Investors Relations

Before committing yourself as an investor to any investment, it is imperative that one should have clear and identifiable Objective and Constraints (Investor self profiling). Doing so ensures that the investor commits his/her funds in the most rational manner. Actually most of us haven’t actually started framing an IPS (Investment Portfolio Statement) for our self at all. We are driven by thoughts like:

• Do we need to do this?
• Can’t we directly jump into trading without all this?
• This only works for sophisticated investors and not for us

We all should devote some of our investing time in framing the individual IPS (or get someone do it for us). We are here to give an over view only to the different ingredients of what goes into making a good IPS and how is it useful to all of us.

To state it in one line, IPS is a document which identifies one’s Investment Objectives and Constraints. Why are you investing? What are your goals? How much risk can you bear?

Once you understand the purpose, IPS will sound more Relevant and Interesting to you. It’s more Process Oriented, Less Mathematical and No Formula or Technicalities. Basically it summarizes the relevant fact and concludes the investment strategy of one self.

MAIN INGREDIENTS OF IPS:

• 1. IPS Objectives (Risk and Return)

  As a Return Objective you should list down your required (more priority goals) and desired objectives. Goals like having a retirement, child’s education, child’s marriage etc. has to be noted down. Also, the Risk Tolerance has to be noted down, Risk in terms of both Ability and Willingness.

  To understand risk you have to do “situational profiling” of yourself and it’s done by understanding your biases, preferences and perceptions.

  • Active Wealth creator has higher willingness towards risk
  • If perceived self wealth is more, one will take more risk
  • Stage of Life also matters

  Risk and return goes hand in hand. If you can’t take more risk, you can’t get more returns. This does not mean you have to take lot of risk. The only point is your Return objective has to match your willingness and ability to take risk.

  Objectives should also be consistent with Capital Market expectation (Economic forecast and its effects on different sectors/industries of the economy) and one’s constraints.

• 2. IPS Constraints (Time, Liquidity, Tax, Legal and Unique)

  You should list down different constraints under which the investments have to be made, as they are more likely to limit your risk taking abilities and in turn hamper the return objectives. Different individuals face different types of Constraints and they have been grouped into different categories like, Time Constraint, Liquidity Constraint, Tax Constraint, Legal Constraint and Unique Constraints.

  • Time Constraint (How much is timeframe of the investment): This is critical because if we have a longer time frame, we do not have to worry about the short term market fluctuations and can concentrate on more long term investments. The age of the individual is one of the factors which determine his/her time constraint.
  • Liquidity Constraint: It determines how much dependent; the individual is on the Investment. Does he/she have sufficient emergency reserve or other sources of income to meet the ongoing and or sudden fund requirements?
  • Tax, Legal and Unique Constraints: Similarly Client should be aware of the before and after tax returns from the investment, the Legal constraint under which he/she can make investment and any specific Unique Constraint he/she may be subject to.

  It’s better to approach IPS in a reverse order, meaning first analyze your constraints, then the risk tolerance and then the return objective. Because Constraint affects your risk tolerance and which affects the Return objective.

Products in Stock Markets:

Following are the main financial products/instruments in dealt in stock market;

• 1. Equity Shares

  After the shares are made public through Initial Public Offering the same are then traded in secondary market (Stock Exchanges). The holders of such shares are members of the Company and have voting rights. There are various rights of shareholders as per law. For details, please visit SECP guide in reference to shareholder’s rights at www.secp.gov.pk.

  • Rights issue/Rights shares: Rights shares are issued when companies need to raise additional capital to finance their new expansion projects or to meet working capital needs, etc. in case of rights issue; existing investors have the right to subscribe to these new shares in proportion to their respective shareholdings.
  • Bonus Shares: Shares issued by the Companies to their shareholders free of cost by capitalization of accumulated reserves from the profit earned in the earlier years.
• 2. Derivatives

  The term “Derivate” indicates that its value is entirely “derived” form the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivatives means a forward, future, option or any other hybrid contract of predetermined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities.

• 3. Future Contract

  Futures Contract means a legally binding agreement to buy or sell the underlying security on a future date. Futures Contracts are the organized/standardized contracts in terms of quantity, quality, delivery time and place for settlement on any date in future. The contract expires on pre specified date which is called the expiry date of the contract. On expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement enables the settlement of obligations arising out of the Future Contract in cash. Trading in derivates is governed by the regulations of each exchange regarding Cash settled futures contract, Deliverable futures contract, Commodities futures contracts and Stock index futures contract. These regulations are available on the webpage of the exchanges.

• 3. Bond

  Bond is a negotiable certificate that promises fixed income on the value of the bond. It is generally issued by a Company or Government agency. Bond investors lend money to the issuer and in exchange, the issuer promises to repay the amount equal to the bond value on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the bond.

  The two types of bonds available in the financial markets of Pakistan are Government Bonds and Corporate Bonds;

  • Government Bonds: The different types of bonds issued by the Government of Pakistan are Pakistan Investment Bonds, US Special Dollar Bonds, Wapda Bonds, National Saving Bonds, and Sukuk. These bonds provide fixed return or floating rate of return to the holder of the bond.
  • Corporate Bonds: Corporate bond (commonly known as Term Finance Certificate ‚Äì TFC in Pakistan) is a debt instrument issued by companies to raise money to meet its financial requirements. Corporate Bonds are normally issued for a specific period of time with promise to repay the principle amount of the bond money plus interest to the bond holder. When you buy a bond, you are lending money to the company that issued it. The company promises to return your money, or principal, on a specified maturity date. Until that time, it also pays you a stated rate of return, usually semiannually. The interest payments you receive from corporate bonds are taxable. Unlike shares, bonds do not give an ownership interest in the issuing company.

  Corporate bonds/TFCs can be of various types depending on the requirements of the issuer. It could be either based on fixed or floating rate of interest or it could be secured or un-secured or with or without Call and Put Option or it could be convertible or non convertible.

  Investors can buy corporate bonds for number of reasons, which includes attractive yields, dependable income, safety, diversity and marketability etc.

Following are the modes of investment in stock;

• 1. IPO - Initial Public Offer

  An initial public offering (IPO) is the process through which a company issues/offers its securities to the public for the first time. The company goes for IPOs for various reasons which include raising money for a specific project; or to list their securities on the stock exchange; or to meet their working capital requirements or to pay extensive debts etc.

  The shares are offered to the public through an offering document called ‘Prospectus’ or “Offer for sale document” (incase shares are offered by existing shareholder of a company and not by the company itself) which covers all information relevant to the issue and which helps an investor to make his/her decision whether to invest in a particular scrip or not. The information contained in the prospectus includes procedures for application of shares, financial and general information about the issuer, purpose of utilization of the proceeds of the issue, risk factors and advice for investors.

  Before issue of shares, the prospectus or the offer for sale document, as the case may be, of a company must be cleared by the respective stock exchange under the listing regulations and must be approved by the Commission under section 57 or section 62 (in case of offer for sale document) of the Companies Ordinance, 1984.

  The shares offered to the public may be at par or premium.

  The Company may issue its shares to the general public either at fixed price or at a price determined through book building mechanism. Where the shares are offered at a price determined through book building mechanism then the company is required to fulfill the requirements which pertain to the book building offering mechanism as mentioned in the Listing Regulations.

  Book Building Process: Book building is a capital issuance process used in initial public offer (IPO) which aids price and demand discovery. It is a process used for marketing a public offer of equity shares of a company. It is a mechanism where, during the period for which the book is open, bids are collected from institutional investors. The offer is pre determined after the bid closing date based on the market demand of shares.

  the book building process since the price of share is determined on the basis of market demand; as such the chances of over/under pricing are minimized. Further, the issuer company has the option to withdraw from the market if the demand for the shares does not exist. Book building is an established practice in most developed countries.

  However, investors must ensure that only one application in IPO is submitted for subscription. As submission of multiple applications against an IPO is against law and is liable for confiscation of application money.

• 2. Secondary Market (Stock Exchange)

  The market that exists in a new security just after the new issue is often referred to as the secondary market/aftermarket. Once a newly issued stock is listed in a Stock Exchange, investors and speculators can easily trade on the exchange through members of the stock exchange (stock brokers). Liquidity is the main benefit of the secondary market. Supply and demand in stock markets are driven by various factors which, as in all free markets, affect the price of stocks.

  A Stock Exchange provides “trading” facilities for stock brokers and traders, to trade stocks and other securities. To be able to trade a security in a certain Stock Exchange, it has to be listed there. There is a central location for Securities movement and shareholding’s record keeping (Central Depository Company of Pakistan).

  Trade on an exchange is allowed for members only (stock brokers) therefore to Trade in the Stock Exchange, you must be an account holder with a member (broker) of an exchange.

Following are the most common terms of trading screen:

Studies have shown that in the long run investment in shares has provided greater returns than most other forms of savings. Buying shares can offer advantages over saving in deposit accounts: the investment may increase in value besides getting dividends. An investor shares the rewards when the company does well and the price of the shares goes up. But if the company performs badly, the shares price may go down and the value of the investment will be reduced. Other factors, such as the performance of the stock markets as a whole and the general economic climate, may also affect the price of the shares.

Investment in shares is therefore investment in ‘Risk Capital’. The shareholders can be rewarded for taking the risk and the potential return on their money can be higher than that on other investments. An investor can reduce risk with careful planning.

An investor can earn two types of returns on investment in shares; one is termed as capital gain that is result of price appreciation; the other is holding period gain (i.e. regular stream of income through dividends, bonus and right issues).

• 1. Dividend

  Dividends are returns paid to shareholders out of profits of the Company. Returns can be in the form of cash or additional shares of the Company called bonus shares. Dividends are usually paid once or twice a year depending upon the Company’s profit distribution policy.

• 2. Capital Gain/Growth

  Capital gain is the amount with which the value of the investment in shares exceeds the price at which it was purchased. In other words it is the profit, realized from the sale of shares when the market value is increasing.

Arif Habib Limited facilitates its clients with easy, accessible and real time equity trading option via Internet through Server Based System. All clients have equal right of using our on-line system. Through our online trading system via internet one is able to trade at his home, office or anywhere in the world. Benefits of AHL eTrade include:

• Live market rates on the internet
• Universal access to stock trading accounts via the Internet
• Instant executions and confirmations on stock trades
• Confidentiality on all customer transactions
• Anytime / Anywhere Connectivity with Broker
• Easy downloadable module with no application Setups
• Platform independent application based on JAVA
• Connectivity with Windows, Linux, Mac OS, Ubuntu and Solaris based machines
• Low Latency (Almost Zero Latency) in Quotes Display
• SSL Certificate based Web Security
• Encrypted data communication for Security
• Comprehensive Market Watches: 100 Index Watch, 30 Index Watch, Sector Watch and Custom Market watch
• Live Tickers : Upper Cap, Lower Cap, Active Scripts, Top Ten and Custom Tickers
• Scalable Solution to meet demanding loads

Risks of Online Trading:

We would like to inform you of the potential and inherent risks of trading online such as:

• The misuse of the Account Holder(s)’ Password/PIN
• Hacking of line
• Outages and slowdowns in the internet connection
• Breakdown of broker system and or other third-party service breakdown and system errors
• Piracy of the Account Holder(s) information and affairs by unscrupulous persons, etc.

Mitigation of Risks Associated with Online Trading:

In order to be able to mitigate the risks associated with Online Trading, you are encouraged to download AHL ETRADE USER MANUAL or contact our Online Trading Support Department at:
Ms. Munazza Mazhar
Online Trading Support Department

Address:Arif Habib Centre, 23 – M.T. Khan Road, Karachi – 74000.
Direct:+92 21 32461105 – 04
PABX:+92 21 32460717 – 19 ext. 218

Email:

support@arifhabibltd.com,
info@arifhabibltd.com

In order to place orders and or to cancel pending orders during a system failure, you are requested to please contact our Online Trading Support Department and Call Centre Representative.
Ms. Munazza Mazhar
Online Trading Support Department

Address:Arif Habib Centre, 23 – M.T. Khan Road, Karachi – 74000.
Direct:+92 21 32461105 – 04
PABX:+92 21 32460717 – 19 ext. 218

Email:

support@arifhabibltd.com,
info@arifhabibltd.com

We ask for your patience, during those times, because the Online Trading Support Department will be experiencing heavy call volume.

To invest in stock market, an investor needs to operate a trading account with a registered member of Stock Exchange and CDC Sub – Account, if CDC IAS (CDC investor account under the custody of CDC) is not operated. Following is the procedure for operating the accounts:

The documents required to be submitted by the client are available in the downloads section on the Homepage under Account Services and forms. AHL will make sure that the required documents are submitted by the client before approval for operation of the account can be given (requirement stated by SECP & PSX).