PORTFOLIO MANAGEMENT
Topic: 1. Investment Regulations in Pakistan
2. Investment in Capital Marlets
3. Establishment of Investing companies in Pakistan
Submitted By:
Sana Riaz(0185)
MCOM 1A
DEDICATION:
We like to dedicate our work to our teacher Sir. Ahsan Qasim and the
people, who helped us in our project.
A
CKNOWLEDGEMENT:
First of all, we are grateful Allah Al-mighty who gave us ability to
accomplish this project. The completion of this project is a matter of
pleasure for us but it was not possible without the support of our teacher,
infact a mentor, Mr. Ahsan Qasim , for he has provided us the useful
knowledge of subject of Human Resource Management. So, we are thankful
to our Sir Ahsan Qasim. We are thankful to our parents also who helped and
supported us.
3rd -February-2014
Authors
Table of contents
Rules For Local And Foreign Investment In Pakistan: ................................................................................... 5
1.
Board Of Investment ......................................................................................................................... 5
2.
State Bank Of Pakistan ..................................................................................................................... 5
3.
Security And Exchange Commission Of Pakistan ............................................................................ 5

Investment Division: ..................................................................................................................... 5

Investment Banks : ........................................................................................................................ 5
Regulatory Framework For Investment In Pakistan ................................................................................. 6
Investment Policies ................................................................................................................................... 6
1.
Agriculture .................................................................................................................................... 6
2.
Construction & Housing ............................................................................................................... 7
3.
Textile ........................................................................................................................................... 7
4.
Financial Services ......................................................................................................................... 8
5.
It & Telecom Sector ...................................................................................................................... 8
6.
Energy (Power, Oil & Gas) ........................................................................................................... 8
Foreign Investment In Pakistan ................................................................................................................ 9
Investment In Capital Markets Of Pakistan: ............................................................................................... 10
Instrument Of Capital Market In Pakistan .............................................................................................. 10
Stock Exchanges As Participant In Capital Market ................................................................................ 10
Foreign Investor - Specific: .................................................................................................................. 10
Local Investor Specific: ........................................................................................................................ 11
General:............................................................................................................................................... 11
Establishment Of Investment Management Companies In Pakistan ......................................................... 16
Regulation Of Business Of Investment Management Companies: ......................................................... 16
Investment Management Companies Rules 1995: .................................................................................. 16
Investmen Management Companies ....................................................................................................... 17
Mutual Funds Association Of Pakistan ............................................................................................... 18
Pakistan Pension Fund (Ppf) ............................................................................................................... 18
Hedge Fund ......................................................................................................................................... 18
Types Of Hedge Funds ...................................................................................................................... 19
Investment Banks Of Pakistan ............................................................................................................ 19
RULES FOR LOCAL AND FOREIGN INVESTMENT
IN PAKISTAN:
Investment in Pakistan can be made through following channels:
1. Board of Investment
2. Security and Exchange Commission of Pakistan
3. State Bank of Pakistan
1. BOARD OF INVESTMENT
Board of Investment (BOI) is the investment promotion agency of Pakistan. The Board of Investment
assists companies planning to invest in Pakistan or to expand their Pakistani operations.
.Following are some rules regarding investment.
2. STATE BANK OF PAKISTAN
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Investment in Treasury Bills
Investment In Bonds
3. SECURITY AND EXCHANGE COMMISSION OF PAKISTAN
The Securities and Exchange Commission of Pakistan (SECP) is the financial regulatory agency
in Pakistan whose objective is to develop a modern and efficient corporate sector and a capital
market based on sound regulatory principles, in order to encourage investment and foster
economic growth and prosperity in Pakistan

Investment Division:
This division primarily facilitates implementation and compliance of policy of the
Government for investments in Pakistan and abroad.

Investment Banks :
The SCD will facilitate consolidation in the NBFC sector through mergers and
acquisitions in order to enhance risk absorption capacity of investment banks. The
SCD is in the process of initiating necessary consultations with the various
stakeholders for bringing further improvements to the investment banking model. The
SCD will also urge the investment banking community to broaden its horizon of
activities by providing non-fund financial services.
Regulatory Framework for Investment in Pakistan
Pakistan’s investment policy has been formulated to create an investor-friendly environment
with a focus on further opening up the economy and marketing the potential for direct foreign
investment. Various incentives have been offered to attract foreign investment including full
repatriation of capital, capital gains, dividends and profits. Furthermore, according to various
economic commentators, Pakistan has the most liberal investment policy regimes and publicprivate partnership frameworks in the entire South Asian region. Legal protection to investment
Foreign investment in Pakistan is fully protected by following Acts:
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Foreign Private Investment (Promotion & Protection) Act, 1976.
Protection of Economic Reforms Act, 1992.
INVESTMENT POLICIES
In order to protect and stimulate investment (both local & foreign) in Pakistan,
specific investment policies and procedures have been designed for individual
sectors. Investment policies specific to the major sectors operating in the country
are summarized below :
1. Agriculture
Salient features for Corporate Agriculture Farming (CAF):
 Only such companies (foreign and local) will be entitled to CAF that are
incorporated in Pakistan under the Companies Ordinance, 1984.
 State land can be purchased or leased for 50 years through open auction,
extendable for another 49 years.
 All banks and financial institutions will earmark separate credit share for CAF.
 Exemption of duty for transfer of land for CAF.
 Dividends from CAF are not subject to tax.
 Raw material for manufacture of agricultural pesticides can be generally imported
at zero-percent rate of customs duty.
 Plant & machinery, equipment and vehicles meant for agriculture, harvesting,
diary, livestock, poultry, agro-based industries, horticulture and floriculture, etc.
under SRO 575(I)/2006 can be imported at zero-percent rate of customs duty.
2. Construction & Housing
National Housing Policy – 2001
 Housing and construction companies shall be charged via Presumptive Tax
Regime which shall not exceed 1% on yearly receipts.
 Stamp duty / registration fee, for the housing mortgage has been rationalized.
 All new construction of houses on plots measuring up to 150 sq. yards and flats
having an area of 1,000 sq. feet, have been exempted from all types of taxes for a
period of 5 years.
 Banks and DFIs shall extend credit facilities for balancing, modernization and
replacement (BMR) of machinery used for housing and construction industry.
 Import of plant and machinery and spares by the housing and construction
companies, not manufactured locally, shall be exempted from custom and import
duties in excess of 10%.
3. Textile
Textile Policy 2009-14
1. Textiles Investment Support Fund (TISF) will be established under the ambit of
the policy.
2. Measures proposed for financing from the TISF include;
 export refinance available at 5%.
 long term loans will be converted on the pricing applicable to LTTF.
scheme, together with a grace period of one year on both existing and
converted facilities, without the facility of refinancing.
 to settle the past claims under R&D scheme of 2007-08, allocation of
PKR5.4 billion for the purpose by GoP.
3. GoP will contribute part of the investment financing or part of the investment
cost through the Technology Up-gradation Fund.
4. The policy will focus on certain sub-sector issues from fibre to garments
including ginning, spinning, weaving, knitting, processing, fashion designs,
handloom and handicrafts, carpets, technical textiles etc.
5. The policy offers duty drawbacks of between 1% and 3% for a two-year period
for value-added textile exports.
6. All textile machinery imports will be zero-rated to encourage new
investments.Import duty on raw material, sub components and components used
in local manufacturing of textile plants and machinery, has been reduced to zero
percent.
4. Financial Services
1. SBP allows complete freedom of investment and repatriation of profits /
dividends / disinvestment proceeds to the foreign investors in line with the
overall investment policy.
2. As per the Foreign Exchange Regulations, any foreign investor can invest in
shares / securities listed on Stock Exchanges in Pakistan, and can repatriate
profits / dividends or disinvestment proceeds. The investor has to open a
Special Convertible Rupee Account with any bank in Pakistan, in order to
make such portfolio investments.
5. IT & Telecom Sector
Specific licenses are required from respective authorities e.g. in order to start
the cellular operation network, a license needs to be obtained from Pakistan
Telecommunication Authority.
6. Energy (Power, Oil & Gas)
1. The energy industry is regulated by the Policy for Power Generation Projects
2002, Policy for Development of Renewable Energy for Power Generation
2006 and Petroleum Exploration & Production Policy 2009.
2. Customs duty at the rate of 5% applicable on import of plant, machinery &
equipment not manufactured locally for power generation projects whilst
zeropercent customs duty applies on plant, machinery and spares imported by
power generation projects under nuclear and renewable energy sources like
solar, wind, micro-hydel bio-energy, ocean, waste-to-energy, hydrogen cell etc.
3. For power projects above 50MW one-window support to be provided at the
federal level. For projects below or up to 50MW support to be provided at the
respective provincial level.
4. Royalty will be payable at the rate of 12.5% of the value of petroleum at the
field gate.
5. Local petroleum companies are encouraged to establish joint ventures with
foreign concerns.
6. Import of equipment related to the petroleum & refining sectors allowed on
concessionary rates.
7. The lube industry has been deregulated.
Foreign Investment in Pakistan
Foreign direct investment (FDI) refers to long term participation by a country A into country B
(in this case Pakistan) . It usually involves participation in management, joint-venture, transfer of
technology and expertise. There are two types of FDI: inward foreign direct investment and
outward foreign direct investment, resulting in a net FDI inflow (positive or negative).
HOW CAN A FOREIGN INVESTOR INVEST HIS FUNDS?
The foreign direct investor may invest in by any of the following methods in Pakistan:


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by incorporating a wholly owned subsidiary or company, by acquiring shares in
an associated enterprise
through a merger or an acquisition of an unrelated enterprise
participating in an equity joint venture with another investor or enterprise
Pakistan has a very liberal policy on repatriation for foreign direct investors,
therefore, investing in Pakistan may give a foreign direct investors the following added
advantages.








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Remittance of royalty, technology and franchise fee is allowed to projects in
social, service, infrastructure, agriculture and international chains food franchise.
Minimum share of the local (Pakistani) partner in a joint venture will be 60:40 for
the service sector. However, 100% foreign equity can be owned for first 5 years.
The FBR (Federal Board of Revenue) will not question as to the source of
investment; however, the FBR will only want to know whether the investor has
paid requisite Income Tax on that specific investment. The FBR will not inquire
into the source of the funds.
Foreign investors are allowed to invest in industrial project on 100% equity basis
without any permission from the government.
There is no requirement for a No Objection Certificate from the Provincial
Government.
In addition to manufacturing sector foreign investment on a repatriate-able basis
is allowed in services, infrastructure and social sectors.
Full repatriation of capital gains, dividends and profits.
The facility for contracting foreign private loans is available to all those foreign
investors who make investment in the approved sectors.
Foreign controlled manufacturing concerns are allowed to borrow on the domestic
market according to their requirements.
Foreign controlled semi-manufacturing and non-manufacturing concerns can
access loans equal to @ 75% & 50%, respectively, of their paid up capital
including reserves.

BOI’s (Board of Investment) approval is not required for foreign companies to
open a bank account.
INVESTMENT IN CAPITAL MARKETS OF
PAKISTAN:
The capital market collects funds from surplus sectors and channels it to those who are in need of
finance. Competitive forces in the capital markets form the basis of efficient working of financial
intermediation. However in the developing countries the facility for raising industrial and
commercial capital is either absent or rudimentary in the latter.
Instrument of capital market in Pakistan
There are five types of instrument available in the capital market, namely:
• Corporate Bonds
• Federal Investment Bonds (FIB)
• Equities
Stock exchanges as participant in capital market
Stock exchange is an organised market that provides the facility of centralised trading in
Securities for the institutions as well as general public. The investors in this market can earn or
lose capital gains on their purchased securities in addition to dividends paid by the issuing
companies. The stock exchanges today form an integral part of a country's capital market. They
are important for capital formation as they create marketability for the initially issued securities
by providing a secondary market for trading.
1. Karachi Stock Exchange
2. Lahore Stock Exchange
3. Islamabad Stock Exchange
Foreign Investor - specific:
1. The foreign investors are freely allowed to operate in the capital market without
any retention period.
2. There are no restrictions on the extent of foreign ownership stake and no limitfor
holding the shares for trading purposes.
3. Funds invested in the capital market are freely transferable alongwith
dividendincome.
4. Foreign investors are treated at par with local investors in tax treatment.
Local Investor specific:
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Capital gains on sale of listed securities are exempt from income tax up
to theyear 2010. This exemption is available since 1974.
The dividend is subject to withholding tax at 10%
Divedend income is taxed as separate blocj of income in the hands of individual
stakeholders.
Any income derived from TFC’s is subject to income tax with effect from income
year 2001-2002.
General:
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Listed companies are toned at 35%.
Provident finds can now invest in approved listed securities. They are also allowed
to invest in open end mutual funds established under the Asset Management
Companies Rules 1996.
No. turnover tax is payable by companies on their turnover representing
transactions in securities listed on stock exchanges.
RULES & REGULATIONS GUIDANCE
a) Capital Markets And Securities Act [PRINCIPAL LEGISLATION]Acts Nos.5 of
1994 :
An Act to establish a Capital Markets and Securities Authority for the purposes of
promoting and facilitating the development of an orderly, fair and efficient capital
market and securities industry in Tanzania, to make provisions with respect to stock
exchanges, stockbrokers and other persons dealing in securities, and for connected
purposes.
b) Capital Markets and Securities (Foreign Companies Public Offers Eligibility and
Cross Listing Requirements) Regulations, 2003. :
These Regulations may be cited as the Capital Markets and Securities (Foreign
Companies Public Offers Eligibility and Disclosure Requirements) Regulations,2003
and shall come into effect from 21st May,2003
c) Capital Markets and Securities (Foreign Companies Public Offers Eligibility and
Cross Listing Requirements) Regulations, 2003 [as amended in 2005]:
These Regulations provide for the participation in the capital markets by foreign
issuers of securities, in terms of the eligibility criteria and the disclosure requirements
for such companies to make public offers or cross list at the DSE.
d) Capital Markets and Securities (Foreign Investors) Regulations, 2003:
These Regulations set out the limit of aggregate securities to be held by foreign
investors. These Regulations also prescribe the manner and conditions under which
foreign investors will participate at the DSE, the mechanism by which the Authority
can monitor observance of the prescribed limits by the DSE and Central Depos
e) Capital Markets and Securities (The Capitalization and Rights Issue)
Regulations, 2000:
These Regulations set out the disclosure requirements that an issuer is obliged to
comply with during capitalization by way of Rights Issue.
f) Capital Markets and Securities (Collective Investment Schemes) Regulations,
1997:
To supplement the Capital Markets and Securities Act, these Regulations make
detailed provisions relating to the roles of managers, trustees, schemes, trust deeds,
pricing, issue and redemption of units / shares and other relevant matters.
g) Capital Markets and Securities (Conduct of Business) Regulations, 1997:
The Conduct of Business list rules on conduct including inducements, churning,
customer right, confidentiality, charges, execution in addition to the conduct of
business provisions provided in the Capital Markets and Securities Act.
h) Capital Markets and Securities (Advertisements) Regulations, 1997:
These Regulations relate to the vetting of securities advertisements by the Authority
and it provides for a number of conditions that have to be met by advertisers in the
securities business. Conditions include the requirement for the content and
presentation of the advertisement. The advertisement has to be factual, that is
comparison or contrasting of investment should not be done unless it is fair, or it
should not contain unfair or otherwise misleading matters or it should not exaggerate
the success or performance of the company.
i) Capital Markets and Securities (Accounting and Financial Requirements)
Regulations, 1997:
These Regulations provide for the maintenance of accounting records (including audit
trail), preparation of the annual financial statements as well of treatment of customer
money in accordance with the law (i.e. in trust for the client). These Regulations were
amended in 2003 to include provisions for penalties in case of non-compliance on the
part of dealers. These Regulations supplement provisions on accounts and audit,
which are contained in the Capital Markets and Securities Act.
j) Capital Markets and Securities (Prospectus Requirements) Regulations, 1997:
These Regulations supplement the general provisions on public issues of securities
which are contained in the Capital Markets and Securities Act. The prospectus is an
important document which is required where a public offer is being made. The items
required to be included in the prospectus are listed in the Regulations. These include
matters to be stated in the first page of the prospectus. Others include information on
the right of holders, information on bankers, capital of the issuer, debt of the issuer,
any material contracts, the use of the proceeds from the issue etc.
k) Capital Markets and Securities (Licencing) Regulations, 1996 :
These Regulations set out the procedures to be complied with by the applicants for
licencing for example dealers, investment advisers or their representatives. The
requisite application forms are prescribed in the Regulations. General conditions
relating to licences once obtained are also provided for, including the provision that
the licence shall be personal to the applicant and the requirement for a licencee to
inform the Authority (by written notice) of any relevant alterations.
l) Capital Markets and Securities (Establishment of Stock Exchange) Regulations,
1996:
These Regulations provide for procedures for the establishment of a Stock Exchange.
Applications for establishment of a Stock Exchange are to be made by a corporate
body to the Authority, which grants approval subject to certain conditions, and will
continue to regulate the stock exchange once it is approved.
m)Capital Markets and Securities (Registers of Interests in Securities) Regulations,
1996:
Certain market players are required by the Act to maintain a register in the prescribed
form of the securities in which he / she has an interest. These Regulations therefore
include the prescribed forms as well as a provision for varying of the form of register
by the Authority where necessary. The registers of interest in securities enable
transactions to be easily traceable by the Authority and other interested parties thus
providing the requisite transparency in securities transactions.
n) Capital Markets and Securities Authority Enforcement Guidelines, 2004:
These Guidelines set out the practices and procedures to be followed by the CMSA
when conducting investigations or inquiries where there is breach of the law by
market participants or otherwise.
o) Capital Markets and Securities Scheme of Service, Staff Regulations and Code of
Conduct, 2003:
In February 2003, the Authority approved the Capital Markets and Securities
Authority Scheme of Service, Staff Regulations and Code of Conduct to among other
things guide the affairs of its staff, carrying out staff procedures and to set out criteria
governing salary entry points, the mode of movement from entry point to retirement
and the criteria for movement.
p) Capital Markets and Securities (Conflict of Interest) Guidelines, 2002:
These Guidelines include general principles on conflicts of interest, the policy on
employees’ interests, securities transactions by employees and Authority members,
treatment of gifts and consequences of default.
q) Capital Markets and Securities (Corporate Governance) Guidelines, 2002:
These Guidelines aim at improving and strengthening corporate governance practices
by issuers of securities through the capital markets and promote the standards of selfregulation so as to raise the level of governance in line with international trends.
r) Guidelines for the Issuance of Corporate Bonds and Commercial Paper, 1999:
These Guidelines set out the disclosure requirements that an issuer is obliged to
comply with when applying for issuance of a Corporate Bond or a Commercial Paper.
t) Capital Markets and Securities (Custodian Securities) Regulations, 2006: These
regulations may be cited as the Capital Markets and Securities (Custodian of
Securities) Regulations, 2006.
u) The capital markets and securities (collective investment schemes real estate
investment trusts) rules, 2011:
These Rules may be cited as the Capital Markets and Securities (Collective
Investment Schemes) (Real Estate Investment Trusts) Rules, 2011.
ESTABLISHMENT OF INVESTMENT MANAGEMENT
COMPANIES IN PAKISTAN
An asset management company is a company registered under the Companies Act, 1956. The Sponsor
creates the asset management company and this is the entity, which manages the funds of the mutual fund
(trust). The mutual fund pays a small fee to the AMC for management of its fund. The AMC acts under
the supervision of Trustees and is subject to the regulations of SEBI.
Regulation of Business of Investment Management Companies:
The business of Investment Management Companies shall be regulated in such manner
and on payment of such fees and charges as may be prescribed in the rules. Section 32
and 33 of the Securities and Exchange Ordinance 1969 deals with the Investment
Management Companies.
Investment Management Companies Rules 1995:
The Federal Government is empowered to make the following rules to regulate the
business of Investment Management Companies.
1. Commencement of Business:
According to Rule 3 of Investment Management Companies Rules 1995, no
company shall commence business as Investment Management Company unless it
is registered with the Authority under these rules. The authority is Securities and
Exchange Commission of Pakistan.
2. Eligibility for Registration:
A company proposing to commence business as an Investment Management
company shall be eligible for registration under these rules if,1. It is registered as a public limited company under the Companies
Ordinance, 1984 (XLVII of 1984);
2. has a paid up capital of not less than thirty million rupees;
3. No director, officer or employee of such company has been convicted
of fraud or breach of trust;
4. No director, officer or employee of such company has been
adjudicated as insolvent or has suspended payment or has compounded
with his creditors; and
3. Registration:
Under rule 5, a company eligible for registration may make an application to the
Authority for registration under these rules.
1. Application processing fee of fifty thousand rupees in the form of bank draft
payable to the Commission shall accompany the application.
2. The Authority may, after satisfying itself that the applicant is eligible for
registration and that it would be in the interest of the capital market so to do, grant
a certificate of registration to such company.
INVESTMEN MANAGEMENT COMPANIES
The investment company sells shares to the public and invests the proceeds into a diversified
portfolio of securities  A Mutual Fund is one type investment company.•
Mutual funds association of pakistan
Mutual Funds Association of Pakistan is the trade body duly licensed by the Government of Pakistan for
the mutual fund industry in Pakistan. All Asset Management Companies (AMCs) and Investment
Advisory ( IAs ) licensed by SECP to launch Mutual Funds and perform Investment Advisory Services
are required under NBFC Rules 2008 to become Members of MUFAP.
1. Mutual fund industry in Pakistan witnessed an era of rapid growth since FY2002
with an average growth rate of about 57% for the period FY2002- FY2008.
2. Net Assets reached the highest ever level of about PKR425 billion in April
FY2008 when the stock market was at its peak.
3. The mutual funds sector has grown rapidly in the last few years and has accounted
for the largest segment (more than 50%) in total assets of the nonbank financial
sector in FY2008.
Types of Mutual Funds:


Open ende mutual funds which continually create new units or redeem issued
units on demand. They are also called Unit Trusts.
Close ended mutual funds have a fixed number of shares like a public company
and are floated through an IPO. Once issued, they can be bought and sold at the
market rates in secondary market (Stock Exchange). The market rate is announced
daily by the stock exchange
Pakistan Pension Fund (PPF)
Pakistan Pension Fund (PPF) constituted under the voluntary pension system Rules 2005 is a
savings cum – investment scheme with customized investment choices.
The investor has a choice between various allocation schemes, that PPF offers each of which is
invested in different proportion in the three sub funds i.e Equity; Debt and Money market.
The investment objective of the fund is to seek steady returns with a moderate risk for investors
by investing in a portfolio of equity, short medium term debt and money market instruments
Hedge Fund
An aggressively managed portfolio of investments that uses advanced investment strategies such
as leveraged, long, short and derivative positions in both domestic and international markets with
the goal of generating high returns (either in an absolute sense or over a specified market
benchmark).
Legally, hedge funds are most often set up as private investment partnerships that are open to a
limited number of investors and require a very large initial minimum investment. Investments in
hedge funds are illiquid as they often require investors keep their money in the fund for at least
one year.
Types of Hedge funds

Open-ended hedge funds continue to issue shares to new investors and allow periodic
withdrawals at the net asset value ("NAV") for each share.

Closed-ended hedge funds issue a limited number of tradeable shares at inception.
Investment Banks OF Pakistan
1 Escorts Investment Bank Limited.
2 First Credit & Investment Bank Limited.
3 First Dawood Investment Bank Limited.
IGI Investment Bank Limited. (Formerly Ist. International Investment Bank
4
Limited.).
5 Innovative Investment Bank Limited.
6 Security Investment Bank Limited.
7 Trust Investment Bank Limited.
REFERENCES:
1. http://investinpakistan.org/investment-laws.php
2. http://www.tahseenbutt.com/investment_in_pakistan.html
3. http://www.state.gov/e/eb/rls/othr/ics/2012/191214.htm
4. http://www.secp.gov.pk/Services/laws_policies.asp (About SECP)
5. http://www.cmsa-tz.org/lagislation/rules_%20regulations.htm
6. http://www.pakistaneconomist.com/issue2000/issue10/f&m.htm
7. http://www.sbp.org.pk/ecib/members.htm
8. http://www.finglobe.com/sasia/list/pakistan/investment_banks_investment_co1.htm
9. http://www.svtuition.org/2010/04/list-of-mutual-funds-in-pakistan.html
10. http://www.fma.com.pk/NBFC.aspx
11. http://masoodandmasood.com/mm-business-solutions-pakistan/foreign-investments-inpakistan-law-invest-business/
12. http://mcbah.com/pension_funds/pakpensionfund.aspx