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Apathy by the rural Pakistan in mutual funds sector

Mutual Funds sector of Pakistan has not been able to increase its share of assets from smaller cities. The focus mainly is on large cities of Pakistan whereas the rural Pakistan gets neglected for various reasons. One of the reasons could be short-sightedness of the mutual funds sector or weak financial muscles for marketing and awareness in the far-flung areas of Pakistan. Not even 10 percent of the total population has invested in mutual funds in Pakistan whereas every third or fourth individual invests in mutual funds in the developed countries. The growth of mutual funds sector of even some developing countries is exemplary.

There is a perception held by some individuals that mutual funds sector has become so strong that it at times sets the direction of Pakistan Stock Exchange (PSX). This may not hold true looking at the market capitalization of PSX and the mutual funds sector’s investment in the market. At the same time, there is no denying the fact that equity funds do play a vital role in the market. The total value of mutual funds sector of Pakistan is around $6 billion which is around two percent of our GDP. Global Mutual Funds to invest in international markets are fast catching up in the world these days due to globalization and at the same time such funds in Pakistan can be fascinating.

Insider trading by asset managers damages the industry, confidence of the current investors and the would-be shaky investors. Insider trading is prevalent in many countries and measures are being taken to rein in this practice and professionals have been put behind the bars as well in this regard. Such practices are very detrimental for the small economies like that of ours. Mutual funds sector of Pakistan started its journey way back in 60s, however, it is still in its infancy in Pakistan owing to myriads of reasons right from the regulation to awareness.

Savings and investing culture has not been promoted in Pakistan in its true sense. Pakistan’s savings-to-GDP ratio, instead of increasing, has declined to 13 percent. Pakistan’s investment-to-GDP ratio is 16 percent at present. Consumption culture is being promoted in Pakistan particularly by the financial sector of Pakistan. There were times that banks used to advertise to attract deposits, however, it is contrary today. At present, right from visiting the ATMs to watching TV and print media advertisement, one can view the advertisements of personal loans, home loans, auto loans etc. The approach has altered from garnering deposits to offering loans. In the past, even kids were encouraged to open bank accounts, however, today individuals are sort of encouraged to go abroad by availing loans, buying gadgets by availing loans, get married by availing loans etc. This model would not prove good for the prosperity of the economy of Pakistan.

 

It is the responsibility of the state to ensure that the economic direction of its citizens in right. This is ensured all over the world with the legislation by the lawmakers and simultaneously they chalk out right policies based on the strengths of the economy.

Approximately $20 billion are remitted to Pakistan every year by the overseas Pakistanis and this amount by and large goes to the rural economy. Eidul Azha is a religious festival which bolsters the rural economy of Pakistan with an estimated $6 billion dollars. Pakistan’s 65 percent population lives in rural Pakistan and is responsible for the two major industries of Pakistan namely textile and sugar. It is also being presumed that the future of Pakistan’s economy is in the rural areas of Pakistan.

Last year, the Securities and Exchange Commission of Pakistan (SECP) based on the long-standing demand of the mutual funds sector allowed asset management companies to charge marketing expenditure for increasing mutual funds outreach to small cities and towns for a period of three years, starting from Jan 1, 2017 to Dec 31, 2019. The question is whether this decision of SECP was prudent and the investors are happy and has it helped AMCs explore the new avenues. The Securities and Exchange Board of India (SEBI) ensures that asset managers do not charge high fees.

The total assets of the Indian mutual fund sector are estimated to be about $200 billion whereas Pakistan’s mutual funds sector with smashing success over the period of last decade has a long way to go before it makes its mark in the international arena. The global investors do not seem interested in the mutual funds sector of Pakistan currently however future may augur well.

There are around 43 mutual fund houses in India, however, the top ten controls more than 80 percent of the assets. The story is not different in Pakistan with five asset management companies commanding an entire control.

The regulator needs to see whether the asset management companies have actually made efforts in terms of financial inclusion as envisaged.

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