Fund Stability Rating Methodology

VIS Fund Stability JANUARY 2025 Credit Rating Company Limited 1 VIS Credit Rating Company Limited FUND STABILITY vis.com.pk VIS Credit Rating Company Limited

2 VIS Credit Rating Company Limited Fund Stability JUNE 2026 Table of Contents SCOPE OF CRITERIA...........................................................................................................................3 SUMMARY OF CRITERIA CHANGES......................................................................................................3 RATING METHODOLGY........................................................................................................................3 CREDIT RISK ......................................................................................................................................4 A. CREDIT RISK CRITERIA ................................................................................................................5 B. MARKET RISK CRITERIA...............................................................................................................6 C. LIQUIDITY RISK...........................................................................................................................6 RATING SCALE & DEFINITIONS ...........................................................................................................7

VIS Credit Rating Company Limited Fund Stability JUNE 2026 SCOPE OF CRITERIA Fund Stability Ratings (FSRs) measure the sensitivity of a fund's Net Asset Value (NAV) and total return to changing market conditions, with particular emphasis on downside risk. FSRs are assigned to fixed income funds, including money market and bond/Sukuk funds and Investment Plans as approved by SECP and are mentioned under the common terminology of “Fund(s)” in this FSR Methodology. These ratings incorporate an assessment of investment strategy and policies of a fund, in order to develop maximum risk estimates. These estimates are adjusted for actual investment allocations, wherever these exceed policy limits. Funds claiming to follow a particular investment policy may drift in their investment styles. To evaluate the fund's risk profile, VIS also examines changes in the fund's investment style and approved investment policy over time. It is also pertinent to mention here that alignment of fund's risk profile with the criterion for just one of the various sources of risks for a given rating may not enable a fund to achieve the desired rating in the absence of actual asset allocation being in line with all risk related parameters. Given the minimum risk regulatory guidelines and our rating criteria, money market funds are expected to achieve higherratings than income funds. Pre-IPO FSR assessment of a fund is primarily based on target investment policy of the fund, in addition to our assessment of asset management expertise. Once the fund is launched, rating assessment may need to be revised for actual asset allocation in addition to the investment policy. In case, asset allocation is more aggressive in relation to investment policy,ratings may be adjusted accordingly. Fund stability ratings, however, do not cover certain risks, emphasizing their focus on credit quality and NAV stability. These ratings do not assess management quality or operational risks, such as errors in fund administration. Broader market risks, including NAV volatility and interest rate changes, are also excluded, although weighted average maturity is considered as a factor. Regulatory risks and issuer/counterparty risks beyond credit ratings are not addressed, nor are risks tied to specific fund features or investment strategies. Additionally, extreme market conditions and tail risks fall outside the rating’s scope. SUMMARY OF CRITERIA CHANGES Fund Stability Ratings methodology dated January 2025 has been reviewed and the fundamental criteria as outlined in the aforesaid methodology remain the same. RATING METHODOLGY VIS fund stability ratings incorporate an assessment of various factors, including exposure to credit, market and liquidity risk. For most type of funds credit risk would carry the significant weight among rating attributes. Other rating attributes like the market risk and the liquidity risk would carry the remaining risk weight in accordance with the nature of the fund. For example, ratings of Exchange Traded Funds (ETFs) will primarily reflect the credit quality of the assets held by the fund. Credit risk focuses on asset quality, sectoral concentrations, and adherence to investment policies, with unrated assets assigned shadow ratings. Market risk considers interest rate sensitivity, maturity, and price volatility, using metrics like modified duration. Liquidity risk emphasizes the availability of liquid assets to meet redemption demands, investor

Fund Stability Ratings Liquidity Risk VIS Credit Rating Company Limited Fund Stability JUNE 2026 concentration, and portfolio maturity. However, the methodology does not cover broader market and liquidity risks due to market conditions. Environmental, Social, and Governance (ESG) factors play a growing role in assessing fund stability, as they provide insight into non-financial risks and long-term resilience. Incorporating ESG criteria (VIS methodology link) in fund ratings evaluates the sustainability and ethical impact of investments, aligning with global trends and investor preferences. CREDIT RISK Assessment of credit risk incorporates exposure to credit risk both by way of asset allocation policy, actual asset allocation, credit risk due to sectoral and counterparty concentration and proportion of non-performing/restructured exposures. Fundamental to the rating analysis is a detailed evaluation of the risk profile of the assets in the fund's investment portfolio. The asset selection criteria for a fund are reviewed in context of its investment policy and objective. The evaluation of credit risk appetite of a fund requires an analysis of the investment policy in terms of proposed credit risk profile including relevant maturity and percentage holdings of these instruments. Credit quality of the portfolio is determined through an analysis of credit ratings of assets and their proportion in the fund. Where assets are not rated by VIS, shadow ratings may be assigned for evaluation of risk profile. Table 1 provides a broad outline of the expected asset quality indicator of funds with ratings in higher bands. By way of example and to further elaborate on Table 1, for a fund stability score in the highest band, at least 85% of net assets of the fund have to be invested in 'AAA' rated exposures and investment in 'AA+' rated exposures is expected to be up to 15% of net assets. The idea is to ensure that exposures of a fund are concentrated in instruments having risk profile that is in line with the rating of the fund. If changes in a fund's risk profile over time result in assets with

VIS Credit Rating Company Limited Fund Stability JUNE 2026 significantly higher or lower risk profile than indicated above, ratings may be adjusted, depending on the proportion of such assets. Proportion of high risk assets i.e. exposures in default or under distressed restructuring, is also assessed in relation to fund size. The extent to which the return from performing assets can absorb current / future losses that may arise from high risk assets in case of missed payments or default is evaluated. In a high interest rate scenario, the cushion available for absorbing losses arising from capital erosion may be greater, subject to the fact that performing instruments in the fund are either short-term or re-price able. VIS also reviews the fund's investments to evaluate the extent of diversification. Funds can be diversified at several levels to diminish risks associated with a certain category. VIS examines mitigation of risk through investments in different industries and different security issues within an industry, a common practice by mutual funds. Risk profile of funds is determined based on the level of diversification in the economy. However, since risk cannot be entirely eliminated through diversification, the goal should be to minimize unsystematic risk. A. CREDIT RISK CRITERIA Asset Allocation % of NAV Asset Allocation Policy Band Limits Issue/Issuer Rating Score AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ Band 1 100-90 =>85% <=15% Band 2 89-80 =>50% <=25% Band 3 79-70 =>25% <=25% Band 4 69-60 <=15% Band 5 59-50 <=25% Band 6 49-40 <=25% Band 7 39-30 <=15% Band 8 29-20 <=25% Band 9 19-10 <=25% <=10% Overall fund risk is determined through market risk assessment in conjunction with credit risk analysis. Price fluctuations of fixed-income instruments can stem from a number of factors including interest rate movements, maturity, liquidity, credit risk and shifts in the supply & demand for each type of security. These factors combined can impact the NAV of a fund and increase its volatility. Also, price risk on TFCs remains a source of concern for income funds at large, given the lack of depth in the local debt market. Quantitative measures such as weighted average maturity/ modified duration provide an important framework for evaluation of a fund's sensitivity to interest rate movements. A portfolio with lower sensitivity to changes in the interest rate has a more favorable impact on the fund's rating. Room for exposure to market risk in terms of maximum modified

VIS Credit Rating Company Limited Fund Stability JUNE 2026 duration allowed as per investment policy that the fund can assume is an important rating criteria and carries separate weightage in the overall marketrisk score. Table 2 below outlines risk evaluation in terms of portfolio modified duration. B. MARKET RISK CRITERIA Fund Rating Wtd. Avg. Modified Duration Band 1 Upto 45 Days Band 2 46-60 Days Band 3 61-90 Days Band 4 91-180 Days Band 5 181-270 Days Band 6 271-365 Days Band 7 366-545 days Band 8 546-730 days Band 9 731-1095 day An analysis of trend of the fund's performance, its historical yield and NAV variability combined with the present investment portfolio, level of market risk exposure and market risk appetite as an indication of future composition of the investment portfolio provides a reasonable measure of NAV stability. Although an analysis of historical NAV variation does not necessarily allow us to estimate future NAV declines with high certainty, a study of empirical results nevertheless provides a good foundation for the assessment of the fund. C. LIQUIDITY RISK Assessment of liquidity risk profile incorporates investment in liquid avenues as a proportion of total assets in the fund being evaluated dovetailing with the investor concentration in the fund. Liquidity is of prime importance for open-end mutual funds, and is consequently assessed in detail. In order to meet redemption requests, funds need to maintain a certain level of liquid assets. Liquidity issues arise due to insufficient cash reserves, investments with longer maturities and a low proportion of readily marketable securities in a period of large cash outflows. Redemptions can force an open- end fund to raise cash by selling less liquid investments at depressed rates. VIS evaluates the liquidity profile of the assets in a fund based on the market determined liquidity of such assets. For example a treasury bill carries much higher liquidity than an unlisted TFC/SUKUK and is accordingly treated. Average maturity profile of instruments held by a fund is also analyzed; the longer this measure, the higher the liquidity risk that may be associated with a fund. Liquidity assessment is also conducted in context of the fund's unit holding pattern. The mix of unit holders in terms of institutional and individual unit holders also reflect upon the redemption profile of a fund and accordingly its liquidity needs. Concentration in unit holding pattern can potentially lead to large redemptions for open-end funds in a short interval, which can pose significant risk to a fund's ability to maintain a stable NAV. Liquidity indicators are sensitized to measure the ability of a fund to service redemptions in a timely manner.

VIS Credit Rating Company Limited Fund Stability JUNE 2026 For startup funds this data may not beavailableandratingceilings mayhaveto be appliedunless specific liquidity related minimums are set by the fund foritself, to be followed till such time unit holder mix matures. RATING SCALE & DEFINITIONS Rating scale and Definitions may be accessed at (https://docs.vis.com.pk/docs/VISRatingScales.pdf)

VIS Credit Rating Company Limited Fund Stability JUNE 2026 Islamic International Rating Agency – Bahrain – iira.com Credit Rating Information & Services Ltd. – Bangladesh – crislbd.com Japan Credit Rating Agency, Ltd. - Japan China Chengxin International Credit Rating Company Limited - China VIS Credit Rating Company Ltd. 128/C, 25th Lane off Khayaban-e-Ittehad, Phase VII, DHA, Karachi Tel: (92-21) 35311861-64 431, Block-Q, Commercial Area, Phase-II, D.H.A. Lahore - Cantt. Tel: (92-42) 35723411-13 www.vis.com.pk info@vis.com.pk DISCLAIMER Information herein was obtained from sources believed to be accurate and reliable; however, VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Rating is an opinion on credit quality only and is not a recommendation to buy or sell any securities. Copyright VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.