islamic mutual fun industry in pakistan
TRANSCRIPT
GROUP MEMBERS
Wajid Ali 3335Haifa Saleem 3336Nabita Ishtiaq 3353Shakeel Aslam 3338Hassan Naseer 3328Rana Tassaduq 3316
PRESENTED TO:
Dr. Salman Ahmad
A mutual fund is an investment vehicle that pools in
the monies of several investors, and collectively
invests this amount in either the equity market or
the debt market, or both, depending upon the fund’s
objective.
This means you can access either the equity or the
debt market, or both, without investing directly in
equity or debt.
A Mutual Fund is a trust that pools the savings of a
number of investors who share a common financial
goal.
The money thus collected is then invested in capital
market instruments such as shares, debentures and
other securities.
The income earned through these investments and
the capital appreciations realized are shared by its
unit holders in proportion to the number of units
owned by them.
How Mutual Fund works?
Pool their money with
INVESTORS
FUND
MANAGERS
Passed back to
Generate
SECURITIES
Invest in
RETURNS
Mutual Funds
Mutual Funds
Professional
Fund Managers
MBA’s
CA’s
CFA’s
The Investor
Investments
Stocks
Money Markets
TFC’s
Bank Deposits
CFS
Income is earned from dividends on stocks and interest
on bonds.
If the fund sells securities that have increased in price,
the fund has a capital gain. Most funds also pass on
these gains to investors in a distribution.
If fund holdings increase in price but are not sold by
the fund manager, the fund's shares increase in price.
You can then sell your mutual fund shares for a profit.
Continue……..
First modern day mutual fund was opened in North America in 1924.
The GREAT DEPRESSION of 1930s in USA has stalled the growth of
mutual funds sector, like many other economic activities.
Yet it was, 1990s that mutual funds became mainstream investments in the
USA and around the globe.
At the end of June 2013, total mutual fund assets all over the world were
USD 30.05 trillion.
History and Inception of Mutual Funds
Worldwide Mutual Fund Industry
Islamic Mutual Fund Industry
The Islamic mutual funds market is one of the fastest growing
sectors within the Islamic Financial System.
Yet when compared to the mutual fund industry at large, Islamic
mutual funds are still in their infancy stage of growth and
development.
The wider acceptance of equity funds by Shariah Scholars in
early 1990s paved the way to launch Islamic mutual funds.
Currently there are over 600 Islamic Institutions in some 75
countries that are managing funds worth over USD 1.5 trillion by
the end of June 2013.
Comparison of Islamic VS World Wide Mutual
Fund Industry
Trillion USD
World Wide Mutual Funds
World Wide Islamic Mutual Funds
$ 1.5 trillion
$ 30.05 trillion
TYPES OF MUTUAL FUNDS ON THE BASES OF
STRUCTURE
Open End:-
Continuously offer and redeem their units to the investors.
Closed End:-
One time issuance of certificates and then are traded in the
secondary market.
Open Ended Funds
A type of mutual fund, where there are no restrictions on the amount ofshares the fund will issue.
If demand is high enough, the fund will continue to issue shares nomatter how many investors there are.
Open-end funds also buy back shares when investors wish to sell.
It's important to understand that each mutual fund has different risksand rewards.
In general, the higher the potential return, the higher the risk of loss.
Although some funds are less risky than others, all funds have somelevel of risk - it's never possible to diversify away all the risk. This is afact for all investments.
Closed End Funds
Closed End Funds have a predetermined and fixed number of sharesoutstanding.
Closed-end funds behave more like stocks because they trade on anexchange and the price is determined by market demand after an initialpublic offering (IPO) process.
Closed-end funds can be traded below their net asset value or above.
The closed-end fund "company" still has its own stock, which is tradedon an exchange and trades above or below its underlying value, or netasset value (NAV), in this case.
They also trade according to market demands. Every seller must havea buyer.
GROWTH / EQUITY ORIENTED SCHEMES
EQUITY FUNDS
INDEX FUNDS
SECTOR FUNDS
INCOME / DEBT ORIENTED SCHEME
SPECIALIZED FUNDS
ISLAMIC FUNDS
BALANCED FUND
LIQUID FUNDS
BOND FUNDS
Benefits OF Mutual Funds
Professional Management:-
Expertise to manage and reinvest interest or dividend income, or
to investigate thousands of securities. Access to extensive
research, market information, and skilled securities traders.
Liquidity:-
Mutual fund can be bought and sold on any business day, so
investors have easy access to their money. Many individual
securities can also be bought and sold readily, others aren't widely
traded.
Diversification:-Securities from hundreds or even thousands of issuers it reduces
the risk of loss.
Convenience:-Mutual funds offer services that make investing easier. Mail,
telephone, or the Internet. Automatic investments into a fund or
automatic transfers from a fund to your bank account.
Tax Free Return:-The stock dividend from mutual funds are exempt from tax.
Cash dividend taxable.
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Comparison of Income Funds with Bank Deposits
TAX BENEFITS OF MUTUAL FUNDS
0%1.2%Tax Deduction
0%4.2%Tax Deduction
Bank Deposits Mutual Funds*
Corporate (35% Tax Bracket)
Pre tax return 12.0% 12%
After tax return 7.8% 12%
Individuals (10% Tax Bracket)
Pre tax return 12.0% 12%
After tax return 10.8% 12%
MARKET RISK: Sometimes prices and yields of all securities rise and
fall. Broad outside influences affecting the market in general lead to this.
Inflation Risk: Inflation is the loss of purchasing power over time.
INTEREST RATE RISK: In a free market economy interest rates are
difficult if not impossible to predict.
POLITICAL/GOVERNMENT POLICY RISK: Changes in
government policy and political decision can change the investment
environment.
LIQUIDITY RISK: Liquidity risk arises when it becomes difficult to sell
the securities that one has purchased. 1
RISK FACTORS OF MUTUAL
FUNDS
History of mutual funds in Pakistan
Mutual funds in Pakistan are registered and legally established
in the form of a Trust, under the Trust Act of 1882.
The mutual fund industry is regulated by, the Securities and
Exchange Commission of Pakistan (SECP) which licenses each
Asset Management Company in strict compliance with the
NBFC Rules, 2003 and requires all AMC’s to obtain an
independent rating.
Mutual funds introduce in Pakistan in 1962, with the public
offering of National Investment Trust followed by the
establishment of the Investment Corporation of Pakistan (ICP)
in 1966.
Rules Govern Mutual Funds in Pakistan
There are two rules govern mutual funds in Pakistan, which are:
Investment Companies and Investment Advisors' Rules, 1971.
(Govern closed-end mutual funds)
2. Asset Management Companies Rules, 1995. (Govern open-
ended mutual funds)
Comparison of Pakistan’s VS World Wide
Islamic Mutual Funds
Trillion USD
Pakistan's Islamic Mutual Funds
World Wide Islamic Mutual Funds
2.66 %
$ 0.04 trillion
$ 1.50 trillion
As the year 2013 draws to a close, the mutual fund industry
appears to be undergoing a ‘consolidation’ phase. The number of
asset management companies has gone down from 27 in 2012 to
24 by now.
In the year-ended June 30, there were about 175,000 individual
investor accounts (not to be confused with number of individual
investors), against about 171,000 in the prior year.
This seems to be the logical next step in the evolution of this
industry, which is still in a developing stage, with less than Rs.
400 billion in total assets under management.
Continue……..
Why Mutual Funds lagging in
Pakistan?
Controlled by Public Sector, initially
Lack of awareness
Interest rates were too high
Education
Distribution
Low savings
Mutual fund and Pakistan
MUFAP (mutual fund association of Pakistan) is the trade body for Pakistan's
multi billion rupees asset management industry.
MUFAP role is to ensure transparency, high ethical conduct and growth of the
mutual fund industry.
After the establishment of MUFAP in 1996, private and foreign firms were
allowed to float open-ended funds for the general public.
. Mutual Funds were initially overseen by the Corporate Law Authority
(“CLA”) under its Securities Wing.
The money that members manage is in a wide variety of investment vehicles
including stocks, bonds, money market instruments, government securities and
bank deposits.
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The CLA, then a division of the Ministry of Finance, was graduallytransformed and made independent as the Securities and ExchangeCommission of Pakistan (“SECP”) as part of the Capital MarketDevelopment Program (CMDP) initiative of the Asian Development Bankundertaken for Pakistan.
MUFAP’s role is to establish the essential codes and standards within theindustry to ensure the trust and confidence of investors and build the industryas a whole.
The CMDP envisaged formation of four types of Self-Regulated Organizations (“SROs”) to function under the SECP
Stock Exchanges recognized as separate SROs;
Mutual Funds Association of Pakistan (MUFAP);
Leasing Association of Pakistan (LAP); and
Modaraba Association of Pakistan (MAP).
Mutual Fund (Asset Management) Companies in Pakistan
NATIONAL INVESTMENT TRUST.
NBP FULLERTON ASSET MANAGEMENT LTD.
ABAMCO LTD.
AKD INVESTMENT MANAGEMENT LTD.
AL FALAH GHP INVESTMENT MANAGEMENT.
AL-MEEZAN INVESTMENT MANAGEMENT LTD.
AMZ ASSET MANAGEMENT LTD.
FAYSAL ASSET MANAGEMENT LTD.
FIRST CAPITAL INVESTMENTS LTD.
ARIF HABIB INVESTMENT MANAGEMENT LTD.
ASIAN CAPITAL MANAGEMENT (PVT.) LTD
ASKARI ASSET MANAGEMENT LTD.
ATLAS ASSET MANAGEMENT LTD.
BMA ASSET MANAGEMENT LTD.
HABIB ASSETS MANAGEMENT LTD.
HBL ASSET MANAGEMENT LTD.
KASB FUND LTD.
NATIONAL ASSET MANAGEMENT COMPANY LTD.
NATIONAL FULLERTON ASSET MANAGEMENT LTD - NAFA
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NATIONAL IINVESTMENT TRUST LTD.
NBP CAPITAL LTD.
NOMAN ABID INVESTMENT MANAGEMENT LTD
PICIC ASSET MANAGEMENT COMPANY LTD.
PRUDENTIAL FUND MANAGEMENT LTD
SAFEWAY MANAGEMENT LTD.
UBL FUND MANAGERS LTD.
WE INVESTMENT MANAGEMENT LTD.
CROSBY ASSET MANAGEMENT LTD.
DAWOOD CAPITAL MANAGEMENT LTD.
The National Investment Trust Limited (NITL) is the first AssetManagement Company of Pakistan, formed in 1962, had Fundsunder management of Rs.87 billion, with approximately 53,936unit holders as on December 31, 2013.
NIT's distribution network comprises of 23 branches, variousAuthorized bank branches all over Pakistan.
The Trust constituted under the Trust Deed dated 12thNovember 1962, executed between National Investment TrustLtd (NITL) as Management Company and National Bank ofPakistan as Trustee.
• Sharing in diversified portfolio.
• Continuous attractive return.
• Expertise of experienced and professional managers.
•Tax benefits on investment.
• Easily en-cashable.
• Operations under strict adherence to Government regulations.
• Investment in NI(U)T units starts with a small amount of Rs. 5,000.
• Qualify as collateral for availing bank financing.
• It minimizes the risk of investment as compared to individual investment
in Stock Market.
• Investment decisions at NIT are based on company specific and sector
related detailed analysis of information which may not be readily
accessible to an individual.
• By investing in NIT units, the unit holder is indirectly investing in
the shares quoted on stock exchanges and reaps the benefits of
professional decision making.
• It helps to make ownership of the industrial projects more broad based.
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Meezan Islamic Fund
Meezan Islamic Fund (MIF) is not only the largest Shariah
compliant equity fund but also the largest Equity Fund in
private sector in Pakistan.
MIF invests in combination of income and growth stocks of
Shariah compliant companies with demonstrated track record of
profitability and stable dividend payout history.
Incorporated on 27th February 1995, it is a group company of
Meezan Bank Limited and Pakistan Kuwait Investment
Company Private Limited and is currently managing assets of
over Rs. 61 Billion.
Salient Features Of MIF
Professional Management:-
Our fund managers are trained investment professionals. Their knowledge provides
you and opportunity to earn greater risk adjusted returns. Also by investing in MIF,
you pass on the job of continuous monitoring and evaluation of investment
opportunities to the Fund manager.
Healthy Return:-
Apart from tax benefit, MIF also provides you a healthy return on your investment.
Tax Credit:-
Investment in MIF enables you to get tax benefit up to Rs. 232,500/- in case of
salaried person or up to Rs 272,250/- in case of non salaried person on investments up
to Rs. 1,000,000/- under applicable tax laws, if investment is held for a period of two
years.
Affordability:-
A minimum investment of Rs. 5,000 makes MIF an affordable investment for small
investors. Subsequent investments can be made with a minimum amount of Rs. 1,000.
There is no cap on maximum amount of investment.
Impact of global funds sector on the
Pakistani industry
Not much impact of global funds sector on the Pakistani industry
because international funds who come to Pakistan don’t exactly
invest in mutual funds.
Rather they invest in stocks directly, therefore We don’t see any
direct link between the two, however Pakistani mutual fund
industry can not remain isolated from developments taking place
internationally and is adapting the international trends and best
practices.
Current issues of funds management
Inadequate regulatory framework to cater for new products
and growing needs of investors.
Limited investment options.
Lack of awareness among the general public
Future of Islamic mutual fund sector in
Pakistan
The future outlook of the Islamic mutual funds industry in Pakistan
is very promising and encouraging. The industry holds several
exciting opportunities for both corporate and individual investors
including the retired persons.
Islamic mutual fund industry in Pakistan is generating keen interest
among a growing number of investors. It is attracting fund
managers and leading players of industrial and corporate sector as
sponsors
It has been providing versatile and attractive investment avenues to
the general public while paying comparatively better returns based
on dividend yields and capital gains.
Role of Government to promote Mutual
Fund Sector
Mutual Funds Association of Pakistan is playing a pioneering
role in the promotion of mutual fund sector in Pakistan by
acting as a facilitator between the market participants and the
regulators.
It disseminates essential information on various funds, the fund
managers, the stock market as well as the regulatory
environment under which open and closed-end.
Challenges for Mutual Fund
Industry For Islamic mutual funds to progress in Pakistan, a variety of
challenges need to be overcome. The significant challenges are
mentioned as following:
Lack of diversified products range
Understanding of investors’ need
Public awareness at mass level
Un-stability of Stock Market
Dearth of liquid debt instruments
Protecting and maintaining the integrity and quality
Ensuring performance
Maintaining momentum to ensure viability
Providing competitive returns
Mitigating the Risk involved
Inadequate Intellectual Capital
Comforting & convincing with bad past investment experiences
Budgetary constraints for Marketing activities.
Low saving and Investment oriented society
Information disclosure and transparency
Choosing appropriate distribution network
Right timing to launch funds
In time after sale activities
Strict monitoring of regulators
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Recommendations
Team work for the growth of mutual fund industry.
Mass awareness and education about mutual funds.
Strengthening distribution network.
Understanding the fact that related financial industries are not
a threat.
Promoting healthy business practices and ethical code of
conduct.
Disseminating timely information.
Establishing affiliations with mutual funds associations in other
countries and promote one-to-one contacts.
Media should play a more supportive and constructive role for
awareness and disseminating information.