How to invest in mutual funds in Pakistan

Step 1: Decide what the money is for

Your goal decides the type of fund. Money you may need within a year, or an emergency fund, suits an Islamic money market fund. Goals two to three years away suit an Islamic income fund. Money you can leave for five years or more can go into an Islamic equity or asset allocation fund, which has higher returns over time but can fall sharply in some years.

Step 2: Shortlist and compare funds

Within the right category, compare funds on total return with payouts over one, three and five years, not on NAV, which says nothing about performance. Check the fund’s sales load and expense ratio in its fund manager report.

Step 3: Open an account with the asset manager

You invest with the fund’s asset management company (AMC), not with MUFAP or a stock broker. Most AMCs offer online account opening on their website or app, and you can also apply at their branches or through a partner bank.

• Keep your CNIC (or NICOP for overseas Pakistanis) and a bank account in your name ready.
• Fill in the account-opening and KYC form with your contact, income and source-of-funds details.
• Complete the risk-profile questionnaire, which tells the AMC which funds suit you.
• Choose how you want payouts: in cash to your bank account, or reinvested as extra units.
• Verify your identity as asked, often through biometric or video verification.

Step 4: Make your investment

Transfer the amount from your own bank account to the fund’s account by online banking (IBFT or Raast where offered) and submit an investment request with the payment proof, or invest directly in the AMC’s app. Minimum amounts are low for most funds; check the offering document.

Your units are issued at the price for the day your request and payment are received before the fund’s cut-off time. The number of units equals your amount divided by that price.

Step 5: Set up a monthly SIP (optional)

A systematic investment plan (SIP) invests a fixed amount every month, usually by standing instruction from your bank. It builds the habit and spreads your purchases over different prices.

Step 6: Track and redeem

Each fund publishes its NAV every business day, and the AMC sends account statements. To withdraw, submit a redemption request online or by form. Money market and income funds usually pay out within one or two business days, equity funds within a few business days. Some funds charge a back-end load if you redeem early.

Investing from abroad

Overseas Pakistanis can invest through a Roshan Digital Account, which many AMCs accept, or open an account directly with an AMC using a NICOP. Returns and redemptions are paid back to your Roshan Digital Account.

Tax in brief

Payouts and capital gains from mutual funds are taxed, and the rate is lower for active tax filers. Voluntary pension scheme contributions may qualify for a tax credit. Rates change with each budget, so check current rules with your AMC or a tax adviser.