Growing Saving & Investment Trend Expands Mutual Fund Sector in Pakistan

With gradual rise in trend of investment and savings by the individuals and group of individuals in Pakistan, the growth of mutual fund sector witnessed expansion especially with the increase of assets value, which surged to Rs. 132 billion in the financial year 2016-17.

According to the financial report by Mutual Funds Association of Pakistan (MUFAP) released recently, the assets under mutual funds increased to Rs. 622.35 billion by June 2017 as compared to Rs. 490 billion from the previous financial year, showing a handsome growth of 27 percent in value.

The savings and investments of investors grow in these mutual funds mainly because of their attractive profit rate offers by asset management companies. Among investors mainly individuals, group of professionals and corporations aspiring better return of their money through low to high-risked funds.

Besides, the gradual rise of awareness about funds among the public also diverted them to invest in funds at times as the saving rates of banks were extremely low.

During the year, 40 new open-end mutual funds were launched in this financial sector. Among  them, Money Market Fund category (both Conventional and Shariah Compliant) increased by 40%, followed by Equity Fund category (both Conventional and Shariah Compliant) increased by 37%, and Income Fund category (both Conventional and Shariah Compliant) declined by 20% over the last year.

The equity fund category (both conventional and Shariah compliant) constituted of Rs. 270.69 billion, up 37% from last year followed by income fund category at Rs. 101.46 billion (down 20%) and money market category at Rs. 77.88 billion up 40% from the previous year.

The asset under management (AUM) under Asset Allocation and Fund of Funds categories were Rs. 46.58 billion and Rs. 65.58 billion respectively. The Fund of Funds category had grown in AUMs from Rs. 25.41 billion on June 30, 2016.

Of the total AUM in Fund of Funds category Rs. 23.67 billion was held under Shariah compliant category. The Shariah compliant fund category continued growing faster than the conventional category and closed the year at Rs. 237.82 billion, recording a growth of 51% over the previous year. A variety of mutual funds are being offered in this category to suit the varied needs of investors by asset management companies.

SECP Plays Instrumental Role

To facilitate the investors Securities and Exchange Commission of Pakistan (SECP) introduced Sahulat Sarmayakari Accounts for opening of mutual fund accounts by individual low-risk customers and branchless banking account holders with asset management companies (AMCs).

The Securities and Exchange Commission of Pakistan (SECP), has also established a dedicated Investor Education and Awareness Fund to be used for investor awareness and to educate investors on Pakistan’s capital market. The new fund is being created under the requirement of Companies Act 2017. MUFAP has been proactively involved in bringing transparency and good governance in the industry

Future Outlook

The future of the mutual industry is dependent on increasing awareness about the mutual fund industry and enhancing the outreach to investors across the country. Over the past few years there has been gradual increase in the retail base, which is presently around 40%. Asset management companies are offering a diversified range of mutual and pension funds to meet the risk appetite of investors, yet the awareness in the masses is lacking of the options available to them.

Asset management companies have started conducting awareness and marketing campaigns, road shows, seminars individually as well as from MUFAP  and SECP’s platform. AMCs are also trying to enhance their distribution network. This will help in further enhancing the investor base of the mutual fund industry.

Besides, the growth of mutual funds is also dependent on resolution of taxation issues. The taxation of mutual funds should be based on three clear principles mutual funds are collective investment schemes and pass-through vehicles.

Mutual funds itself should not be taxed, but unit holders who hold investment in mutual funds may be subject to tax. For investors it should tax neutral if they invest directly in securities or through mutual funds. In many jurisdictions tax incentives are allowed to tax payers to promote savings and investments. Such investment should be for promoting long-term savings and not short term of two years or three years.

  • Can anyone provide a graphical representation of the growth in mutual funds investment and returns in Pakistan over the last 10 years?

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