Mutual Funds performance is one of the most frequently studied topics in investment area in most countries. The reason for this popularity is availability of data and importance of mutual funds as vehicles for investment in the stock market for both individuals and institutions.
First they reduce the risk of investing in the stock market by diversification. Second, they provide professional management by experts in the stock market and third, by pooling of investment funds, they allow small investors to hold a diversified portfolio.
Mutual Funds were introduced in Pakistan in 1962, with the public offering of National Investment (UNIT) Trust (NIT), which is an open-ended mutual fund in the public sector. This was followed by the establishment of the Investment Corporation Pakistan (ICP) in 1966, which subsequently offered a series of closed-ended Mutual Funds.
As of now, there are 20 asset management companies in Pakistan, which are registered with Mutual Funds Association of Pakistan MUFAP. These companies are managing 38 funds 19 in closed-end sector and 19 in open-end sector with total net assets under management respectively at Rs 97.308 billion and Rs 40.493 billion, totalling Rs 137.801 billion as of 30-6-2005. The table bellow helps us to understand the true picture.
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Performance of Mutual Fund Industry
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**Net Assets
Number of Funds (Rs in Ratio of Net
Billion) Assets to GDP
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FY-1998 14 16.00 0.60
FY-1999 14 18.40 0.63
FY-2000 17 23.00 0.72
FY-2001 17 20.80 0.61
FY-2002 17* 25.10 0.69
FY-2003 23 49.90 1.24
FY-2004 25 112.20 2.40
FY-2005 33 124.00 2.77
Sep-30-05 38 137.81 -
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-- ICP was privatised in 2003 by splitting into three funds
-- Net Assets average growth per annum 85%
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Funds Position as of September 30,2005
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(Rs in billion)
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Category Number of Net
Funds Assets
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Open-Ended Funds 19 97.308
Closes-Ended Funds 19 40.493
Total 38 137.801
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TOTAL NUMBER OF INVESTORS AS OF JUNE 30, 2005:
======================== Category Investors Corporate 90,041 Individual 69,781 Total 159,822 ========================
Pakistan is a country with a population above 140 million and total number of investors till June 30,2005 were only 1.59 million so the mutual fund industry in Pakistan has a long way to go. We need to educate the public-at-large to invest in mutual funds industry in Pakistan.
It is clear from the above table that mutual funds industry in Pakistan has shown phenomenal growth in the past couple of years increasing its assets under management from 20.80 billion in 2001 to over Rs 137.81billion as on June 30th 2005.
In a matter of 5 years the industry has grown exponentially from Rs 20.8 bn to its current size of Rs 129.6 (as of Mar 31, 2005). However, The Asset Management Industry in Pakistan lags behind its regional and global counterparts.
As it is clear from the graph the mutual funds could not attract enough investment so for in our country. Our people are not aware of mutual funds. As compared to bank deposits our mutual funds are 5%; in India it's about 10% and America the mutual funds exceed the total bank deposits as they have been clearly shown in the graph. At the end of June 2005, the total global mutual fund assets were $16.405 trillion of which USA has a share of 8.218 trillion dollars.
FUTURE OF MUTUAL FUND INDUSTRY IN PAKISTAN:
As mentioned above USA mutual funds form 121 % of total bank deposits. On the contrary in Pakistan the ratio is only 5 % so there is a great potential of mutual fund in our society so only there is need to educate our society and to bring the people in this loop. Recently joint venture between three financial powerhouses, the National Fullerton Asset Management Limited (NAFA) brought together the local market know-how of National Bank of Pakistan, NIB Bank and the global expertise of Fullerton Fund Management Group, Singapore. The first public private sector Mutual Fund.
The Fullerton Fund Management, Singapore, is a subsidiary of Temasek Holdings, one of the leading investment companies in the world with assets of $64 billion. The third partner of NAFA, the NIB Bank is one of the fastest growing banks in Pakistan.
Bank Branches
NBP 1200 +
NIB 27
NBP is Pakistan's largest commercial bank with more then 1,200 branches in almost each city of Pakistan and villages too. So it is the first time in the history of Pakistan any asset management company has tried to attract a large public towards mutual funds. NAFA Cash Fund primarily invests in money and debt securities. The Fund will have no exposure to the stock market and is expected to earn a 10 to 12 percent annual return. An attractive feature of NAFA Cash Fund is that it has no entry or exit load.
As the progress of any company depends upon their management, NAFA has highly qualified and experienced team in this regard. The CEO of the company, Dr Amjad Waheed, has worked as Head of Equity Market Funds and Portfolios at Riyadh Bank, Saudi Arabia. He was managing assets worth $7.5 billion, invested in 22 mutual funds during his four-year stint there. During his three-year tenure as Head of Asset Management at NIT, the company outperformed the stock market by 20 percent. NAFA plans to launch a multi-asset fund, stock market fund and Islamic fund in the near future.
WHAT ROLE THE MEDIA CAN PLAY IN THE GROWTH OF MUTUAL FUNDS?
Recently some TV channels have started very good programmes for the awareness of businessmen and common public, particularly Business Plus and AAJ channel are doing a very good job in this regard but like many other fields of life people are ignorant about mutual funds also and the experts come on these channels use the language and terminology that is incomprehensible for the lay man.
Zaigham Mahmood Rizvi, Chairman, Mutual Fund Association of Pakistan, says in this regard, "This is a very important question both from the viewpoint of funds and the nation as a whole. There are several channels with economic programmes on the air but the participants focus on their own projection rather than educating the masses. It's essential to utilise the media in the language of the common man".