Mutual funds manage the portfolios consisting of capital market instruments such as shares and bonds and of precious metals in return for the money they collect from public. Each investor becomes a shareholder getting a Participation Certificate representing part of the portfolio purchased by that shareholder.

You can earn money from your investment in three different ways.

Participation Certificate is a certificate that allows an investor to become a shareholder of the fund portfolio. Participation Certificates are like corporate shares. Investors become shareholders of the portfolio of a mutual fund by purchasing a Participation Certificate, just like the shareholders of a company who join a company by purchasing corporate shares. The only difference is that shareholders of a company can participate in the management of their company, while the holders of a Participation Certificate cannot participate in the management of the mutual fund.

The price of a Participation Certificate is calculated by the founder on the basis of each business day, and the calculated price applies to the purchase and sales transactions of Participation Certificate made on the following day. Calculations are based on the following procedure:

For example, if you invest your TL 1000 in a fund with a total value of TL 10 per Participation Certificate, you can purchase 100 Participation Certificates. If the total value of each Participation Certificate decreases to TL 9 (due to a decrease in the fund portfolio), you will still have 1000 Participation Certificates, although the value of your investment has decreased to TL 900. If the price of the Participation Certificate increases to TL 11, your investment increases to TL 1100. (In this example, no purchase-sales commission is taken into account).

Interest, dividend, trading profit and daily value increases obtained from the assets available in the portfolio of the fund at the time of the afore-mentioned transactions are registered in the fund as income on the same day and therefore they are reflected to the share price of the certificates of participation calculated for each day. Accordingly, an investor who leaves the fund in any day will have his/her share in the profit (loss) of the fund until that day.

For purchasing of a participation certificate or returning the same, investors should apply and give a purchase-sale order to such places issuing participation certificates as announced by the Founder in the representation.

In addition, investors may give purchase-sale orders through phones, Internet banking services and ATM systems of the Founder or financial intermediary institutions with which the Founder made a brokerage contract for participation certificates. Participation certificates of mutual funds can be traded only within certain hours in a day.  

First of all, as a pricing principle, "historic pricing" applies for Type-B Liquid Funds and "forward pricing" for all the remaining funds. The rules governing these methods are described below:

For Type-B Liquid Funds:

Investors who want to purchase or dispose any participation certificate can apply to such places trading participation certificate as announced by the Founder in the representation, in business days, to purchase or sell participation certificates in accordance with the requirements set forth in the by-Law.

However, in some funds, the holder of the certificate should notify the fund of his/her intention for converting his/her certificate into cash one or two days (which may be longer) beforehand. This is known as the participation certificate sales notice form in practice. The period of notice, which is intended to allow the Founder to adjust its cash position, is determined at the discretion of the same and announced to investors through a representation announced.

For Type-A Funds and Type-B Funds other than Type-B Liquid Funds:

A pricing system called forward pricing is used for these funds. The general principles of this system are described below.

Purchasing Instructions

Any purchasing order given by an investor for purchasing any participation certificate by 12.00 at noon (this time may be extended by the Founder by the closing hours of the markets. e.g. to 14.00 or 15.00, if it is allowed by the by-Law. This also applies to all hours stated as 12.00 hereinafter) in the days when Istanbul Stock Exchange/Bond and Bill Market is open shall be fulfilled at the share price to be found in the first calculation following the order.

Any order given after 12.00 in the days when Istanbul Stock Exchange/Bond and Bill Market is open shall be deemed as having been given after the first calculation of share price and fulfilled at the share price found in the following calculation.

Any purchasing order given in the days when Istanbul Stock Exchange/Bond and Bill Market is closed shall be fulfilled at the share price found in the following calculation.

Collection Rules of Purchasing Prices

The Founder must collect the purchasing price of the participation certificate requested, at the time when the purchasing order is given. The Founder may collect the price with a margin of maximum 20% to be added to its selling price because it does not know the exact price that will apply to the purchase transaction. The actual margin determined must however apply to all investors at the same rate. Further, in order to collect the price of the participation certificate on the date of transaction, the Founder may accept the securities with a value equivalent to the amount calculated by adding the margin to the latest announced price as a security.

Interest is accrued for that day on the amount collected in return for the purchasing order on behalf of the investor before it is used for the purchase of participation certificate in accordance with the aforementioned rules.

Sales Orders

Any sales order given by an investor for selling any participation certificate by 12.00 at noon in the days when Istanbul Stock Exchange/Bond and Bill Market is open shall be fulfilled at the share price to be found in the first calculation following the order.

Any order given after 12.00 in the days when Istanbul Stock Exchange/Bond and Bill Market is open shall be deemed as having been given after the first calculation of share price and fulfilled at the share price in the following calculation.

Any sales order given in the days when Istanbul Stock Exchange/Bond and Bill Market is closed shall be fulfilled at the share price found in the following calculation.

Payment Requirements of Sales Prices

Where the return order is given by 12.00 at noon in the days when Istanbul Stock Exchange/Bond and Bill Market is open, the prices of participation certificates are paid to the investor in the first or second business day after the date of order (as determined by the Founder according to the cash availability in the fund). Where the return order is given after 12.00 at noon in the days when Istanbul Stock Exchange/Bond and Bill Market is open, such prices are paid to the investor in the second or third business day after the date of order (as determined by the Founder according to the cash availability in the fund).

Brokerage

Brokerage may apply to the participation certificates at the time of their sales by investor to the fund at a rate determined according to the retaining period of the participation certificates. For example, a brokerage of 0.5% applies to those retained for 2 days, 0.2% for those retaining between 3 and 5 and none to those retaining for a longer period. The brokerages applying so are registered to the fund as income.

FOR INVESTORS OF TYPE-B LIQUID FUNDS

Let's assume that today an investor intends to purchase 100 participation certificates at TL 10 each (which is the purchase/sales price that the fund calculated last evening). If the number of shares in circulation and the trading hours of the fund are suitable and there is TL 10 * 100 = TL 1.000 at the hand or in the account of the investor, the purchasing request of the investor shall be accepted. If the investor wants to convert the participation certificates s/he holds into cash, the sales order given by the investor shall be converted into cash on the purchase-sales price valid on that day and then, this amount shall be passed to the credit of his/her account.

FOR TYPE-A FUNDS AND TYPE-B FUNDS OTHER THAN TYPE-B Money Market FUNDS

The investor shall state the number of the participation certificates of mutual fund that s/he wants to purchase or sell today. However, s/he does not know the purchase price of the mutual fund. So s/he adds a margin of maximum 20% (of which actual rate is determined by the Founder and it applies to all investors at the same rate) to the price of funds valid on the immediately preceding day and gives his/her order for purchase. If the investor gives his/her purchase order by 12.00 at noon, the transaction is made upon the price to be determined on that evening. If the order is given after 12.00, the purchasing price shall be the one to be determined at the evening of the next day.

When a purchase order is given, an interest is accrued by the Founder on the cash sent to the Founder by repurchase agreement (repo) or fixed interest securities. To put a numerical example, we wanted to purchase 100 funds with a unit price of TL 10 on 20.09.2001. In this case, we give an amount maximum 20% more than the amount of funds that we demand (Considering TL 10*100= TL 1.000, we will give TL 1.200). Remember here that the actual rate of margin shall be determined by the Founder and it will apply to all investors at the same rate). An interest is accrued on this amount (namely TL 1.200) until the next day when the actual price of funds shall be fixed. Let's assume that with the interest that will accrue on TL 1.200, our money increases to TL 1.300 until the next day, namely 21.09.2001 and that the price of funds is fixed as TL 11 on the next day, i.e. 21.09.2001. In this case, the amount that we should pay shall be TL 11*100=TL 1.100. The increased amount, namely TL 200 shall remain in our account. If we give our order after 12.00 at noon, our transaction shall be made at the price of funds announced on 22.09.2001.

If the purchasing order is given as amount, not as the number of shares, funds to be purchased shall be at such number corresponding with the amount available in the account with us plus its interest. In case of sales, the same procedure, except for the interest shall apply. No interest applies in sales. The amount to be paid to the investor is determined at the sales price valid on the date of transaction, considering the period of exchange and the cash status of the funds, and it is paid on such day as determined by the by-Law.

Unit share price of participation certificates are announced at the addresses where the certificates are purchased and sold in each business day. Further, you can find the fund prices on the financial pages of daily newspapers. However, in case of newspapers, the price announced is the one valid for the preceding date, not that of the date of transaction. In addition to newspapers, you can learn daily prices of the funds from telephone lines or websites of fund founders. What else, the weekly performances of funds are stated in the weekly financial magazines. However, remember to find the full name of the fund when you check the participation certificate you have. It is because some fund founders have more than one fund, they assign different names to each one.

The basic principles prevailing the mutual funds are listed below:

Risk diversification principle

Thanks to this principle, mutual funds may disperse the risk to the extent that individuals cannot do personally. Let's assume that you have TL 100.000. You can invest this amount only in a few stocks (because stocks traded in stock exchange are not traded under a certain amounts/lots.). This will increase your risk. For example, the probability of the financial deterioration of 2 companies the stocks of which you purchased and decrease of the value of their stocks is much higher than the decrease of the values of 25 separate companies concurrently. On the other hand, mutual funds can collect money from thousands of people and create portfolios in values of trillions of Turkish Liras. As a result, they have the opportunity to make investment in much more stocks and also other securities, for example in bond and bills, thereby reducing the severity of any impact that may occur due to any decrease of the values of stocks.

Professional Management

Stock exchanges are technical markets that require a certain level of accumulated knowledge due to their nature, and therefore they need to be monitored closely. Naturally, it is difficult for individuals to monitor them regularly, estimate any impact of any development that occur in such markets on the prices of securities and take action timely. On the other hand, mutual funds can have necessary equipment and qualified personnel specialised in stock exchanges because they collect money from in a high number of people and create portfolios in big quantities. As a result, they monitor the developments in the markets, know their meaning and perform transactions (purchase/sale, etc.) according to such developments.

Management of the Portfolio of Securities

Although mutual funds can make investments in cash and precious metals under certain restrictions, their main objectives are to purchase and sell securities and to earn income from the positive difference between the purchases and sales and from profit margins and interests of the securities.

Trusted Ownership

Mutual funds are based on the principle of trusted ownership. Founder of the fund is the proprietor in the principle of trusted ownership. Investors authorise the founder to perform transactions pertaining to the funds. This authority is transferred in accordance with the by-Law of the fund. The founder is obliged to manage or cause to manage the fund in accordance with the fund and by protecting the rights of the investors.

Protection of Property

Although the fund is not a legal entity, the property of the fund is different from the founder. Further, in accordance with the Capital Market Law, the property of the fund cannot be subject to any mortgage or offered as a security against any debt or attached by third parties. In other words, the protection of property is under the guaranty of law..

 

Mutual funds cause two different kinds of costs payable by investors. First one is the brokerage that is deducted from investors due to purchase-sale transactions as described above. However, this kind of brokerage is not mandatory; in other words, funds are free to implement it. If they want to implement, their by-Law and representation must describe the manner of calculation of such brokerages.

Another cost to be incurred by investors is the expenditures covered by the assets of the fund during the operation of the fund. As assets are used to cover these expenditures, they decrease the unit price of shares and the profit created by the fund. Further, investors tend to understand the reason of this impact less than that of the other impact. The expenditures are in proportion to the size of the fund; in other words, the bigger portfolio the fund has got, the higher expenditures it makes. Therefore, in order to determine the size of the expenditures properly, the rate of expenses, which is calculated by dividing the amount of total expenditures into the portfolio size of fund, should be found. The higher the rate of expenses of a fund is, the more negative effect it makes on the profit of the fund. So the rate of expenses is an important factor to be taken into account when comparing different funds.

Investors can learn the rate of expenses and size of the fund in which they make investment from the by-Law and representation of the fund. What else, one can find information about the rate of expenses of funds in the website of the Capital Market Board. Information about funds can also be obtained through the links from the website of the Capital Market Board to those of funds.

The expenditures that the mutual funds can cover from their assets are listed below:

Management Fees of the Mutual Fund

These are the fees paid to the founder of the mutual fund in return for the management of the fund. In general, the biggest share among the fund expenses is the management fees. Fund management fees are calculated as a certain rate of the total value of the fund for each day. The rate of the fund management fees is stated in the internal by-Law and representations of the fund.

Brokerage

Brokerages that mutual funds pay the intermediaries for purchases and sales of securities are also covered by the assets of the mutual fund. The brokerage rates that the mutual funds apply are also stated in their representation.

Notary Charges

Pursuant to law, funds are obliged to get some of their papers certified by a notary public, and relevant charges are covered by the assets of the fund.

Registration and Announcement Expenses

Charges of funds due to their documents registered in trade registries and announced in dailies are covered by the assets of the funds. However, announcements of funds for promotion purpose must be covered by the founders of mutual funds.

Insurance Fees

The fees of the transportation or transportation related insurance of the assets or documents representing them are covered by the assets of the fund.

Independent Audit Fees

Pursuant to law, mutual funds are audited semi-annually and annually by independent auditors. Fees paid to the auditors are covered by the assets of the mutual funds.

Safe Custody Fees

Charges paid to the safe custody institutions in return for the safe custody of the assets of the funds.

Taxes payable by Funds

Funds pay the taxes, which they are obliged from their assets.

The basic information relating to a mutual fund can be obtained from by-Law, representation, circular, financial statements and monthly reports with contents described below. It is important to read through such documents and get enough information about a mutual fund before purchasing funds. One may be subject to unexpected losses if s/he purchases funds without knowing the features and risks of a mutual fund.

The following documents may be obtained from the places where funds are purchased and sold and the websites of fund founders with links to the website of Capital Market Boards.

By-Law

By-law of a mutual fund is a contract made between the holder of the participation certificate of a mutual fund and the founder (which is the legal person who founded the fund), safe custody (which is the institution that keeps the securities in the fund portfolio under its custody) and manager (which is the institution that manages the portfolio). There are the name and address of the fund, its objectives, requirements relating to portfolio management, investment restrictions, rules governing the sale and repurchase of participation certificates, etc. in the by-Law.

Representation

Representation is a document drawn up during the supply of the participation certificates to the public. It is the sales document of the fund. Representations contain some basic information about the fund (such as the founder of the fund, address of the founder and fund, the places where participation certificates will be sold and purchased, identities of fund managers, their experience in the capital market, investment strategy of the fund, investment restrictions, its expenditures, portfolio structure, taxation procedures, etc.) Representations are announced in the Turkish Trade Register Gazette before the supply to the public. Further, they are kept available in the places where participation certificates will be sold and purchased, allowing any investor to check the same.

Circular

Like representation, circular is drawn up during the supply of the participation certificates to the public and it contains some basic information about the fund (such as the founder of the fund, address of the founder and fund, the places where participation certificates will be sold and purchased, identities of fund managers, their experience in the capital market, investment strategy of the fund, investment restrictions, its expenditures, portfolio structure, relevant taxation procedures, etc.) Circulars are announced in at least two newspapers circulated throughout Turkey before the supply to the public.

Financial Statements of the Mutual Fund

The balance sheet and statement of profit and loss of the mutual funds drawn up in comparison with the previous year, also fund portfolio value statement, fund total value statement and audit reports issued by an independent auditor for the said statements are announced in the Turkish Trade Register Gazette and made available to clients at the places where the participation certificates are purchased and sold. Further, semi-annual (January and June periods) balance sheets and statements of loss and profit of funds, fund portfolio value statement and fund total value statement and summarised audit reports issued by an independent auditor for the said statements are made available to clients at the places where the participation certificates are purchased and sold.

Monthly Statements

Monthly reports are drawn up within 15 days from the end of each month and they contain the movements of securities and participation certificates in the preceding month and historical performance of the fund. The report is made available to the investor at the head office of the founder of the fund and the places where participation certificate is sold.

Daily Newspapers and Periodicals

Many newspapers announce the prices of participation certificates of mutual funds regularly. Financial periodicals also allow one to find the comparative figures of periodical profits created by mutual funds. Further, newspaper and periodicals also cover the news about funds (such as funds established/of which participation certificates are supplied to the public, information about the portfolio managers of funds, etc.) One may also find the portfolio structure of all mutual funds as of the last month and the portfolio breakdown by months in the monthly bulletin of our institution.

Pursuant to the regulations of the Capital Markets Board, mutual funds make investment in the following instruments:

Subject to the provisions of their by-Law and limits imposed by Communiqu é , fund portfolios can be created on the basis of any instrument listed above or as a mixture of any of the instruments different in terms of their nature.

As the profit of the mutual fund is depended on the revenue of the assets that it has in its portfolio, investors are recommended to select the fund in which they will make investment only after they get enough information about the nature and type of the fund, in other words about the composition of the portfolio.

Mutual funds may be established in two types: Type-A and Type-B. Minimum 25% of the Type-A mutual funds on monthly basis consists of the stocks of Turkish companies, whereas there is no such restriction for Type-B portfolios. The important difference between Type-A and Type-B is the fact that Type-A funds enjoy an advantage with respect to taxation.

In addition to the categorisation of Type-A and Type-B in terms of taxation, the concept of nature has developed. The objective of this categorisation is to create funds with different portfolio structures, thereby meeting different preferences of investors.

Taking the securities to be included in the portfolio into account, 11 investment funds in different natures have been described, which are Bond and Bill fund, Stock fund, Sector fund, Affiliate fund, Group fund, Foreign Exchange Mutual Fund, Gold and other precious metal fund, Floatable fund, Mixed Fund, Liquid Fund and Index Fund.

According to the foregoing, the type of funds gives information to investor about taxation and its nature shows the main assets comprising the assets.

Funds can be founded in the following natures:

The entirety of the portfolio

The funds that constantly invest at least 80% of its portfolio

Funds cannot be included any of the foregoing funds in terms of portfolio restrictions are called "balanced Income/Balanced Equity Funds". ,

Subject to the prior consent of the Capital Market Board, funds in any nature in addition to those above can be created by describing in the by-Law of the fund, in accordance with the portfolio management strategies to be adopted.

Banks, intermediary institutions, insurance companies subject to the requirements of the Capital Markets Board and also pension and relief funds with no objection in their by-Law with the prior consent of the Board can found and manage mutual funds. Accordingly, banks, intermediary institutions, Social Insurance Institution (SSK), Pension Fund, Bağkur, OYAK and private pension institutions can found and manage mutual funds.

Founder is responsible for management, representation and safe custody of the fund with no legal entity in accordance with the principles of risk dispersion and trusted property and by protecting the rights of the holders of participation certificate. This responsibility still applies where the portfolio is not managed directly by the founder. Subject to the regulations and its by-Law, Founder can create and then modify the fund portfolio as it selects.

Founder represents the fund before the Capital Markets Board, public authorities, holders of participation certificate and third parties.

Fund is managed by a manager appointed by the Founder in accordance with the portfolio management contract made with the manager (which can be a intermediary house holding an authorisation for portfolio management granted by the Capital Markets Board). A portfolio management service fee is paid in return for the management of the fund portfolio.

Portfolio management contract contains the subjects such as the name of the managing institution and fund founder, term of contract, amount of the fee to be paid to the manager and payment terms and portfolio management principles.

The portfolio management consists of selling and purchasing assets (stocks, bonds, bills, etc.) on behalf of the portfolio and collection of the revenue of the assets (interest, dividend, etc.) the in accordance with the regulations and the by-Law of the fund.

Risk Level

Remember that you are taking risk when you make investment in mutual fund. It is because the value of the securities that the mutual fund holds fluctuates, so they may increase as well as they may decrease and the latter may cause a loss of some of the money you invest. However, the risk of all mutual funds is not at the same level. Mutual funds may be categorised into more risky or less risky groups of funds.

A measure that may be used for determining the risk levels of different mutual funds is the rate of stocks in its portfolio. The higher the rate of stocks in the portfolio is, the higher the level of risk is. However, avoiding from making investment in stocks does not mean that the fund has no risk at all. Among the funds making investment in debentures predominantly, funds making investment in debentures with longer maturity periods feature more risk compared to those making investment in debentures with shorter maturity periods. What else, even these funds may be subjected to loss in value in the periods when interest rates are increased.

On the other hand, in general, high revenue means high loss, in other words, high risk. Although risky funds feature higher risk of loss, they may create bigger profit when the markets are going well. Therefore, when we make a selection between different risk levels, the key factor is to what extent we dare to lose to gain more. You should make decision about this factor and select the mutual fund in which you will make investment accordingly.

Before the investment, we strongly recommend you to consult an investment advisor and examine investment magazines to determine how the objective and risk of the fund you are interested are suitable to yours.

On the other hand, make sure not to confuse the funds sold by the banks with deposit. Banks guarantee the deposits, whereas bank funds are not under guaranteed, just like other mutual funds.

Historical Performance

In general, all investors should know the fact for securities, especially mutual funds, that any historical performance does not guarantee the same performance of the same instruments in future. Although the historical performance of the fund gives an idea, it is not guaranteed to catch the same performance in future as the past.

Expenses Rates

Expenses rates of funds make a negative impact on the revenues generated by them. However, this does not mean that a fund with a higher rate of expenses will bring worse revenue. Rates of expenses of funds may vary due to different reasons. For example, a fund portfolio may select not to make much purchase and sale after it is created, while another fund may select to make more purchases and sales to obtain more revenue from daily price movements. Naturally, the former fund shall pay more purchase and sale brokerage and its rate of expenses shall become higher. However, the revenue it gains from such trades may cover the expenses with a bigger surplus and therefore, this fund shall get a bigger profit. Again, you are recommended to get information about the rate of expenses of funds before making investment in them.

Things to be Learnt

Investors who are intending to make investment in participation certificates of investment funds must have enough information about the followings:

The foregoing and any further details if necessary can be obtained from the documents of the fund.