KARACHI – The net assets of the mutual funds have exhibited impressive growth in the current financial year. In June 2010, the net assets held by the funds stood at Rs 199.70 billion which have improved to Rs 221.17 billion by November 2010, showing a growth of Rs 21.47 billion in just five months. With the industry total standing at Rs 221.17 billion, NIT is the largest Asset Management Company (AMC) in Pakistan with a share of Rs 40.4 billion which constitutes roughly 18.2 percent of the total net assets. The fund size of PICIC AMC, Allied AMC and Al-Meezan Investment notched up annual growth of 13 percent (Rs 1.77 billion), 11 percent (Rs 1.1 billion) and 20 percent (Rs 2.4 billion), respectively.
This significant rise in funds is attributed to banks and other financial institutions parking their excess cash in the funds in order to gain tax benefits. This has been revealed in a research report prepared by a Pak-Oman Asset Management Company team, headed by Chief Investment Adviser Ahmed Nabil and Head of Research Shayan Jafri. On June 30, 2010, equity funds posted the highest return of 19.83 percent; this was witnessed when most of scrips on the stock exchange were available at low and attractive prices. In June 2009, Equity funds posted negative returns of 38.12 percent; this was mainly due to the worst financial crisis to hit the industry on a global scale. Looking ahead, it is expected that the market situation will improved based on good corporate performance and greater economic stability.
Furthermore, Balanced, Income and Money Market funds have also posted positive returns of 13.55 percent, 10.47 percent and 10.39 percent, due to the high interest rate and good returns on Treasury Securities. Moreover, discount rate is also consistently rising which currently stands 14 percent which was 13.5 percent in June 2010 as compared to only nine percent at the same the previous year. According to the report, retail investors comprise of 52 percent of the total investors. In the case of Pakistan and India, retail investors contribute 22 percent and 37 percent respectively in Open End Fund category. In Pakistan most of the investors are financial institutions and other corporations.
While for Close End category, individuals comprise of 29 percent while and banks and other financial institutions. In India, during the fourth quarter of 2010, average assets under management of the mutual fund industry decreased by a hefty 5.3 percent, with the country’s largest fund house, Reliance Mutual Fund’s assets shrinking by over $1.04 billion. The combined average AUM of 40 fund houses stood at $ 140.7 billion at the end of December.
Reviewing the mutual fund industry across the globe, United States of America is the leader with an investment of $11.99 trillion followed by United Kingdom with an investment of $687 billion as of June 2010.
Global mutual fund industry currently stands at $27.6 trillion. The United States has the largest share, 45 percent of the total industry followed by Eurozone having 33 percent of the industry fund size. Other major stake holders are Japan and East Asia which hold 15 percent collectively. In the local context, the Pakistan Mutual Fund Industry caters a niche market with 28 AMCs and a fund size of more than $2.5 billion (Rs 222 billion).
In Pakistan, NIT was the first mutual fund which was founded in 1962. In 1966, Investment Corporation of Pakistan (ICP) was established which floated 25 mutual funds and a State Enterprise Mutual Fund (SEMF). Till 1994, NIT and ICP were the only companies offering mutual funds. In 1995, SECP allowed the private sector to enter into the mutual fund industry. The sector is regulated by Mutual Funds Association of Pakistan (MUFAP) and its role encompasses compliance and supervision. It also provides a platform to the sectors to devise strategies for high returns and overcome risk.
Dual taxation is expected to be imposed on mutual funds in the near future, the CGT will be imposed at redemption on the increased Net Asset Value relative to the price and secondly, tax is also expected to be imposed on profit of the fund from its investment. Currently, the Mutual Fund Industry can disburse the earnings to the investors in the form of a minimum dividend of 90 percent to attain tax benefit. The sector is gradually growing with its peak in 2008 of around $5.0 billion, but due to recession and the global financial crisis it went down by more than 50 percent by late FY 2009.
Since then, it has begun recovering, due to improvement in the equity market and good returns on Islamic and Income Funds. There are total of 28 AMCs and 147 funds. The number of open end funds increased Compound Annual Growth Rate (CAGR) 14.5 percent over the last decade while closed end fund have slightly declined. With only 14 AMCs in 2001, the decade closed with 28 AMCs in the market. In 2001 total AUMs were at $331 million and at the end of 2007 it touched a peak of $4.97 billion, at a time when the KSE-100 index stood above 14,000 points and exchange rate was around Rs 60 to the dollar. In 2006, the total number of AMCs was 30 managing and 56 mutual funds. In 2010, 28 AMCs managed 162 mutual funds (including closed end and pension funds). Even though, the total number of AUMs decreased compared to 2008, the number of AMCs, funds and types of funds increased at a relatively good pace and it can be said that the market has come of age in this regard. The total fund sizes of equity funds declined mainly due to the fact that in the last two years, the KSE-100 index went below 5,000 points and that NIT released its LOC fund.
