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Mutual funds will compete with bank deposits

More public awareness will boost the industry

Mutual funds will come up with bank deposits over the few years as more people enter the working class and asset managers increase their presence and product awareness. This view is expressed somehow by mutual experts and has been taken with great interest by middle class people. Experts believe these funds will do well in the coming years though bank deposits are the preferred instrument to save for short-term goals, debt mutual funds can be a better alternative. They are more tax efficient if held for more than three years and can even generate higher returns for investors.

The assets under management of the asset management industry as a percentage of bank deposits are very much small. The asset management industry in Pakistan is still in the early stage of development. The initial companies have existed for less than twenty years, when compared with the banks. There is comparatively direct tie-in between the number of branches/geographical presence to the size of deposits held in banks. Most banks have been able to provide services from Khyber Pakhtunkhwa to financial capital Karachi.

A middle and lower income level common Pakistani who wants to save a portion of hard earned money in mutual funds is advised to generate healthy financial practice and seek reliable investment advice and choose a suitable investment product.

The Mutual Funds industry has professionally managed a pool of money sourced from clients and invested in a wide variety of companies. There are 14 types of mutual funds, two voluntary pension schemes and different investments plans in product portfolio.

MCB-Arif Habib Savings is a result of a strategic merger between two leading asset management companies of the country. The merger was finalized back in June 2011 when sponsors of Arif Habib Investments Ltd and MCB Asset Management Company Ltd decided to join hands. These two sponsors are amongst the largest amalgamation of the country and considered to be the exceptional institutions within their respective industries.

Their investor approach and innovation, and overall governance structure kept on the forefront of adopting international best practices. They are vigorously investing and focusing on technology to expand investor base. They continue to deliberate on developing investment solutions such as MCB Frequent Payout Fund and Gulluck Plan. They would continue to draw strength from more innovative products and technology solutions for its investors.

The Mutual Funds industry in Pakistan is still in its early stage of development standing at only 1.6 percent of GDP, compared with regional peers such as India, China and Taiwan with a size of 8 percent, 11.5 percent and 11.9 percent of GDP, respectively. An increase in awareness and introduction of innovative products in the industry to reach out to general public will provide a momentum to growth.

The recent low risk customer regulatory framework introduced by the Securities and Exchange Commission of Pakistan (SECP), MCB-AH sees a lot of potential in this area. The recent advancements in financial technology, the Mutual Fund industry can also play a productive role in national financial inclusion drive. In this context the government needs to devise public awareness campaign for savings in general.

ISLAMIC FINANCE INDUSTRY

Islamic finance industry has expanded rapidly over the past couple of years growing at 10-12 percent annually. The total assets under management in the global Islamic finance industry now nearly amount to US$ 2 trillion, with the potential, according to Standard & Poor’s, to rise to US$5 trillion by 2020.

The Islamic fund’s net assets have grown at an astonishing CAGR of 41 percent (PKR 130 billion in 2015 vs PKR 23 billion in 2010). This phenomenal growth repeats the demand and performance of these assets.

Taking into consideration the fact of economic boost under China-Pakistan Economic Corridor’s infrastructure projects it is expected young investors can enter the mutual fund market and increase their investment profile. Banks do offer a certain return in deposits but most of the times it is less. With Mutual Funds based investing, it is easier to save for long-term goals.

Retirement Savings Fund or Voluntary Pension Schemes also offers an avenue that helps save up for an endurable post-retirement life especially if one start investing for it early on.

In Western countries, the Mutual Funds market is greater in size as compared to banking sector. The case is different in Pakistan. Since it is a baby industry in Pakistan, represent present only around 5 percent in comparison to the banking industry. Even then the growth rate of Mutual Funds is higher than that of the banking sector.

In this context the government needs to reduce taxation of this sector and offer industry wide incentives to encourage development and expansion of this industry. FED and sales tax on Mutual Funds need to be reviewed because they build up burden on a customer. In urban centers, been a rise in awareness about the asset management industry and this has resulted in a substantial increase in the investment amounts managed by the asset management companies. But even then the presence and awareness are minimal and investments remain concentrated in bank deposits.

Over the few years as Pakistan becomes more educated, more people enter the working class and asset managers increase their presence and awareness of their products there is confidence mutual fund will overtake with bank deposits.

Individuals who had bank deposits are still searching for new investment options, and are starting to look to mutual funds that provide higher returns via exposure in bonds, equities, etc. There has really been an increase in the demand for Shariah-based funds. Over the past couple of years, most product launches and new funds that have been introduced by the asset management industry were Shariah-compliant in nature.

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