Mar 17 - 23, 2008

LAHORE: Mutual Funds, which were introduced in Pakistan in 1962, are now characterized as one of the most common and popular investment options for all categories of investors in the developed markets.

In Pakistan, the public offering of National Investment (Unit) Trust (NIT), which is an open-ended mutual fund in the public sector, was firstly made. This was followed by the establishment of the Investment Corporation of Pakistan (ICP) in 1966, which subsequently offered a series of closed-ended mutual funds.

Now over two dozens close-ended ICP mutual funds have been floated. Initially, there was both public and private sector participation in the management of these funds, but with the nationalization in the seventies, the government role became more dominant and these mutual funds were dealt in the public sector. Today, the government also allowed the private sector to establish mutual funds. Currently there exists one open-ended and eleven closed-ended mutual funds under private sector management, sources in the corporate sector told PAGE.

According to them, mutual funds in Pakistan are regulated under the Investment Companies and Investment Advisors' Rules, 1971 (for close-ended mutual funds) and Asset Management Companies Rules, 1995 (for open-ended mutual funds). These rules however only apply to private sector operated mutual funds and are not applicable to NIT and ICP mutual funds.

NIT (National Investment (Unit) Trust), UTP (Unit Trust of Pakistan), ICP (Investment Corporation of Pakistan), Al-Meezan Mutual Fund, Asian Stocks Fund, BSJS Balanced Fund, Dominion Stock Fund, First Capital Mutual Fund, Golden Arrow Stock Fund, Growth Mutual Fund, KASB Premier Fund, Prudential Stock Fund Safeway Mutual Fund and Tri-Star Mutual Fund are some of the leading mutual funds companies.

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Moreover, sources said United Asset Management Co., a unit of United Bank Ltd., the country's fourth biggest bank, plans to launch a close-ended three-year fund in the first half of the year. And ABAMCO Ltd., another asset management company, plans to launch the country's first open-ended mutual fund over the next three months.

"Guaranteed capital is very popular throughout the world with retail investors because they are happy to have lower upside returns as long as their capital is guaranteed," the sources said and added that the zero-coupon bond investments guarantee that the fund will be able to return investors" capital, while the equity investments offer upside potential.

In the last four years, experts said that the asset size of mutual funds has grown fourfold to over Rs 100 billion. The biggest open-ended fund, the state-run National Investment Trust, accounts for more than half of those assets. The potential is huge as only half a million people invest in the stock market - with the majority opting for fixed-income certificates or property investments. "In America the mutual fund industry has been around for over 100 years, in Pakistan it has been around for four or five years as before that it was dominated by public sector funds which moved at their own pace," they said.