KARACHI, Aug 13: In what is being seen as a landmark decision, the State Bank has allowed mutual funds operating in Pakistan to invest abroad. But initially the central bank has placed a cap of $15 million on such investment by a single mutual fund at a given time, says a circular issued by the Exchange Policy Department of the SBP on Saturday.
“This is a landmark decision,” says Mr. Jahangir Siddiqui who pioneered the open-ended mutual fund in Pakistan. “It is going to discourage capital flight from Pakistan and enable investors to diversify their portfolios geographically for the first time in the country.”
“In India and in the emerging markets the concept is not new. By allowing mutual funds to invest abroad, the central bank has brought us at par with them,” he said when reached by Dawn over telephone for his comments.
Jahangir Siddiqui’s Abamco was the first open-end mutual fund management company in the private sector and its product Unit Trust of Pakistan (UTP) was the first ever private sector’s open fund in Pakistan.
Mutual funds industry worth Rs120 billion or $2 billion has lately made its presence felt in the investors community in the country and about half a dozen open fund management companies are making quite a progress. On top of them are Abamco and Arif Habib Investments.
However, the overall number of mutual fund managers including those in the public sector is more than a dozen and the number of funds is 30 plus.
The SBP circular says that the mutual funds are allowed to invest abroad with the condition that their investment does not exceed 30 per cent of the aggregate funds mobilized by them including those in foreign currency. The circular says that the mutual funds will be able to place funds abroad only in permissible categories, and they would not be able to invest more than $15 million at a given time.
The investment made abroad must strictly follow the scope approved by the Securities and Exchange Commission of Pakistan or SECP. And it should be subject to all other terms and conditions specified by the SECP for this purpose.
The SECP Chairman Dr. Tariq Hassan was approached by Dawn to know if the SECP has laid down the set of rules required for the mutual funds to invest abroad, and if not, when it will do that but he was in a meeting.
Mr. Arif Habib who heads a large fund investment company that also has branched out in open mutual funds says the SECP is yet to inform the market of the rules the mutual funds will have to follow while making investment abroad. Like Mr. Jahangir Siddiqui, he too was all praise for the SBP move and said it would help Pakistani investors in more than one way.
“You will now have a formal route for making investment abroad, and that is important to keep people away from looking backdoor techniques,” he said when reached by Dawn over telephone.
Mr. Nasim Beg, the CEO of Arif Habib Investments said mutual funds would initially look towards such countries as Sri Lanka, Bangladesh, Thailand and Malaysia for making foreign investment there. “We can even move in the Chinese, Middle East and North African markets selectively,” he told Dawn when contacted for his comments.
Leading fund managers including Mr Jahangir Siddiqui and Arif Habib expect that the permission to mutual funds for making foreign investment would help Pakistani investors not only at times when the local market would be depressed. But also at times when an over-heated local market would raise the prices of shares too high making it difficult for average investors with little market knowledge to buy them.
And as Mr Nasim Beg puts it the permission would give investors the confidence that all his eggs is not in one basket. Besides, when mutual funds would be making investment abroad and bringing back home the returns earned on it, they will be paying taxes to the government. “So, on that account also, this is a wonderful decision,” says Mr. Beg.
But since allowing mutual funds to make investment abroad also carries a risk of misuse of the facility that can have a drain on Pakistan’s foreign exchange reserves, the SBP has put safeguards in place. The SBP circular says that while making investment abroad, the mutual fund concerned will have to seek prior approval of the central bank.
It further says that the mutual fund will be required to apply for making overseas investment through a bank to the SBP’s Exchange Policy Department. “Each request will be evaluated on a case-to-case basis and responded accordingly.”
