SAVINGS IN MUTUAL FUNDS RISING
ASSETS OF MUTUAL FUNDS INDUSTRY ROSE 10 PER CENT IN JULY-MARCH 2010-11 TO RS275 BILLION COMPARED TO 4.4 PER CENT GROWTH IN 2009-10.
TARIQ AHMED SAEEDI
June 6 - 12, 2011
Despite a significant decline in the national saving of 13 per cent of gross domestic product during the current fiscal 2010-11, mutual funds industry has succeeded in securing trust of the investors whose risk appetite for open end funds did not pale however the overall uncertain economic conditions in the country.
Though annual data is yet to be released yet nine-month statistics indicated that Pakistan's mutual funds industry is expected to reveal double digit growth for the whole year. Assets of mutual funds industry rose 10 per cent in July-March 2010-11 to Rs275 billion compared to 4.4 per cent growth in 2009-10.
Savings in Pakistan have not been satisfactory for the past three or four years. High prices leave majority of income holders without disposable income at the month end. When it is called saving, obviously the bank saving is pointed out. Majority of the people use banks to park their disposable incomes. Since spiking double-digit inflation, that has squeezed the buying power of consumers, eats substantial portion of incomes of middle-income group, there is no doubt then savings are on the downward trend. In fact, national savings rate plunged 13.4 per cent of gross domestic product during the closing fiscal year against 15.4 per cent in previous year and target of 15 per cent, according to the economic survey 2010-11, released last week.
Total net assets of open-end funds grew 3.42 per cent to Rs202 billion while that of pension schemes rose 4.31 per cent. The assets of close end funds recorded a decline of 5.14 per cent to Rs25 billion in Jan-Mar. Equity funds constituted 78 per cent of close end fund assets or Rs20 billion. During the third quarter, one fund was launched and two were matured. First Habib Cash Fund (open end) was launched in March while Alfalah GHP Principal Protected Fund and UBL Capital Protected Fund-1 were matured.
Equity funds recorded appreciation due to the marvellous performance of the stock market during the period. An eight to nine per cent growth was recorded in the assets of equity funds. Equity funds are highly dependent on the ups and downs of the stock markets. The returns of money market schemes outperform equity funds in April. While money market funds registered an annualised return of 12.6 per cent in April, equity funds provided 0.4 per cent average yield in the month. Three months (Jan-Mar) saw six treasury bill auctions by State bank of Pakistan wherein an aggregate Rs962.3 billion was mobilised. Unchanged policy rate kept the brightness of the T-bills as banks continued to invest in all tenors and fund managers relaxed in allocating funds to the high-yielding bank assets.
Capital market showed robust performance during the nine months despite the economic downturns and shattering confidence of the investors over the deteriorating security condition in the country, uncertainty over the reformed general sales tax, and implications of the floods on the economy. Darting in and out of the safe zone, the benchmark Karachi stock exchange 100-index managed to maintain the better performance until the end of May. Last month witnessed best performance of the stock market-albeit trading reached at 12,682 points by mid-January only to have dropped later-mainly owing to an influx of foreign portfolio investments. At the end of March, KSE-100 was closed at 11,809 points, showing a surge of 16 per cent in the first nine months as compared to the corresponding period last year. July-Mar turnover of shares reached at Rs21 billion, average daily turnover of shares increased to Rs114 million, listed capital rose to Rs920 billion, and aggregate market capitalization was recorded at Rs3148 billion.
Energy, telecom, banking sectors emerged as the market leaders in terms of corporate profitability. Price to earning ratio of oil and gas development company remained highest at 9.9 at the end of March, followed by Pakistan Petroleum Limited (nine), and MCB (9.4). In fact, KSE's good performance was driven by rise in oil and gas exploration and high oil prices, thus oil and gas sector was a source of elevation.
Chief Strategy Officer at UBL Fund Managers described investments in mutual funds as taking 'a sip of tea at a time'. With a systematic plan, investments in mutual funds are the smart way to grow wealth, Maleeha Mimi Bangash wrote referring perhaps to the small investors. Mutual funds industry in Pakistan has a long way to acquire its due share in the total financial assets. One reason for this lacklustre progress is associated with ownership structure of the asset management companies. Most of them are owned by the banks that do not like to see shift of deposits from for example current and saving accounts to the competing money market funds, experts observed. This rivalry can be turned into friendliness if financial institutions and fund managers joined forces to tout financial solutions including money market, income, and stock funds from their branches as banks do to offer insurance policies to their customers, Tanveer Ahmed Harlal, regional head at Arif Habib Investments opined. He however said banks were reluctant to offer funds from their windows due to relatively low sales commission they get in return as compared to the insurance policies. Banks have competitive advantage over other subsectors of the financial sector in terms of mobilizing deposits from the wide network of branches. The situation can be changed if investors take interest in the mutual funds and park their savings in the funds. This will not only develop the financial market, but also exert a dent on monopoly of the banks. If public sector enterprises put their surplus funds and working capital into the money market schemes, banks would be compelled to reduce highly prohibitive spread (difference in what banks pay to and charge from customers), said Harlal. In addition, this can also fulfil the financial needs of the private sector that has banks at present as a major source of capital.