Long term funds’ assets to GDP ratio crawls to 1.44 percent

KARACHI: The mutual fund industry’s assets to GDP ratio surged by a nominal 33 basis points in four years to 1.44 percent in 2016 opening up opportunities for growth if right policies were put in place.

As of April 21, 2017, there are 20 asset management companies in Pakistan managing 198 mutual funds with total assets of Rs625 billion. According to a report issued by Mutual Funds Association of Pakistan (MUFAP), the long term fund industry’s (excluding money market funds) assets to GDP ratio was 1.11 percent in 2012, which has improved to 1.44 percent in 2016.

However, Pakistan Stock Market Capitalisation to GDP ratio in the same period improved from to 25.64 percent in 2016 from 17.55 percent in 2012. “There is a correlation in the growth in mutual funds’ assets and stock market capitalisation; since mutual funds’ assets as percentage of GDP are very low, there is tremendous opportunity for growth, if right policies are put in place,” notes Habib-ur-Rehman of Atlas Asset Management in the report.

Pakistan has a robust capital market infrastructure and adequate regulatory frame work. Pakistan Stock Exchange (PSX) is also amongst the best performing stock exchanges in the world. Still the capital market capitalisation and mutual funds’ assets to GDP ratios are low.

For growth of the capital markets, the report suggests, the country needs to promote domestic savings; foreign investors can only supplement the growth. “Active participation of mutual funds in the capital markets provides the markets with much needed liquidity. This also helps in price discovery,” Habib-ur-Rehman said.

Shahid Ghaffar, chairman, MUFAP, in his review said the outgoing year had been very challenging for the mutual fund industry with continued changes in the tax laws adversely affecting institutional investment in mutual funds. “Declining interest rates and mostly bearish market conditions during the year under review further hindered growth of the mutual fund industry,” he added.

The mutual fund industry closed the financial year 2016 at Rs490.37 billion up 10.57 percent over last year. The equity funds category (both conventional and Shariah-compliant) of Rs178.17 billion, were up 12.17 percent from last year, followed by income fund category at Rs127.73 billion up 25.83 percent, and money market category at Rs55.58 billion which was down 30.67 percent from the previous year.

The Shariah-compliant funds category continued growing faster than the conventional category, and closed the year at Rs157.49 billion, recording the growth of 26.78 percent over the previous year. A variety of mutual funds are being offered in this category to suit the varied needs of investors by asset management companies.

According to the MUFAP report, future of the mutual fund industry is dependent on increasing awareness about the mutual fund industry and enhancing the outreach to investors across the country.

“Over the past few years, there has been gradual increase in the retail base which is presently around 34 percent. Asset management companies are offering a diversified range of mutual and pension funds to meet the risk appetite of investors, yet the awareness in the masses is lacking of the options available to them,” it added.