deposits is subject to income tax. Withholding Tax @ 10% of the profit is deducted by the bank at the time of crediting the profit in your bank account for filers and 17.5% for non-filers. Return on investment in Mutual Fund comes in the form of capital gain (change in the value of the units purchased) which is subject to Capital Gains Tax (CGT) and dividends. For individuals, withholding tax @10% is applicable.
Tax benefit No entitlement for tax credit. Tax credit is available subject to limits in Income tax Ordinance, 2001.
Withdrawal of funds You can withdraw your money from a bank generally on the same day in a current/savings account, but you may have to pay a penalty if you withdraw funds from a term deposit. Investment in Income Fund can be withdrawn at any time you wish and there is no penalty. The money is transferred in your designated bank account generally in 2-3 days.

Are all NAFA Funds listed?


Yes, all NAFA Funds are listed on the Pakistan Stock Exchange.

What is the benefit of listing open end funds? What is Capital Gains Tax?


Under Section 62 of Income Tax Ordinance 2001.

Tax credits on investment is available on securities listed on stock exchange, listed funds are treated as listed securities and eligible for the credit and section 62 of Income Tax Ordinance 2001.

  • Capital Gains Tax (CGT) rate for individual is 10% for holding period up to four years. For NISF and NSF CGT rate for individuals is 12.5% for holding period up to four years if dividend receipt of the Fund are less than capital gain For holding period of more than 4 years CGT is exempt.
  • Tax rate on dividends for individuals is 10%. For NISF and NSF Tax rate on dividends for individuals is 12.5% if dividend receipt of the Fund are less than capital gain.


What is the difference between growth units and income units?


The basic difference is in the manner in which investment in the units of a Fund is redeemed (encashed).

In case of growth unit, the investment remains in the Fund until the investor submits a redemption form to encash part or whole of the investment.

In case of income unit, the investor opts to withdraw a certain amount at regular intervals. Income unit has two types i.e. Fixed Income Unit and Flexible Income Unit:

In case of Fixed Income Unit, the investor specifies a fixed amount to be redeemed and transferred in the investor’s bank account at regular intervals. (In case the amount of redemption exceeds the increase in investment value during each interval, the principal investment invested by the investor may deplete.)

In case of Flexible Income Unit, the investor authorizes the Management Company to redeem and transfer in the investor’s bank account, an amount equal to the increase in the investment value during each interval.

What is a Benchmark?


A benchmark represents the market in which the Mutual Fund invests money. The performance of the benchmark is considered to be the average performance of all the investors in that market. A Mutual Fund’s performance is compared with the benchmark in order to find out whether the Fund performed better than the market. All actively managed Funds try to perform better than their specified benchmarks.

What are the benchmarks for NAFA Funds?


Following table summarises the benchmarks for our Funds:

S#
Fund Name
Benchmark
1 NGSLF 70% 3-Month T-Bills & 30% average 3-Month deposit rates (AA & above rated banks).
2 NSPF Average 6-Month deposit rate (A & above rated banks).
3 NRFSF Average 6-month deposit rate of A- and above rated Islamic Banks.
4 NIOF 6-Month KIBOR.
5 NIF 6-Month KIBOR.
6 NIAIF Average 3-month deposit rate of Islamic Banks.
7 NAAF 1/3 of average 3-month bank deposit rate; 1/3 of 6-month KIBOR; 1/3 of KSE-30 Index.
8 NMF 50% KSE-30 Index & 50% 3-month KIBOR.
9 NIAAF Average of (i) average 3 months Islamic bank deposit rate (ii) 6 month KIBOR or its shariah complaint equivalent (iii) KMI-30 Index.
10 NSF KSE-30 Total Return Index.
11 NFSIF 70% 6-Months KIBOR & 30% average 3-months deposit rate (A & above rated banks).
12 NMMF Average 3-Month deposit rates (AA & above rated banks).
13 NIPPF-I Daily weighted return of KMI-30 index & Islamic Bank Deposits based on Fund’s actual allocation in the Equity & Money Market Components.
14 NIPPF – II Daily weighted return of KMI-30 index & Islamic Bank Deposits based on Fund’s actual allocation in the Equity & Money Market Components.
15 NGSSF 70% average 6-Month PKRV & 30% average 3-Month deposit rates (A+ & above rated banks)
16 NIPPF Daily weighted return of KMI-30 index & Islamic Bank Deposits based on Fund’s actual Proportion in the Equity & Money Market Components.
17 NISF KMI 30 Index

Is your company rated by any credit rating agency?


Yes, our company is rated “AM1” (Very High Quality) by PACRA (The Pakistan Credit Rating Agency Limited). This is the highest investment rating in Pakistan.

Are your funds rated by any credit rating agency?

  • PACRA has assigned a Fund Stability Rating of AAA(f) to NAFA Government Securities Liquid Fund.
  • PACRA has assigned a Fund Stability Rating of AA-(f) to NAFA Savings Plus Fund.
  • PACRA has assigned a Stability Rating of A (f) to NAFA Riba Free Savings Fund.
  • PACRA has assigned a Fund Stability Rating of A(f) to NAFA Income Opportunity Fund.
  • PACRA has assigned a Fund Stability Rating of A(f) to NAFA Income Fund.
  • PACRA has assigned a Fund Stability Rating of A-(f) to NAFA Islamic Aggressive Income Fund.
  • PACRA has assigned a Fund Stability Rating of A+(f) to NAFA Financial Sector Income Fund.
  • PACRA has assigned a Fund Stability Rating of AA(f) to NAFA Money Market Fund.
  • PACRA has assigned a Fund Stability Rating of AA-(f) to NAFA Government Securities Savings Fund
Can I invest in any currency?


Investment can only be made in Pak rupees.

Do you accept outstation cheques?


If the investor has a bank account outside the city of Karachi, we prefer to be paid by a pay order or a demand draft. However, cheques are also acceptable in such cases. The reason why we discourage outstation cheques is that it may take a few days to realize the payment.

Do you accept third party cheques?


Yes, we do accept third party cheques at the time of sale. If you are using a cheque of another individual at the time of your investment, than a third party declaration is also required (mandatory). For third party declaration please click here.

How do I invest in a Fund?


For detailed guidance on how to invest in NAFA Funds, please click here.

Is there any Insurance/Takaful Coverage on investment?

 

Yes. On investment or maintaining a minimum investment Balance/Value of Rs.100,000/- in mutual funds managed by NAFA, individuals (Principal account holders only) will be entitled to free of cost Accidental Death and Permanent Total Disability Insurance/ Takaful Cover equal to the investment value subject to a maximum of Rs.1,000,000/-.

 

How do I apply for redemption of units?

 

Request for redemption can be made by completing and submitting the prescribed Redemption Form (NAFA 03) and endorsing the relevant Unit Certificate, if issued. Unless requested, the unit certificate is not issued and the investor simply gets an account statement. In such cases, the applicant has only to complete the prescribed Redemption Form. The request for redemption would be honored after verifying the signature and other particulars of the Unit Holder.

 

Can a Unit Holder transfer the Units to another investor/account holder?


A Unit Holder may transfer any Units held by that Unit Holder to any other Account Holder by submitting a properly filled Transfer Form (NAFA 04).

Can a Unit Holder convert the Units from one Fund to another?


A Unit Holder may convert the units in one Fund into units of another Fund managed by the Management Company by submitting a properly filled Exchange of Units Form (NAFA 06). The Transfer Agent shall carry out the conversion after satisfying that all the requisite formalities have been fulfilled and payment of the applicable taxes, fees and/or load, if any, has been received.

Is there any tax incentive for investment in mutual funds?


There is an Income Tax rebate for individuals on investment in open end mutual funds. You can avail the tax credit if you retain the investment for twenty four months. Section 62 of the Income Tax Ordinance 2001 provides a tax rebate on investment in new units at applicable rate of tax to the extent of 20% of taxable income OR Rs.1,000,000 OR the amount of investment, whichever is lower.

Will zakat be deducted at source?


Yes, zakat will be deducted at source unless Zakat exemption declaration form (CZ-50) is submitted with the transfer agent.

What is sales load?


Open-end funds recover a sales charge (called sales load) from unit/ share holders. Sales load is a certain fixed percentage of Net Asset Value per Unit. Some mutual funds recover the sales load when investors purchase the units (Front End Load), whereas others do when investors redeem (encash) the units (Back End Load). Mutual funds generally do not charge sales load on reinvestment of dividend. The shorter the period of investment, the greater will be the impact of the sales load. Maximum benefit can be derived from mutual fund investment by regularly investing, reinvesting the dividend and holding the investment for a longer period.

 

Is there any purchase fee (front- end sales load) on NAFA funds?

Name of Fund Front end load
NAFA Government Securities Liquid Fund None
NAFA Savings Plus Fund Front end – Without Life Insurance:0.5%, with life Insurance 3%(Nil on Investment above Rs. 16 Million), Back end load -0%
NAFA Income Opportunity Fund Front end – 1% (Nil on investment amount equal to or more than Rs.16 million), Back end - 0%
NAFA Income Fund Front end - 1% (Nil on investment amount equal to or more than Rs.16 million), Back end - 0%
NAFA Islamic Aggressive Income Fund Front end - 1% (Nil on investment amount equal to or more than Rs.16 million), Back end - 0%
NAFA Multi Asset Fund Front end - 3% (Nil on investment amount equal to or more than Rs.50 million), Back end - 0%
NAFA Islamic Asset Allocation Fund Front end - 3% (Nil on investment amount equal to or more than Rs.50 million), Back end - 0%
NAFA Stock Fund Front end - 3% (Nil on investment amount equal to or more than Rs.50 million), Back end - 0%
NAFA Riba Free Savings Fund Front end – Without Life Takaful:0.5%, with life Takaful 3%(Nil on Investment above Rs. 16 Million), Back end load -0%
NAFA Asset Allocation Fund Front end - 3% (Nil on investment amount equal to or more than Rs.50 million), Back end - 0%
NAFA Financial Sector Income Fund Front end - 1% (Nil on investment amount equal to or more than Rs.16 million), Back end - 0%
NAFA Money Market Fund Front end – Without Life Insurance:0.5%, with life Insurance 3%(Nil on Investment above Rs. 16 Million), Back end load -0%
NAFA Government Securities Savings Fund Front end – 1% (Nil on investment amount equal to or more than Rs.16 million), Back end - 0%
NAFA Islamic Stock Fund Front end – 3% (Nil on investment amount equal to or more than Rs.50 million), Back end - 0%

Is there any encashment fee (back-end load) on NAFA funds?

 

There is no back end load on any of NAFA Funds’ units

 

Can I borrow against investment in units? (Pledge of Units)

 

Yes. The following procedure will be involved:

The investor has to fill out the Pledge Form (NAFA 05) available with us and submit it to the respective bank.

The bank will send that form to Transfer Agent to mark lien on the units.

The Transfer Agent will mark lien on the units and inform the bank.

The bank then, subject to its own conditions, releases the loan.

The loan amount will vary based on the type of Fund you are invested in.

 

How are units priced?


The unit is priced based on the NAV (net asset value). Normally units are offered to the public at a price equal to NAV per unit plus sales load. The sales load is a certain %age of NAV per unit.