The investment of mutual funds industry in the money market is gradually increasing due to attractive margins followed by higher interest rate. Industry sources said that currently, money market not only offering a lucrative profit to Asset Management Companies (AMCs), but it also offers a low-risk investment on sustainable and long-term basis. Therefore, mutual fund managers across the industry are cashing in on high interest rate regime investing in money market rather than different scrips of stock market.
"These AMCs have been receiving investments for more than a year in Money Market Fund, Sovereign Fund, Islamic Income Fund, Government Securities Funds as their profits are lucrative, sustainable and low-risk," they added. According to latest Mutual Fund performance report issued by Spectrum Securities Limited, total Asset Under Management (AUM) of mutual fund industry modestly fell by 7.15 percent MoM to Rs 523 billion in June 2019. The investment in the money market by the mutual fund industry is on top with Rs 134 billion, besides Rs 31 billion in the Shariah Compliant Money Market.
The investment in equity market was Rs 118 billion by the end of June 2019. During the period under review, mutual funds AUM of Shariah Compliant Equity and Shariah Compliant Income stood at Rs 64 billion and Rs 54 billion, respectively.
Average Return on Money Market and Islamic Money Market was 8.61 and 8.50 percent at the end of June 2019 compared to -19.48 percent in equity fund. Maheen Rahman, Chief Executive, Alfalah Investments Limited said that presently, money market is offering better margins compared to equity market, therefore mutual fund industry has focused investment in money market to pay healthy profits to customers on their savings.
She said that Pakistan stands far behind the regional countries including India, Bangladesh, and Sri Lanka for its lowest saving to GDP ratio. "We believed that the saving trends would help the country to manage its financial affairs domestically rather than looking for external borrowing from institutional like the International Monetary Fund and the World Bank," she added. She said that mutual fund is a goal-based saving and investment product which cultivates the financial literacy and financial discipline in the society. "We encourage customers or people to build a habit of saving their money monthly, quarterly and yearly. This money will ultimately meet the expenses of the fee for higher studies of their growing kids in the future," she added.
As the money market margins are more attractive, recently, Alfalah Investments has also launched a product called Taleem, which will primarily invest the money in the money market but it will focus and leverage the most essential purpose of saving and investment, ie, the education of the next generation. The product multiplies the savings into investments through a handsome profit rate and helps to cover an inflation rate on the fees and expenses different education institutions providing higher education in Pakistan, she added.
According to an estimate, annual and semester fees of education institutions go up an average rate of 6-7 percent every year. After 14 years, a person needs a hefty amount of Rs 4.5 million instead of a sum of Rs 2 million at present. The inflated amount could be covered through investments of a monthly sum of Rs 12,000 for 14 years, Ms Rahman further explained.
Mutual funds as saving and investments products will not only benefit the financial sector but it has an instrumental role in the economy of the country particularly to improve the saving to GDP ratio. At present, there is need of investors' awareness as mere two people out of 100 have investment in mutual funds, Ms Rahman said. She was of the view that the investment in mutual funds should be treated like a bank account. It should be handled with cheque book and ATM cards for deposits and withdrawal of the money.
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