Feb 16 - 22, 2009

Non-speculation is what precisely differentiates investments in mutual funds from that in stock market and though having its absence mutual funds industry in Pakistan is snarled in the fight with ubiquitous liquidity crunch, a phenomenon that hits hard all and sundry-inside and outside Pakistan, said Syed Ather Ahmed Chief Operating Officer JS Investments while talking to PAGE.

High interest rates made fly of capital from mutual funds and redemption became an issue to be dealt with proper care in the industry. Elaborating the reason behind redemption that reduced size of fixed income funds to Rs84 billion from Rs. 150 billion within a brief of six months till December, 2008, he said corporate investors had to use savings in funds to meet business costs. They did it by withdrawing despite attractive yields on assets allocated in government securities, he replied when asked high discount rate may have increased gains. 'Businesses need liquid money.' JS Investments has 25% retail and 75% institutional investors.'

"That said mutual funds industry suffered a lot in last three to four months and its size contracted to $3 billion from $6 billion. We should not conclude that industry may collapse," said Ather whose association with financial sector dated back to March 1995 when he joined an investment bank in Pakistan two years after business graduation in Lahore. "It is an exciting industry," he stressed. "In Pakistan, it is on infant stage. Therefore, the room for growth is enormous. Mutual funds in USA constituted 150% of total bank deposits, in India it is 20% while it is 10% in Pakistan. Since there is latent opportunity to produce range of new products mutual funds can capture huge market share in Pakistan," he explained.

'Although numbers of assets managers both in Pakistan and India are almost equal, India's 28 players are rearing $100 billion mutual funds industry.' Basic problem lies in approach to customers by local mutual fund managers who in general sell funds instead of solutions. Wealth management services can increase presence of mutual funds nationwide.

"Asset managers design products according to socio-economic needs of investors. They prepare consolidated financial plans for funds investors. For example, they underline plans related to marriages, education, retirement funds, etc", he said highlighting working of industry in developed countries. Ather was conferred with Britannia Chevening (scholarship) Award that enabled him to complete MSc accounting and finance in London School of Economics. 'It is common to advertise different financial solutions provided by asset managers in developed countries.' He says there is a lack of public awareness about mutual funds in Pakistan. 'Even educated people are unaware.'

In general, people are slowly taking mutual funds as investment vehicles in Pakistan, he said. Instead, they are investing in speculative trading modes to become rich quickly, he added. Mutual funds offer long term and sustainable returns on investments. However, there is a need to expand basket of funds focussing retail investors. Since joining, he has launched five open-end funds and increased assets under management of JS by 75%. "I mobilized approximately Rs.4.5 billion, 95% from retail investors within six months. That was a collaborative attempt with Standard Chartered bank", he said.

The philosophy of JS is provision of financial solutions compatible with the needs of customers. 'We understand that strategic alliances with banks can expand our outreach. Presently, JS has strategic alliances with Standard Chartered bank, Citibank, and RBS.'

About viability of funds in this uncertain environment, he recommended income funds for investors in need of regular earning. For long term, if one can for instance lock in money for three to five years equity funds are feasible. 'A fund investor must have long term view.' One with desire for regular returns can invest in money market funds that have exposure to short-term assets. Assets allocation of managers should also be an important consideration when one is making investment decision, he emphasized. Often people chase for higher returns and overlook holding portfolios of asset management companies and their ratings. They can conveniently keep track on that in periodical published financial statements of AMCs, says Ather.       

He said stock market recorded over 60% plunge in shares value in a short span. One buys close-end funds directly from stock exchanges. 'Sometimes, dearth of guidance leads to bad investment decision.' JS is managing three close-end funds. We offer highest yield of 14% on daily basis on income funds and Pacra assigned JS, formerly JS Abamco Ltd., AM2+ rating.

He is not worried about banks posing direct competition to mutual funds insofar as corporate clientele is concerned. I think mutual funds industry has competitive edge over banks in Pakistan, he says. "First, returns are better in mutual funds. Second, they (capital gains) are tax exempted which also make them attractive to institutional investors. Moreover, third importantly investors accrue rate of return on daily basis rather than annual. Thus, neither withdrawal of amount before maturity carries any penalty nor it incurs rate of return loss in mutual funds", explained Ather.       

Private sector inclusion in mutual funds industry is just 10-year old. As most of the economic issues have settled down the industry will grow further, he believes. Regulator should be choosy in awarding mutual funds licences, he advised, in order to make industry grow with sustainability. With insignia of pioneer in the industry, having largest 12% market share, and managing highest assets in private sector, JS Investments has professional financial advisers to cater to the needs of investors both small and big, he concluded.