Attracting retail investors: SECP implements various regulatory measures to facilitate AMCs

The Securities and Exchange Commission of Pakistan (SECP) has implemented various regulatory measures to facilitate Asset Management Companies (AMCs) for attracting retail investors through active coordination between SECP, Mutual Funds Association of Pakistan (MUFAP) and AMCs.
Sources told Business Recorder here on Saturday that the SECP has analyzed the mutual fund industry in detail while comparing it with other mutual funds in neighbouring countries to adopt best international practices. The commission has also proposed measures to attract retail investors in AMCs.
Details revealed that the mutual funds are the dominant non-banking finance institutions in the country and it accounts for more than 60 percent of total assets of NBF sector.
Despite its strong growth, the mutual fund assets in Pakistan are approximately US$5 billion which represent almost 5 percent of the total banking deposits whereas in advanced economies, the size of mutual funds exceeds banking deposits.
The Assets Under Management (AUMs) as a percentage of GDP is around 2 percent for Pakistan, while for India and Malaysia, it is around 10% and 57% respectively.
The mutual fund assets in India and Malaysia are US$215 billion and US$163 billion respectively.
These statistics reflect that the mutual fund industry in Pakistan is still ''insignificant'' relative to the regional economies.
A review of trends and activities of asset management business in the United States reveals that the industry has experienced strong growth over the past quarter of a century as a result of asset appreciation and strong demand from households due to rising household wealth, the aging US population, and the evolution of employer-based retirement systems.
The mutual funds managed US$18.1 trillion in assets at year-end 2015, largely on behalf of more than 90 million U.S. retail investors.
Contrary to the practice in many jurisdictions, the composition of investors in Pakistan in mutual funds is highly tilted towards corporates and other non-individual investors, which is suboptimal for the industry. Participation of retail investors in the mutual funds industry constitutes a relatively small proportion and almost 66 percent of total AUMs are held by corporates and other institutions. Besides, low participation is evident from the small number of investors in the mutual funds industry which are slightly over 220,000.
This is in stark comparison to the situation in India where one out of seven people with savings is aware of mutual fund opportunities.
There are 49 million accounts in mutual fund industry in India and the individual investors hold 46% whereas institutional investors account for 54% of the mutual funds industry''s assets.
Individual investor assets in India are primarily distributor driven followed by asset management companies and direct investments, SECP revealed.
Despite meagre rates of return offered by the different banks on deposits, people utilize various investment services of banks because they are unacquainted with other available options.
Asset management companies on the other hand have limited distribution outreach due to lack of branch network and are largely located in three major cities of Pakistan. Since asset management companies lack independent distributors'' network, 90% of mutual funds sales are being made by themselves directly.
Sources said that the level of awareness of mutual funds in Pakistan at the retail level and especially the ''grass-root'' level is still low. Reasons for such marginal retail penetration may be attributed to both demand and supply related issues.
While moderate levels of financial literacy and cultural attitude towards savings are the issues on the demand front, inadequate supply of mutual funds products from asset management companies outside major cities and lack of an appropriate distribution network may be considered as supply related issues.
If financial inclusion is an issue, financial literacy is another hurdle that mutual funds need to overcome along with the traditional investment practices that people follow.
A large number of households are extremely risk averse and they also do not know how and where to invest in a mutual fund. Investors perceive mutual funds as risky investments and tend to invest their savings in tangible assets such as gold, jewellery, real estate or fixed deposits in banks.
Across the globe, mutual funds offer a great investment opportunity for individual investors and have a lot of potential in the Pakistani market too.
However, the data of mutual fund industry reflects that the retail base of mutual fund industry in Pakistan is growing at a slow pace.
This indolence may be attributed to unproductive efforts being made for awareness by the asset management companies.
In order to take the industry forward, there is a need to really tap into the individual investors instead of focusing on institutional and corporate clients.
The mutual fund industry should realize that large number of retail investors not only result in increased assets under management but also enhance the stability of the funds.
It is imperative that all asset management companies come together and work towards creating awareness about mutual funds and their benefits for the investors.
There is pressing need to make concerted efforts for the enhancement of public awareness of mutual funds by vigorous sustainable campaigns through use of print and electronic media.
These endeavours may be coupled with seminars, workshops and conferences for wide scale public dissemination of information on mutual funds.
For this purpose, coordination between SECP, MUFAP, and asset management companies is also of utmost importance.
Furthermore, every stakeholder has to make discrete efforts also. This has to be an ongoing initiative and is expected to improve the low penetration of mutual funds.
Realizing the significance and potential benefits for the industry through increase in the retail participation, SECP has implemented various regulatory measures in the past to help asset management companies focus on attracting retail investors and to limit their dependence on corporates as investors in the mutual funds industry.
While the development and growth of the mutual fund industry can be attributed to growing investor awareness, success of investor education campaigns, and an investor centric regulatory regime, the most crucial factor that will decide the future course of the industry will be participation of retail investors, they added.