October 12, 2003	Sunday	Sha'aban 15, 1424

KARACHI, Oct 11: The Securities and Exchange Commission of Pakistan (SECP) is developing a regulatory framework for the growth of pension funds, Federal Finance Minister Shaukat Aziz disclosed on Saturday.

Speaking at the launch of Meezan Islamic Fund on Saturday at a local hotel the finance minister said the proposed regulatory framework would enable and encourage the establishment of individually capitalized pension saving accounts (PSA) to be managed by the professional managers.

He informed the audience that government has already notified rules for investment by provident funds in mutual funds and similar rules will be framed for pensions funds.

The funds accumulated in the pension saving accounts of the holder or affiliate shall be available for investment into an approved annuity scheme and the affiliate would be allowed to select and switch his accounts to funds or annuities of his choice.

Contributions to the PSA account shall be made at par with tax laws applicable to provident funds. He elaborated that the system would follow a defined contribution plan with a fixed minimum contribution by the employee and the employers.

The retirement pensions and benefits under a defined contribution plan would be determined by contribution to the personal pension system and the investment earnings.

Shaukat Aziz said that all these arrangements have opened up avenues for the fund managers to demonstrate their capabilities for portfolio management. “The role of asset managers have become pivotal in managing financial assets of government and private institutions and pension funds scheme.

This, he said, has become all the more important in the wake of falling interest rates and restrictions on the institutions to invest in national saving schemes.

The minister spoke at length on the pivotal role of mutual funds in development of the stock markets by facilitating small investors who do not possess the necessary skills to directly invest in the capital market. Such small investors, he pointed out, benefit from economies of scale as well as expertise available in the shape of experienced, qualified and professionally competent investment managers.

He announced that in last one and half years, the SECP authorized flotation of eight new open end mutual funds which clearly demonstrates a strong potential for such funds in Pakistan.

Mutual funds, he stressed, are one of the main engines of saving mobilization in most developed economies and he quoted 385 per cent ratio of total net assets managed by mutual funds as a percentage of total term deposits in the US. This ratio in Pakistan, he said, is just 4.6 per cent.

Individual savings for retirement and education of children are another significant source of growth for mutual funds. Shaukat Aziz quoted data of US market which showed at the end of 2002 that mutual funds accounted for 2.1 trillion dollars or 21 per cent of 10.2 trillion US retirement markets. The remaining 8.1 trillion dollars of pension funds, insurance companies, banks and brokerage firms managed retirement market assets.

In Pakistan, he said, mutual funds have not so far catered to the retirement savings market even though the potential for growth in assets of mutual funds is enormous.

Shaukat Aziz expressed the hope that the launch of open end shariah compliant Meezan Islamic Fund would go a long way in contributing positively to expand the base of capital market.

Earlier Irfan Sidiqui, Chairman, Al-Meezan Investment Management Limited and President of Meezan Bank said that the fund is being launched with clear and well-defined objective of making investment only in shariah complying instruments.

Zaigham Rizvi, Chairman MUFAP said that there is a sizeable segment of investors in the market who demand shariah complying investment avenue and the Islamic Fund would cater to their needs.

Mohammad Shoaib Chief Executive of Al-Meezan Investment Management Limited explained the structure of the Meezan Islamic Fund and its proposed mode of investment.