Over the last few years, the local mutual fund industry has shown sizeable growth in terms of assets as well as product offerings.

At the end of last month, asset under management (AUM) of the mutual fund industry, comprising of 20 companies, stood at Rs482bn.

Among its three categories, investors have parked the biggest sum in open-end funds at Rs445bn, followed by Rs19bn in closed-end funds and Rs18bn in pension funds.

“The mutual fund industry is still a toddler as it commands up to just 20pc of private sector bank deposits”

But some fund managers are not too happy with the progress. “The mutual fund industry is still a toddler as it commands up to just 20pc of private sector bank deposits,” says Fayyaz Ahmed, who manages a medium-sized open-end fund. “And the total sum in mutual funds at Rs482bn forms just 6.4pc of the aggregate market capitalisation of the PSX at Rs7.59tn.”

Mohammad Bilal, a fund manager laments that in comparison to Pakistan, the size of the Indian mutual fund industry stands at Rs13tn with every fourth household feeling safe entrusting their savings to the funds. In the US, 50m people or one out of every three households invests in mutual funds, he points out.

Yet small investors at the local bourses who were ruined in the stock market crashes of 2005 and 2008 are learning to put their trust and money in the hands of professional asset managers.

Though risk-averse due to price volatility, small investors with little means depend on professional asset managers. “For a faster growth, the mutual fund industry in the country will have to earn the unit holder’s trust as custodian of public money by offering a measure of guarantee of safety of their money, accompanied by comparatively better returns”, says an old time stock broker at PSX who has watched scores of ‘modaraba’ managers in the formative years, and even many stock brokers, escape with billions of rupees of small saver’s hard-earned money.

But as confidence returns, the number of investors in mutual funds is definitely on the rise. NIT — the largest mutual fund in the country, with Rs91bn under management and 17pc of the market share, boasts 55,000 investors on its roll. Given an aggregate 250,000 registered investors currently dabbling in shares at the stock market, the number of NIT unit holders looks considerable. It would scarcely be surprising if the total unit holders in all mutual funds combined surpass the individual investors at the stock market.

The NIT-Islamic Income Fund

(NIT-IIF) was launched on July 4, last week, corresponding to 28th Ramazan. “This is the third shariah compliant fund which has been added to the family of funds offered by the company,” says a senior official of NIT. He said that the fund would be invested in a diversified portfolio of shariah compliant fixed income and money market Investments.

Industry-wise, there are in all 208 mutual funds operating under 19 categories of which as many as nine constitute Islamic funds. Together they have a huge slice of Rs136bn or about a third of the asset under management in open-end funds.

Like the banking sector where conventional banks are either setting up separate subsidiaries of Islamic banking or entering into mergers and amalgamations with already existing shariah complaint Islamic banks, the country’s mutual fund industry is also branching out into more of Islamic Income funds that promise to provide ‘riba-free halal income’ while assuring ‘maximum possible preservation of their capital.

Yet equity funds take the cake with the biggest amount under investment by mutual funds, followed by income funds. Analyst Ahmed Nabeel at Spectrum Securities works out that the total mutual funds in equity investments amounted to Rs167bn of which fund managers preferred to park the largest amounts in three sectors which included: 15pc in oil marketing companies; 14pc in cements and 13pc in fertilisers.

A big opening for rapid growth in the mutual fund industry was the ‘rules on investment by employees’ provident funds in listed securities, released by the Securities and Exchange Commission of Pakistan a couple of years ago. The rules, titled ‘Employees Provident Fund (Investment in Listed Securities) Rules, 2014,’ allowed investment in ‘listed securities’ including mutual funds at as high as 70pc of the size of the employees’ provident fund (PF).

“As the returns from investment in fixed income securities do not cover inflation, a mix of investment avenues was suggested” says Mohammad Zaffar, a capital protected equity fund manager. Since the collective amount of all employee money in provident funds of all corporates runs into billions, mutual funds may have cut a sizeable slice of the investable amount.

Published in Dawn, Business & Finance weekly, July 11th, 2016