Investment 101: Basic Guide to Making Money


KARACHI: Never depend on a single income. Make investments to create a second source, said American magnate and investor Warren Buffet.

Who better to advise on investment than the man Forbes rated third-richest in its list of top 10 billionaires in the world.

Today, not only has the global economic landscape vastly evolved from a decade ago, but is continuing to transform at a rapid pace. This is the era of cryptocurrencies – a technology that has the potential to revolutionise the financial world. Only until a couple of years ago, it was a relatively unknown concept.

Similarly, until the last generation, making investments was restricted to a few, but with increasing standards of living and desperate attempts to keep pace, everyone wants to increase their wealth. Of course, it helps when you have extra to invest, but being aware of options, and the returns different assets have to offer is the prerequisite to making the wise choice.

For someone with little knowledge of economy and finances it is daunting to look at the number of options. Talk to a salesman and the confusion only increases.

Moreover, matters are further complicated when those involved in the financial field employ jargons that make a simple situation seem more complex.

This article looks to provide insight into what are some available options to invest our money.


In no particular order, let’s begin with the stock market.

Any country’s stock market is an indicator of how well the economy and the companies that make up the economy are performing. Stock prices reflect, in the long run, how well the company is doing in terms of profits, which then translates to the overall performance of the economy.

Despite being a high-risk investment option, stocks have become a popular choice among investors in Pakistan.

The number of CDC accounts – the company where shares are deposited in Pakistan – has increased over the last five years.

Perhaps, the idea of making significant gains outshines the extreme volatility of the market and lures people to it.

However, it is essential that investors remember that there is a risk of losing out as well.

How the market works

The concept of investing in the stock market is simple; buy low, sell high. However, determining when the price is low enough to purchase the stock and when is the right time to book profits is the essence of the game.

The market is very vulnerable to triggers in the economy. For instance, if an international credit ratings agency downgrades Pakistan, it is sure to have a negative impact on the market.

Poor macroeconomic indicators and uncertainty at the political front, in terms of strikes or sit-ins, are sure to keep the market under pressure. Any external shock to the economy that in turn affects company’s operations will cause the share price to decrease as well.

But do you sell when the share prices are going down? Or do you hold it out before it recovers again? These are individual choices that make up the stock market’s dynamics every single session.

A very recent example can be the recent Panama case hearings against the former premier. Court proceedings kept the market turbulent, as investors remained unaware of who would steer the economic ship if the premier is disqualified. This in turn caused the KSE-100 index, which touched its record high of 52,876.46 on May 24, to fall massively during the course of the next seven months. It only started to gain when clarity emerged and economic policies – including rupee devaluation – came at the forefront.

Now, if you have become interested, the following are some of the steps that can help you initiate trading.

How to begin?

For any individual to begin, the first step is looking for a brokerage house. There is a list of brokerage members listed on the Pakistan Stock Exchange website, and anyone interested can verify the authenticity.

Once you have decided on your brokerage firm, they will require you to fill out essential details and open an account, much like a bank does. After that every client will be assigned a trader who will be responsible for handling their portfolio.

Now, there are two ways to trade; you either let the broker make the call on what to buy – with your permission, of course – or you decide to trade yourself.

What are the gains?

Now the most important aspect of making any investments is the returns we get. In the context of the stock market, investments should be made on a long-term basis. The Pakistan Stock Exchange was Asia’s best performing market in 2016, posting a return of over 45%. This means that if someone had invested Rs100,000 they would have made a profit of Rs45,000 – on average. However, the very next year the index tanked and posted a negative return of over 15%, which means that if an investor entered the market this year, the person would have suffered a 15% loss – on average.

This is just to give an estimate of what the average investor could make. There is no way to calculate a fixed percentage of return, since everyone makes different choices in terms of choosing stocks and sectors, different times to buy and sell, and different entry and exit points.

Timing is of the essence in the market, and determining entry as well as exit points are crucial to making a return.

Prize bonds

Prize bonds are the easiest and a hassle-free way to invest your savings. Moreover, not only are they risk-free, the bond is guaranteed by the state and the owner can claim his money on demand.

Prize bonds come in various denominations ranging from Rs100 to Rs40,000, which means that one does not necessarily have to invest a large sum. These bonds can be bought from the State Bank of Pakistan, the National Savings Centre and some designated branches of commercial banks. Every bond has a serial number, based on which draws are held every three months.

If, for instance, someone has purchased a bond of the Rs750 denomination, and the serial number is selected in the draw, then the person is awarded a prize set by the government. In the case of Rs750 bonds, the first prize is Rs1.5 million, second is Rs500,000 and the third prize is Rs9,300. The value of the prizes increases as the denomination increases.

There does not seem to be any sequence to the numbers included in the draw. Hence, we can say that investment in bonds is safe; even though there is a possibility of no returns. The risks with prize bonds are the same as with cash money, they can easily be stolen or misplaced.

Real estate

Real estate is the most traditional and preferred form of investment. Anyone who has a significant amount of money chooses to invest it in property that gives stable returns. It follows basic economic fundamentals – as population keeps increasing and there exists a limited place in the world to live, the demand-supply gap remains.

However, this kind of investment requires a lot of patience because any gains made would be seen over a period of five to 10 years. According to a Lahore-based expert in real estate, Mian Bilal Hanif, people with a more conservative mind set prefer property because it is a stable asset. Moreover, the returns offered by the real estate sector over the past decade have shown remarkable profits compared to other alternatives.

How to invest?

For those who have land or an apartment that they are not utilising, it is best to offer it on rent. This way, the owner will make a fixed monthly income, while seeing the asset appreciate in the long run.

However, buying property in Pakistan is one of the most difficult ventures, and remains the top priority for many.

Shortage of housing has pushed prices sky-high, and with lack of mortgage financing and conservative lending by institutions several spend their entire lives in a bid to become house owners.

But from an investment perspective, real estate remains the most suited avenue with stable returns.


Similar to stock market, currencies also fluctuate according to the economic situation. However, in the case of currencies they either strengthen or weaken against another. Initially, only corporations and banks invested in the foreign exchange market, however, now individual investors can also engage in trading.

Movement in currencies are generally driven by demand and supply. A high demand for a currency will raise its price, while the opposite will lower it. Demand and supply are determined by developments on the economic and political front.

If, for instance, the US Federal Reserve bank decides to increase interest rates, the price of dollar will increase because it will attract more foreign investment. However, this is not the only determinant of price because there are many other factors that can impact the exchange rate.

Investors can use these movements in exchange rates to make profits.

An ideal example of this is the recent rupee devaluation. For the longest time, the government held the rupee’s rate against the US dollar. However, in the past week the central bank allowed the Pakistani rupee to lose 4% against the dollar, which led the rupee to trade at Rs115 in the inter-bank market. This was the second round after the rupee, in December 2017, lost 5% to the greenback.

Trading in currency diversifies risks and allows investors to balance their portfolio. It also allows for a hedge against exchange-rate fluctuation, helping many institutions against any adverse movement.

If changes in the global environment hint at a possible hike in the dollar, that would be an indication of when to buy the currency. Also currencies trade in opposites, if one goes up then the other will definitely come down. Just like stocks there is some volatility in currency trading as well. It requires caution and understanding of trends in the financial world.

Although movements are slow, some gains can still be made.

Mutual funds

For those of us who are not very well informed about the financial ups and downs or are just too lazy to do any research, mutual funds is the best option.

Mutual funds are basically a pool of savings that are managed by asset management companies. Savings are collected from the general public and invested in a fund, based on an individual’s preferences, which offers a return after a period of time.

To explain mutual funds, National Investment Trust Chief Operating Officer Manzoor Ahmed said, “Investments in mutual funds are shared.” If, for instance, someone is interested in investing but they cannot spare a significant sum, mutual funds put different amounts together for investment. Later the returns are divided among all investors.

The advantage of mutual funds is that the risk is shared and there is a tax rebate offered on investments.

Now there are various types of funds, close-end, open-end, high-risk, low-risk, fixed income fund or equity fund. It depends on an individual’s choice which option they choose. The higher the risk, the greater the return.

The equity fund is based on investments in the stock market and any returns depend on the market’s performance. “You can see positive returns in a day and negative in a week, because the market keeps fluctuating,” Ahmed remarked.

However, if a person is not interested in taking risks then they can invest in the fixed income fund. Fixed income funds are comparatively safe because there is no loss. In fixed funds, money is invested in areas where the interest rate fluctuates; these are mostly T-bills floated by the government.

To invest in mutual funds, you go to an asset management company and fill out the required forms. Then the cheque for investment is submitted, which the company gives to the CDC.

CDC acts as a trustee and has custody of the assets to avoid fraud and maintain checks and balances.


Gold has an interesting history. Before the concept of paper money was introduced, it was used as a medium to buy and sell goods. It was the very first form of money and although it is not used actively today, people still invest in the precious metal since it is now considered a safe-haven asset. In times of crisis, or war, gold generally tends to outperform other asset classes.

However, returns in gold are slow and it is generally seen as a long-term investment.

There is no right or wrong asset when it comes to investments. It depends on the time period of entry and the risk-return factor. It also depends on the asset’s liquidity.

Real estate remains the most popular form of investment in Pakistan because, generally, returns keep going north. While the government’s recent imposition of capital gains taxes did give a slight jolt to the market, prices did not come down in developed societies because of sustained demand.

But it is expensive and not easy to liquidate. In such cases, exploring other options is crucial.


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