Mutual funds assets reach Rs273b

KARACHI - The net assets of the mutual funds have surged to Rs 273 billion during the first quarter of current financial year.
During Q1-FY09, the share of public sector investment in the mutual funds industry grew by 20.8 per cent while the private sector investment by its share size jumped by 79.2pc, respectively during the period under review.
As of end-December FY09, the growth in open-end funds was 87.4 per cent while the share of close-end funds was up by 12.6pc.
It is important to mention here that among 8 different categories of mutual funds, the volume of two major funds, equity and income rose by 34.4pc and 27.6pc, whereas, money market funds enlarged by 17.7pc.
It is worth noting here that the worst-ever global financial crisis accompanied with domestic liquidity pressures has badly affected the asset management industry of Pakistan. From the day the crisis broke out, the equity funds had not seen any subscription by the regulators. Around 50pc outflow of funds in categories, income and equity from mutual fund market has been reported, showing that the investment size of these funds will slump sharply in the emerging markets like ours.
Total Assets under Management (AUM) of Asset Management Companies (AMCs) of Pakistan registered a decline of 12.83pc in Oct on m-o-m basis. AUM of the industry amounted to Rs236.91b at the end of Oct compared to Rs271.77b at the end of Sept. Open end and closed end funds shared Rs206.09b and Rs30.81b respectively. Decrease in AUM of open-end funds was 13.38pc and for closed end funds, a decline of 8.97pc was witnessed in October 2008.
The mutual funds sector has grown rapidly in the last few years and accounted for the largest chunk of 55.3pc in total assets of the non-bank financial sector in FY08. Between FY02 to FY08, net assets of mutual funds have grown by more than 13 times to reach Rs. 330 billion by the close of FY08. The average payout of the mutual funds industry also grew to 18.0pc in FY08 (22.1pc in FY07).
The growth in mutual funds in Pakistan is attributable to: (i) liberalization of the sector; (ii) economic growth and macroeconomic stability that attracted investors, including foreign investors, to the stock market; (iii) increased liquidity with institutional investors, which was channelized into the stock market and mutual funds; (iv) high corporate earnings that increased the earnings potential for mutual funds; and (v) a buoyant stock market that provided mutual funds with good returns in the form of capital gains.
Liberalization has helped to facilitate entry of the private sector in the mutual funds industry. Historically, the industry was dominated by public sector funds. However, creation of an enabling legal framework to allow mutual funds to be set up in the private sector and transfer of ICP-managed closed end funds to two private sector investment advisers in FY03 boosted the number and size of funds under the management of the private sector, increased competition and efficiency of the sector and enhanced the quality of fund management. It also provided opportunity to financial institutions, like banks and brokerage firms, to diversify into fund management through subsidiaries and associated companies. As may be seen from, the share of private sector funds in the sector has grown from 10.0pc to over 79.2pc over the last six years or so.
According to performance review of non-bank finance sector, the public sector open-end mutual fund, NIT, by its sheer size continues to have a significant share of 31.0pc in the net assets of the sector. As of end-June FY07, the mutual funds sector comprised of 66 funds with 47 open-end funds and 19 closed-end funds. The number of funds increased to 95 by end-FY08. Open-end funds dominate the sector, due to investors' preference for ease of exit and the flexibility this investment option offers.