October 12, 2003	Sunday	Sha'aban 15, 1424

KARACHI, Oct 11: Meezan Islamic Fund, which proposes to open up its books for initial public offering (IPO) from Monday to Friday (October 13 to 17) would be the second Islamic Fund to hit the stock market.

Earlier, the UTP-Islamic Fund (UTP-ISF) was launched on December 27, 2002. The Mutual Fund industry in Pakistan is still in its infancy and it requires a great leap of faith to venture into the unknown area of “Shariah Compliant” investments. It is thus that among the eight open-ended mutual fund and 14 closed-end mutual funds in the private sector and the NIT in the public sector, none except for the UTP Islamic Fund has since accepted the challenge of making all investments in adherence with the principles of Shariah.

UTP-ISF—managed by ABAMCO Limited, started its operations on January 6, 2003 with a seed capital of Rs60 million. The requirement of seed capital for launching an open-ended fund is Rs250 million, but the Securities and Exchange Commission of Pakistan (SECP), at its discretion, can allow an asset management company that has shown good performance to launch a new fund at reduced seed capital.

ABAMCO Limited had been assigned ‘aa’ (Double a) Asset Management Intrinsic Rating by PACRA. The rating denotes “an excellent capacity to master the risks inherent in asset management.”

Meezan Islamic Fund (MIF) has already received Rs519.8 million against the proposed issue of 10.396 million units (the ‘core units’) of Rs50 each.

Almost half of the seed money has been invested equally by Meezan Bank Limited and Pakistan Kuwait Investment Company (Private) Limited; each picking up 2.5 million units of the value of Rs125 million or a total of 48 per cent of Rs519.8 million.

Muslim Commercial Bank and National Insurance Company are the other major investors in MIF with their contribution of Rs50 million each (9.6 per cent). The Core Investors have agreed to hold their investment for a minimum period of two years from the date of payment in full of such Units.

Al Meezan Investment Management Limited—the management company of MIF—is launching this second Islamic fund almost at the height of the current bull market. MIF has pledged to follow an investment strategy whereby more than 50 per cent investment would be made in listed securities, as required under NBFC Rules.

Investors may be curious to understand the prospects of a Fund that invests solely in ‘Shariah compliant’ investments and abstains from earning ‘haram’ income. The review of the performance of the open-ended Fund that made the first foray into the field may, therefore, be instructive and serve as a benchmark for future funds.

UTP-Islamic Fund started operations on January 6, 2003 and in fewer than six months until the close of the year on June 30, 2003, the Fund had multiplied its total assets (from the seed money of Rs60 million) to Rs499 million and net assets to Rs455 million. A total of 1.067 million units were issued during the period under review, valued at Rs555.9 million and 0.236 million units were redeemed, with a value of Rs130.7 million.

At the close of the period on June 30, 2003, total number of outstanding units had grown to 0.831 million with a value of Rs 455.3 million, after appropriation of dividend.

Income for the period excluding unrealised gains on investments, earned by UTP-ISF amounted to Rs39.5m, which comes to Rs47 per unit and the net income including unrealised gain on investments stood at Rs70.1m, which comes to Rs84 per unit. A cash dividend of 8 per cent of the par value of units of Rs500 had been declared which works out to be Rs40 per unit. The dividend yield works out to be 15.76 per cent on an annualised basis. Out of the total distribution of Rs40 per unit, an amount of Rs37 was from capital gains and that amount would not be subject to income tax in the hands of unit holders as well.

The total return given by the UTP-ISF to unit holders—dividend and appreciation inclusive— works out to be 17.60 per cent over the period under review, which was 34.72 per cent on an annualised basis.

The UTP-ISF units were issued at par value of Rs500 during the IPO from December 27 to January 4, 2002-03. These were offered and redeemed on the basis of net asset value. The offer and redemption prices on June 30, 2003 stood at Rs595.75 and Rs584, respectively.

The unit holders’ register depicted diversified picture with 28.74 per cent units held by individuals investors; 23.95 per cent by retirement schemes and 21.10 per cent by non-banking finance companies & modarabas.

At end-June 2003, the composition of assets of UTP-ISF was 65.30 per cent in equity; 28.81 per cent receivables against equity securities sold in Futures and 7.58 per cent represented amount kept in deposit with Islamic Banks and in current accounts. Average investment in equity investments during the period under review was about 35 per cent.