Mutual fund advisory and distribution

MARIAM NASIR, Manager Research.
Apr 02 - 08, 2007

Historians are uncertain about the origin of mutual fund some cite the closed-end investment companies were launched in the Netherlands in 1822 by King William I, while others point to a Dutch merchant named Adriaan van Ketwich whose investment trust created in 1774 may have provoked the idea. The next wave of near-mutual funds included an investment trust launched in Switzerland in 1849, followed by similar vehicles created in Scotland in the 1880s. The idea of pooling resources and spreading risk using closed-end investments soon took root in Great Britain and France, making its way to the United States in the 1890s. The Boston Personal Property Trust, formed in 1893, was the first closed-end fund in the U.S. The creation of the Alexander Fund in Philadelphia, Pennsylvania, in 1907 was an important step in the evolution toward what we know as the modern mutual fund. The creation of the Massachusetts Investors' Trust in Boston, Massachusetts, heralded the arrival of the modern mutual fund in 1924. The fund went public in 1928, eventually spawning the mutual fund firm known today as MFS Investment Management. 1928 was a momentous year in the history of the mutual fund, when Wellington Fund, was the first one to include stocks and bonds, as opposed to direct merchant bank style of investments in business and trade. As the 20's crashed to a close, there were 10 mutual funds in the nation. The Sixties saw the growth in aggressive (high risk) funds that were labeled, in the vernacular of the times, "hot-shot" or "go-go" funds. In late Sixties a lot of people dumped a lot of money in them until the bearish times of 1969 freaked everybody out: investors yanked out their money and have been kicking themselves ever since, because some funds increased in value by more than 9,000%. Until this time, people had been paying sales commissions on their funds. In the '70s, no-load funds were invented, and the biggest today, Vanguard Funds, was founded in 1977. At the end of the Sixties, there were nearly 250 different mutual funds: today, they number over 6,000.


Globally, the 1940's and 1950's period can be considered as a boom period for the mutual fund industry. But in Pakistan, concept of mutual funds was introduced in 1962. During 1962-1971, National Investment Trust and Investment Corporation of Pakistan (a close end fund launched in 1966) were the two main players in the market, depicting government's monopoly in the mutual fund industry. However in 1971, the government allowed the private sector in the close-end segment but shorn of the right to float open-end funds due to the trepidation of the regulators that the private sector will not be able to manage the funds prudently. ABAMCO Growth Fund (formerly 4th ICP), (PICIC Growth Fund (formerly ICP-SEMF) and Golden Arrow correspondingly listed in 1970, 1980 and 1983 respectively. And today the Mutual Funds Management business in Pakistan is growing at a much faster pace with 28 asset management companies presently working all over the country and handling more than 60 funds.


This tremendous growth in Asset Management Companies and issuance of more and more funds were a cause of concern for the individuals as to where they should invest in and which fund should that be. With this, a concept of mutual fund advisory was born. A company which works like an independent agent, provides unbiased advisory services and facilitates in sales of open end units of any asset management company. These companies are designed to help you build your personal portfolio which provides you a clear understanding of how the combination of different Mutual Fund Investment Strategies can provide you with potential growth, peace of mind and a better return on your money. They advice and guide investors (both retail and institutional) through their expert sales personnel who are well versed with the industry and are aware of the risk associated with a particular investment.


* They are licensed by Securities and Exchange Commission of Pakistan

* They have marketing and sales agreement with almost all asset management companies, hence enabling you in offering the best of the lot.

* Help in minimizing your risk and shift your investment needs if required.

* Charge no fees, as they part their income from sales load.

* Issue independent and unbiased research reports.

Internationally this concept is being practiced since a long time as they benefit in terms of reduction in operational costs. The asset management companies abroad focus on their core operations of fund management and outsource the sales and distribution functions to the advisors and pay them off in terms of commissions. The advisors offer a wide range of funds of different types to suit the investor's needs.

The income for these distribution agents is obtained out of sharing in the sales load or management fee, for which a pre-decided agreement is worked out. The first mover advantage was availed by IGI Investment Bank Limited (formerly known as First International Investment Limited INTERBANK) which branded their services by the name of Fund Select. After which many companies followed their footsteps which include:

* Access Finance (Private) Limited
* Flow (Private) Limited
* Reliance (Private) Limited
* Standard Chartered Bank Limited

Apart from these many others are planning the same, which include BMA Capital Management and Atlas Capital Markets (Private) Limited.