Dual taxation hits mutual funds growth


JAVED MAHMOOD: The dual collection of the Capital Gains Tax from the investors of the mutual funds was not only discouraging the growth of this sector, but also keeping investors away.
The government is collecting CGT at the time of the sale/purchase of the units of the mutual funds and this tax is deducted again from the profit of the investors. This was an injustice to investors and whole the sector, CEO/Managing Director Pak-Oman Asset Management Company Hina Ghazanfar told Pakistan Today. She said the funds regulators, policy-makers and the other stakeholders must sit together to remove this tax anomaly and to firm up incentives to give a boost to the mutual funds sector in Pakistan. She pointed out that mutual funds have a diversified risk portfolio which makes it less volatile and a low risk investment option as compared to others, where prices are highly volatile and with low liquidity. Moreover mutual funds also provide a good return and its units can be redeemed any time.
Investment in funds is less volatile as compared to stock market as the money from mutual fund is invested into diversified alternates such as TFCs and T-Bills which give guaranteed returns. The pool of funds is managed on behalf of the investors by a team of specialized individuals, commonly known as fund managers or investment advisors who use various tools and techniques to identify and mitigate risks, she said, adding there are different types of funds which have different risk appetite. The CEO Pak-Oman AMC said that an ideal investor mostly invests for minimum of 3 to 5 years as short term investment gives erratic results. To a question about expected dividend, she said the funds prices change on a daily basis, based on the movements on the stock exchange and fixed income securities. This results in a change in the fund’s NAV. Henceforth, past trends is not the right tool which can be used to forecast because economic and market conditions vary from time to time, she added.
Talking about risk measures in mutual fund industry, Hina Ghazanfar said the funds industry is highly regulated by the Securities and Exchange Commission of Pakistan and the SECP carries out regular audits of AMC’s and keeps a tight check on them for any irregularity. These measures act as good risk mitigation strategies for mutual fund industry, she said, adding the Mutual Funds Association of Pakistan (MUFAP) has developed guidelines in the area of advertising and communications for asset management, investment advisory services & mutual funds in Pakistan to promote fair competition among investment firms.
The standards are aimed at promoting a self regulatory structure within the mutual fund industry of Pakistan, which in turn, will ensure clarity, honesty & integrity in all matters of advertising, marketing and promotions, Hina said. Observing the impact of global recession on the industry, she stated that the recession has had an adverse effect as investors have become cautious and prefer to invest only in avenues where returns are fixed and have a low risk profile. Furthermore, due to the recession majority of the companies faced difficulties which led the stock exchange to crash, she further said. She pointed out that the mutual fund industry in Pakistan is one of the few growing industries in the country. However, unstable law and order situation in the country hampers its growth as both foreign and local investors become tentative and reluctant to invest here, she added. One of the major issues that the AMCs face is lack of investor confidence, which in turn leads to a smaller fund size for the AMC to operate with and it cannot deliver the required results.