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Savings are the most important factor in creating investment avenues in any economy. This is a dilemma that local savings in Pakistan have always been very low to an extent that GDP growth has remained dependent on foreign savings. This led to the lack of private interest in innovating new products for public investments. Though the rate of savings have not improved with the economic growth but this growing economy with improving number of middle class have definitely encouraged private sector to innovate new products for public interest. Moreover rising remittances have greatly contributed to the monetary growth in the economy hence leaving public with more money to spend and save.

In past, the only investment avenue that could attract people was government saving schemes and bank deposits. The approach of savers has witnessed a drastic change due to education being spread by the media channels about inflation and negative rate of return. Public has now become aware of the fact that bank deposits offer them negative rate of return and return on Government saving schemes is also neutralized by rising inflation. It has also increased the appetite of common man to earn higher rates of return and outperform inflation by a greater margin. This has led to the creation of more and more investment avenues by the private sector.

Before discussing investment avenues, let us first categorize investors in two categories. One category belongs to the people who are more willing to invest their savings and earn returns on them but their approach is to always make risk free investment so that their return is ensured with a secured principal i.e. they are more interested in fixed risk free returns. The second type of investors are very aggressive in nature and are ready to take risk in order to earn higher returns no matter if their principal is at stake.


Government saving schemes is the safest investment avenue through out the world as they are backed by sovereign guarantee which in any case can pay back the amount by printing money provided a default doesn't occur. Pakistani Government has been making deficit budgets in past and even this year the targeted budget deficit is Rs.398bn. In a scenario when Government has been restricted by an autonomous central bank to borrow from it; the other two options are commercial banks and public debt. Tight monetary policy has had a negative impact on private sector credit off take and this impact was further worsened by government borrowing from commercial banks for its deficit financing.  Since commercial banks force government to borrow at market rates, raising money from saving schemes will be a viable option for the government as evident from the recent rise in saving schemes by 50 basis points.

Another avenue is stock market that offers so much risk with higher return and where public can directly invest. Global liquidity and risk appetite have brought investments in global markets and developing markets have seen historic highs. Pakistan is also a vital example where stock indices have gone up at record levels. However due to past instances, stock market in Pakistan has not been able to earn good reputation among the masses. There is still a perception that it is a highly manipulated market where investments of small and medium investors are wiped out. Though after the recent remarkable upside, market analyst foresee further upside potential in the market but political and law and order situation make risk higher and expectations of return are in doldrums. 

Information access to the public has increased due to efficient research work done by the research departments of leading brokerage houses that provide fundamental analysis through first hand information from the listed companies. Media channels have played a key role in making market less speculative by giving immediate updates about the facts and figures of the rumors that take place in the market.

Small and medium investors directly invest in the equity markets worldwide as risk is not as high as in Pakistani equity markets. The public confidence in those markets is driven by depth and liquidity that has come through the reforms in those markets. Though regulator has introduced so many reforms in order to improve transparency in the market but still equity markets in Pakistan lack depth and liquidity due to lesser derivative and hedging products where investors can hedge their risk and can find liquidity in the markets, but it is still not advisable that small and medium investors should directly invest on the basis of speculation and without any fundamental research or it is better to invest in the stock exchange through mutual funds that we will discuss later in this article..

Lack of corporate interest and liquidity has hindered the growth of debt market in Pakistan and hence term finance certificates were not issued in a reasonable number. Companies are not willing to make their accounts public and hence not only institutions but also common man is deprived of a liquid market.

A developing investment avenue is mutual fund industry where savers can invest their money without paying any additional taxes on capital gains and by just paying meager management fees which is expected to be reduced further due to increasing competition brought by rising number of funds. The industry is growing at a fast pace and its size has now exceeded $3bn. The products that have been introduced by the industry are still insufficient but innovation is taking place at a reasonable pace and industry is keeping up with the growing momentum of overall growth in the financial industry.


The mutual funds can also be categorized as risky and non risky mutual funds. Fixed income funds lie in the non risky category and their performance has been very impressive. Professional management in these funds have managed public money in an efficient manner in an uncertain interest rate scenario. Performance was further highlighted by disappointing return of equity based funds due to neutral behavior of Karachi stock exchange in 2006, however recent boom in the KSE have enabled fund managers to show higher returns exceeding 30% on annual basis. Equity based funds are risky in nature as returns are diminished in case if market declines. However, it is much safer then an individual's direct investment in the market because expertise of qualified fund managers are involved in decision making.

This is very unfortunate that the customer base of the mutual fund industry could not match with its increasing size. The unit holders of mutual funds are mostly institutions and number of smaller investors is almost stagnant. It can be attributable to the bad experiences that people had in the past when their investments in certain investment avenues were hit by frauds. Moreover, most of the asset management companies are still in their infancy stage and it will take some time to build a track record and establish confidence among the common public. This should also be supported by some aggressive meaningful marketing by mutual fund association that can create awareness among the public.

The commodity prices in the world have seen phenomenal rise in last five years. Gold was trading at $300 per ounce in 2002 in the commodity markets of the world and now trades above $650 per ounce which translates into an increase of more than 100%. International oil prices have exhibited an incredible rise as it now trades above $70 per barrel as compared to $20 per barrel in 2002. The local investors in Pakistan could benefit from this boom if a commodity exchange was in place and they could find liquid avenues to trade in these commodities. Government on the other hand made volatile decisions about duties on the Gold import which encouraged smuggling and hence the business was badly impacted. Government can give confidence to the people to invest in these commodities if these products are brought on board and small investors have access to invest and trade in it.


Real estate is another volatile avenue which can be risky if an investor wants to make a short term transaction and can otherwise be very profitable. However the extent of risk is comparatively low as investment is backed by real assets. Undocumented property transactions or in other words fake documentation in the economy has kept people shy from investing in this segment. However recent announcement of real estate investment trust (REITS) can attract so much investment in this area. Securities and Exchange Commission of Pakistan recently made a good move that it uploaded the changes in finance bill regarding REITS on its website and asked for suggestions. The recent amendments empower SECP to make regulations.

Though, country lacks investment avenues for the public but still this is not the only reason for low savings and hence low investments in the economy. Higher inflation and miss utilization of foreign inflows have resulted in an inefficient mechanism that discourages public to save and invest. However, with professional involvement in asset management companies doors are opening for a well-organized saving and investing culture in the economy.