Aug 11 - 17, 2008

Sadruddin Pyar Ali, Chief Operating Officer, AMZ Asset Management has acquired multi-faceted knowledge of financial management through serving over 20 years in different local and international financial institutions. His indelible expertise in selecting profitable avenues for mutual funds reinvestment is adding feather to his cap. His achieving highest rate of returns for AMZ income fund in last fiscal set an imitable model for the mutual funds companies, exemplifying that decisive assets allocation can ensure lucrative returns on pooled investments even within market constraints.

Pakistan & Gulf Economist conducted with him an interview recently in which he referred mutual fund as vigilant safeguard to protect investments in capital and money markets. Besides, resentful about the investment directions, he flayed investment priorities had always been misdirected in Pakistan. He says we forget that Pakistan is an agriculture country. Had all inflows been directed towards this sector, on infrastructure development as well as on energy generation, Pakistan would have become a net exporter. Also, he berated investments that landed into capital markets for getting away quick profits. He holds very clear perspective about the current performance of stock markets that, he opines, are still maintaining profitability despite dilemmatic political and economical conditions.

Second to head of AMZ, Sadruddin Pyar Ali held the position of COO ever since he joined the company 6 months ago. AMZ manages two open end funds. Following are the questions raised during the interview and his replies:

PAGE: Why do you think that mutual fund is a right choice for general investments in capital and money markets?

COO: Firstly, because mutual fund protects investment against unnecessary loss due to pooled accumulation of fund. Secondly, investment trend in mutual fund promotes saving of real income in the country. Note, for instance, when one engages in active or direct trading in stock market the rate of returns over principal could be skyrocketing, but entire principal could instantly vanish off in case of plunging market value of share. In bank deposit rate of return is determined by management instead of market forces. And this return is impacted too by the spread, which is high.

In contrast mutual fund though does not multiply profit margin on speculation, its return increases along side improving outlook of money and stock markets. Both open and close end funds have different reinvestment options. In our market structure open end fund is befittingly compatible for its unrestricted withdrawal. Rs. 5,000 is the minimum investment requirement on which annualized rate of return is applicable. In fact, beauty of open end fund is the flexibility to withdraw amount anytime.

General investors should have long term saving approach in their mind to beat inflation when they come across investment in securities. Normally, people tend to become overnight rich through stock trading. This general trend prevails upon every where whether it is gold trading, stock, or mutual fund. I suggest short term investment be taxed to dissuade speculation trading. Rise in required rate of return also discourages speculation.

Diversification in allocation of mutually accumulated funds also mitigates the risk of unit devaluation. It rarely happens that unit value decreases below principal. Especially in money market fund the devaluation is very rare. However, stock market fund is subject to index ebb and flow.

Out of 23 income funds, AMZ Plus Income Fund offered highest 10.3% cumulative return and emerged as a best performing money market fund of last fiscal in the country.

PAGE: In last fiscal where in priority was income fund asset allocated?

COO: We earmarked majority of income funds for buying money market instruments such as bond in last year. Usually, we keep moderate participation of income fund in stock market related transactions and for diversifying 0.07 % in ready future transactions, 5.4% in CFS were allocated last year to have supported AMZPIF achieving the landmark.

PAGE: As you said money market instruments were reliable parking pads for mutual income funds, what would be the net affect of discount rate rise on mutual funds profitability?

COO: There is an inverse relation between interest rate and money market instruments. Typically, as interest rate flies up price of bond draws back. There must be stability in economic policies since like any other sector mutual fund can only progress on the growth trajectory providing economic stability. The uncertainty and inconsistency in economic policies would not behold long term advantages.

PAGE: Given the present size of overall mutual fund sector that forms hardly 10 percent of total bank deposits in Pakistan and significant untapped bankable population, how do you see obstacles in progress and growth prospect?

COO: Few are perennial and identical as strained in other industries while other has root in the history. Picking later first to illustrate obstacles, I would attribute illegal cooperative societies and thugs who collected million of rupees from public against promises of heavy returns and swindled them scot-free. Basically, the old memories carved in people's mind stop them investing in mutual fund, awareness about which has not fully created.

Let me tell you one thing that mutual fund is completely secured by pious regulatory framework. SECP is the main regulatory body that is supervising all mutual fund companies of Pakistan.

Since CDC is a trustee of all mutual fund issuers, it receives directly amount credited in mutual funds. It keeps track records of investment landed in open or close end funds. Mutual fund company can just access to certain percentage of amount as management fee, which is 1.25% in accordance with provision of SECP.

Another obstruction in the progress of mutual fund sector of Pakistan is shortage of skilled human resource. Association of mutual fund companies has started training programmes for sales agents of mutual funds. Getting this certification will become one of job criteria in days to come. Indeed, mutual fund sector of Pakistan has large market to encompass.