The State Bank of Pakistan (SBP) has allowed mutual funds to invest in overseas markets to the extent of 30 percent of their fund size aimed to diversify their portfolio, and likely increase in dividend income for local shareholders.
The SBP in a directive issued on Saturday said that, in pursuance of the central bank''s policy towards liberalisation of foreign exchange regime, it has been decided to allow locally established mutual funds to invest abroad, for the purposes of diversification of their asset classes/portfolio, to the extent of 30 percent of the aggregate funds mobilised (including foreign currency funds), in permissible categories subject to a cap of $15 million at any given time.
The investment made abroad must strictly follow the scope approved by the Securities and Exchange Commission of Pakistan (SECP), subject to all other terms and conditions specified for the operations and investments abroad by SECP.
Such funds would need prior approval of State Bank of Pakistan. In this regard, each interested locally established mutual fund is required to apply, through an authorised dealer, to Exchange Policy Department of State Bank of Pakistan, by providing details of the proposed operations along with the related documents.
"This is a step towards encouraging more companies and institutions to establish asset management companies and would help diversify their investments", a fund manager said.
Moreover, the shareholders locally would benefit more as the investment in the domestic stock market is glued to a handful of telecom, energy, oil and fertiliser or some bank stocks.
Investment abroad would help gain access to bigger stocks abroad, which would increase momentum of investment locally, especially in the open-end funds. Open-end mutual funds are those where subscription and redemption of shares are allowed on continuous basis.
The mutual fund industry, under SECP regulation and supervision, is beginning to make its presence felt with a portfolio of over 30-odd funds available to investors including both open-end and close-end funds.
Various established financial institutions have set up asset management and mutual fund companies to take advantage of the potential growth in this domain, while other notable institutions are drawing plans to enter funds industry.
Currently, an analyst said, the mutual fund industry has only plain vanilla open and closed end funds. "As the industry matures, we would see new specialised funds coming to the market, such as real estate fund, commodity fund, pension fund etc If we look globally, one can see very specialised funds that meet very specific investor needs such as education, marriage, house mortgage funds etc", he said.
"New products are necessary to developed mutual fund industry in the country to lure investors, prompting them to buy fund units", he said.
In Asia region, Korea has the largest number of mutual funds at 5,715, while the assets size is at $136 billion. However, Hong Kong boasts the biggest asset size at $342 billion with 2,934 number of funds, reflecting the strength of Hang Sang Index. Japan has the second largest size of assets in the funds at $298 billion, while the number of funds is at 2,881. India has 1,024 numbers of funds, and the asset size is at over $28 billion.
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