The Mutual Funds in Pakistan

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Mutual Funds

Mutual Funds are a collection or a pool of funds generated by investments of

individuals and corporates. This pool is then invested in different avenues like

stocks, money-markets, bonds, Sukuks , TDRs , securities and any avenue of

investment.

The pool of funds is managed by expert fund managers who take decisions on

investing these funds in different avenues to achieve better rates of return. The

return is then distributed amongst the pool members and fee of managing the

pool is charged, which is usually nominal and is adjusted in net asset value of

the fund, by the asset management company. There are two classifications of

Mutual fund Open ended fund and Close ended fund.

Open ended Vs Close Ended Mutual fund

Open ended fund are those in which you can invest and disinvest on your

convenience and choice. There are no binding or tenure of investment set on

your investment. A net asset value (NAV) is announced every day. Close

ended funds are those funds in which you invest once they are offering there

IPO or initial public offering .The fund is then listed and traded like a stock on

a stock market.

Why Mutual Funds

Question arises why we should invest in mutual fund rather than investing our

funds ourselves in different avenues. The main reasons why you should invest

in Mutual fund is that :

1. Your fund is managed by professionals who are good at what theydo.2. Your investment is diversified in different avenues which reducesthe risk of volatility and exposure to single investment

portfolio , and it generate better returns for you because of its

diversification.


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3. In Pakistan if you invest in mutual funds you can claim a taxrebate on your taxable income.

4. Mutual Funds generate better returns then bank deposits, and otherinvestment portfolios.

General Misconceptions

There is general misconception in the public at large that Mutual funds are

only relate to stock exchange , which is not true. As described earlier there are

many avenues of investment in mutual fund and stock market is one of them .

Following are the types of Mutual funds :

1. Money Market Funds2. Income Funds3. Balanced Funds4. Index Funds or Equity Funds5. Islamic Funds6.

Bonds Fund

7. Specialized FundsThere can be many classifications of the funds as per the investment mode.


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Available Mutual Funds in Pakistan

Mutual Funds market is a growing market in Pakistan. Even though I believe it

is not being promoted as it should be, but many people are showing their

interest in investing in mutual funds. According to a research as of November

2010 mutual fund market in Pakistan stood at Rs.254 billion which is

approximately $ 2.96 billion.

Following are the asset management companies that are currently offering

mutual funds in Pakistan :

1. Al Meezan Investments2. UBL Funds3. Arif Habib Asset Management4. NIT5. MCB Asset Management6. Faysal Asset Management7. ABL Asset Management Company Limited8. Alfalah GHP Investment Management Limited9. Atlas Asset Management Limited10. BMA Asset Management Company Limited11. IGI Funds Limited12. JS Investments Limited13. KASB Funds Limited14. NBP Fullerton Asset Management Limited15. PICIC Asset Management Company Limited

Each of these companies have different types of mutual funds to offer to their

clients.


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Current scenario of Mutual Funds in Pakistan

The mutual funds in Pakistan achieved 15 percent growth in the nine months

of the ongoing financial year. As far as the performance in different categories

is concerned, the size of open-ended funds which stood at five percent

increased by four percent in 3QFY11 reaching Rs 203 billion while the size of

the closed end funds came at Rs26 billion, showing a decline of four percent

during 3Q-FY11. However, mutual funds witnessed slow growth during 3QFY11,

as its assets increased by three percent and amounted to Rs229 billion. The

mutual fund industry, however, has shown a decline of two percent in March

2011 in comparison with March 2010. Comparing growth of the zero percent

local mutual funds industry in quarterly terms, the industry size remained

stagnant in 1QFY11 (July-September 2010) and increased by only two percent,

but showed good growth of 10 percent in the second quarter of FY11 (October-

December 2010) mainly on the back of the upward movement of equity

bourses, said Mazhar Sabir of the InvestCap Research. He stressed that in

March 2011 the income funds category earned annualized return of 21 percent,

better than the previous month's return of 18.7 percent backed by the upward

revision in TFC pricing during the month. The income funds earned 12.6

percent average annualized return in 3QFY11 and on cumulative basis, during

9MFY11, the category posted average annualized return of 11.2 percent. The

size of the income funds which stood at Rs38 billion in March 2011 continued

its negative trend and declined by 11 percent month-on-month. During 3QFY11,

the income funds, which showed a decline of 10 percent, were ignored by

investors amid volatility in the TFC pricing methodology adopted by the

industry. The money market funds category crossed the milestone of Rs 50

billion in December 2010 and distinguished itself as the highest funds managing

category. During 3QFY11, the money market funds showed an appreciation of


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25 percent to reach Rs 62 billion. However, in March 2011, the category is

showing a decline of seven percent on a monthly basis. The money market

funds category earned average annualized return of 12.1 percent, which is

slightly lower than the last month's return of 12.7 percent. During 3QFY11, the

money market funds category posted average annualized return of 12.2 percent.

The benchmark KSE-100 index lost 1.8 percent in 3QFY11, while the equity

funds' category posted an average return of 5 percent, outperforming the

benchmark. Simultaneously, in March 2011, the category earned average return

of 7.7 percent as against the KSE100 index return of 4.6 percent. During the

month, most equity funds were observed to have outperformed the return in the

benchmark KSE-100 index.

The Mutual Funds in Pakistan

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