How to invest in mutual funds in Pakistan?

zakir abbas
4 min readMar 6, 2022

The best investment is useless if they don’t assist you in achieving your objectives. It’s a good fund if it meets your requirements. As a result, selecting a fund is a very personal decision that must assist you in achieving your long-term financial objectives. The following is a step-by-step guide to investing in mutual funds in Pakistan.

The first step in deciding to invest in mutual funds is to gain a better understanding of the general economy. Investors are likely to be interested in the GDP growth rate since it provides an overall indicator of the economy’s relative performance — both historically and in terms of future expectations. While both stock market returns and GDP growth are expected to be influenced by overall economic activity, the relationship between GDP and stock market returns is less obvious. The stock market reflects investors’ expectations for the success of firms in the index as well as their views on the prospects for certain sectors or the general economy, whereas GDP is driven by the impact on consumer and investment expenditure. As a result, the GDP growth rate provides an indication of the economy’s relative success over time, but there is no conclusive evidence that GDP growth affects stock market returns in the short run. A specific level of GDP growth is frequently included in stock market values. If GDP growth continues at its current rate, the returns will be unaffected. Short-term stock market returns may be more dramatically impacted when the economy is subjected to shocks and GDP under (or over) performance. Long-term investors, on the other hand, might use the anticipation of future GDP growth to help them formulate investment strategies. Long-term stock market investors are more concerned with changes in market valuations, such as the price/earnings (P/E) ratio, as well as growth in the fundamental components (fundamentals) of shares, such as corporate earnings per share and dividends per share. There is evidence that trends in these fundamentals have a stronger association with GDP growth.

Any investor’s second step to effective investing is to define his risk tolerance and develop a clear understanding of his projected return from the investment. This will help him pick a good investment.

Investors must set financial goals based on the investment’s requirements and the time horizon for achieving these goals. Goals could be short-term, such as saving for a down payment on a house, paying for a wedding, or putting money aside for college. Paying for college or retirement are examples of long-term ambitions. Setting goals will help you figure out how much money you need to invest, how much money the investments must earn, and when you’ll need the money.

Investors must research the financial markets in order to comprehend their possibilities and estimate a realistic market expectation of future performance.

In the third step , setting reasonable investment and market performance expectations is an important aspect of the investing strategy. Securities do not always increase in value, and when they do, the declines might belong. A well-designed, diversified personal investment plan can help protect against market downturns and provide some relief during periods of market volatility.

Investors must plan their investments with liquidity and financial constraints in mind. Investors, for example, may be required to make payments in the near future, preventing them from committing big sums of money for an unlimited period of time.

All mutual funds carry investment risk, including the possibility of losing money. A certain amount of risk is unavoidable in order to create some profits. The risk/reward tradeoff is the name for this financial principle. As a result, fourthly the investor must first determine his risk tolerance levels before formulating a strategy. Is it more vital to have stability than to have larger returns, or may short-term losses be borne in exchange for potential long-term gains? Following these principles, investors should be able to define risk and return targets. Risk and return targets must be defined in particular terms. For example, an investor may want a 15% annual return with a standard deviation of 2% over the next five years .

Disclaimer: This guide on investing in mutual funds in Pakistan is not intended to be comprehensive; investors should perform more research before investing in mutual funds.

Originally published at https://www.ssaazs.com.

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zakir abbas

I am an ex-professor of Bahria University Karachi. My specialty is Finance, Portfolio Management, Investment Banking; Commercial Banking, Economics.