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Mashmooma-Zehra

Public education, openness and transparency necessary for the continued growth of the mutual funds industry

MUFAP is making significant contributions and regulated the industry norms to great extent

Interview with Ms Mashmooma Zehra Majeed — CFA, FRM, Chief Executive Officer, Mutual Funds Association of Pakistan (MUFAP)

PROFILE:

Ms. Mashmooma Zehra Majeed joined MUFAP in 2012 as the Chief Executive Officer (CEO) of the association. She has been associated with the asset management industry in Pakistan for over fifteen years with her forte being investment management and product development. She has played an instrumental role in launching the first Islamic open-end mutual fund in Pakistan as well as the launch of the voluntary pension scheme in Pakistan under the Voluntary Pension System Rules. She has been actively involved with MUFAP throughout her career. She completed her Chartered Financial Analyst (CFA) program in 2001 from the CFA Institute and the Financial Risk Manager (FRM) Program in 2010.

ABOUT MUFAP: Mutual Funds Association of Pakistan (MUFAP) is a trade association working to promote and safeguard the interest of the asset management industry (its members) and actively serves members in areas of federal and provincial legislation & regulation, accounting & valuation, taxation, pension, international issues, economic & market research, industry statistics, public information, investor awareness, fund operations and investment adviser issues. MUFAP was formed in 1996 when a group of investment advisors managing eight closed-end mutual funds got together to form an association that would work to promote Mutual Funds in Pakistan. In 2001, MUFAP was formally registered as a public company limited by guarantee not having share capital and recognized as the representative body of asset management companies in the country. As the industry developed and progressed, the role of MUFAP was expanded and in 2007 MUFAP moved into its independent premises and appointed an independent management team. MUFAP made significant contributions to promote the Mutual Funds as the preferred investment solution for investors and ample efforts to voice the concerns and issues of the member asset management companies (AMCs) and Funds. MUFAP has always been in the forefront to bring transparency and good governance in the industry and has regulated the industry norms to great extent. Many of the voluntary initiatives taken by MUFAP became the industry norm and went on to being included by the SECP in the regulations and its directives as the mandatory standard/requirement, which itself is a great achievement. MUFAP from its humble start with a single product industry of eight funds is today representing a multi-product, multibillion Mutual Funds industry, playing a key role to ensure transparency, high ethical conduct and growth of the Mutual Funds industry.

PAGE: HOW WOULD YOU COMMENT ON THE MUTUAL FUND SECTOR’S PERFORMANCE IN PAKISTAN?

MASHMOOMA ZEHRA MAJEED: Mutual Funds play an important role in an economy by promoting private savings. They mobilize savings and channelize it into broad range of avenues such as equities; sovereign and corporate bonds; commodities and real estate etc. They also help reduce systematic risks in the equities and debt markets. Mutual Funds have been around in Pakistan since 1962, however, the major boom in this sector was seen between 2002 and 2008 when private sector players entered the industry with full force bringing with them a range of investment options. The same period also saw the stock market’s performance as it scales new heights as a result of positive government policies and incentives, registering a growth of more than fifteen times in the net assets of the Mutual Funds between the years 2003 and 2008.

The financial crisis of 2008 curbed the growth pattern as the economy and the financial markets drastically declined and subsequently the Mutual Funds declined too. Since then the industry has gradually been recovering and growing steadily. Mutual Funds industry as of June 30, 2017 comprises of 230 mutual funds in various categories (both conventional and Shariah compliant) with a total size of Rs625 billion in assets under management. In terms of returns, Mutual Funds provide market based returns in all categories thereby making them very competitive versus other investment avenues. The daily and periodic returns are available on a daily basis on MUFAP’s website in the Performance Summary for an investor to independently review and monitor.

PAGE: HOW EFFECTIVE HAVE THE AWARENESS CAMPAIGNS BEEN IN TERMS OF EXPANSION OF THE MUTUAL FUNDS SECTOR?

MASHMOOMA ZEHRA MAJEED: The Mutual Funds industry has unfortunately not been focusing much on awareness campaigns over the period so its effectiveness cannot be gauged. We feel that the industry focus must be on conducting a comprehensive and sustained public education and awareness campaigns to bring across to the attention of the investors, the diverse investment features and benefits that Mutual Funds and voluntary pension schemes offer to them and how to select the right product for their specific saving requirements as not all savings can be in risk averse categories.

The government and Securities and Exchange Commission of Pakistan (SECP) are also required to facilitate asset managers to promote, educate and encourage investors to save. The initiative to improve rate of savings and provide fair return to investors demands working on a range of issues with other stake holders including the government and regulators. Individuals are the key savers in any country including Pakistan.

The Mutual Funds industry in Pakistan has already marketed its products to large corporations regarding sales of their products. However, the key challenge at present is how to approach the Small & Medium Enterprises (SMEs), High Net-Worth (HNW) investors, and the retail market. Accessing these market segments will require large expenditures on setting up offices around the country and hiring a large work force as well as sustained marketing and awareness campaigns. However, success will only be achieved in due course of time as the knowledge and awareness level of investors improve.

We have seen a gradual shift and interest in the Asset Management Companies towards awareness activities and sessions and we hope this increase over the period as sustainable growth in the Mutual Funds industry would only come through expansion of the retail investor base (which includes both individuals and retirement funds).

 

PAGE: ARE THE FUNDS BEING OFFERED SUFFICIENT OR NEW FUNDS NEED TO BE LAUNCHED?

MASHMOOMA ZEHRA MAJEED: Over the years, a diverse range of Mutual Funds including voluntary pension schemes have been launched. A mutual fund is categorized according to its investment objective and risk profile. There are three main asset classes/categories of funds, namely Equity, Income and Money Market. All others are derived from these three categories. Each category of mutual funds has both Conventional and Shariah-compliant funds. We have adequate number of mutual funds in each category for an investor to choose from. An investor can invest in any of the categories of funds in accordance with their requirements and appetite for risk. (e.g. those who want to earn higher returns over a longer period can invest in Equity Funds whereas those who want to invest for short term with can invest in Money Market Funds).We feel the product portfolio is adequately covered and growth in the sector is not being hampered due to lack of mutual funds.

The asset management companies are offering a diversified range of mutual and pension funds to meet the risk appetite of investors, yet the awareness in the masses is lacking of the options available to them.

PAGE: HOW COULD THE MASSES BE CONVINCED TO OPT FOR MUTUAL FUNDS? 

MASHMOOMA ZEHRA MAJEED: Mutual Funds provide professional investment management and low cost diversification to small investors. In addition, tax credit available to individual investors in Mutual Funds and voluntary pension schemes help promote long term savings and improve their effective returns.

Investing in a mutual fund doesn’t require a large sum of money. It is less capital intensive compared to direct investments. And an investor can regularly contribute small amounts and build up a saving. Mutual Funds are highly liquid investments and can be easily redeemed at the prevailing Redemption Price of the Fund, which is quoted on the daily basis.

Mutual Funds are very transparent and well regulated. A wide range of Mutual Funds are available to help meet the needs of every type of investor, from conservative to very aggressive. Mutual Funds can also help an investor meet a variety of specific investment goals. Also it offers competitive market based returns and without any minimum holding period (unless it’s a specific period fund). It is imperative for long term sustainable growth of the Mutual Funds industry that the retail investor base increases.

Currently, asset management companies are offering a diversified range of mutual and pension funds to meet the risk appetite of investors, yet the awareness in the masses is lacking of the options available to them. Many do not even know what a mutual fund is. That needs to be addressed. The benefits of investing through mutual funds needs to be shared so that when saving, the people look towards mutual funds as the preferred investment option.

PAGE: YOUR COMMENTS ON REGULATION AND TAXATION FOR AMCS?

MASHMOOMA ZEHRA MAJEED: One of the major areas that MUFAP has been dealing with since its inception and which shall continue to be a major focus area is representing the industry with the regulatory (Securities and Exchange Commission of Pakistan) and other government authorities such as the Federal Board of Revenue and Ministry of Finance to ensure that the environment and infrastructure available can support the continued growth and development of the Mutual Funds industry, and a level playing field is available for the Mutual Funds and voluntary pension schemes. It is very important that the regulatory framework supports the growth and development of the industry.

MUFAP has been actively involved in identifying regulatory, legislative and taxation areas which required amendments to make them conducive for mutual funds/voluntary pension schemes and it is contributing to the amendments in such areas. While the regulatory framework has been greatly streamlined, the taxation framework remains unbalanced and among the top most issue.

For the survival and growth of mutual funds industry, it is important that tax anomalies are removed and conducive environment is present for the industry to do its proper role in the economy as it does internationally. Mutual Funds are the biggest savings avenue worldwide but not in Pakistan, unfortunately. On one hand the government is offering comparatively higher returns on fixed rate government instruments and schemes making it difficult for market return based instruments to compete, while on the other hand it is also imposing double taxation and levies on the mutual funds that are not present on other investment avenues. A level playing field between mutual funds and other savings and investment avenues is must for the industry to grow and promote savings and investments in the country, which is currently at the lowest in the region.

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