Retail and institutional investors continue to prefer placing funds either in the fixed income or money market funds in order to preserve their capital and also earn a stable return. - File photo

KARACHI: The mutual fund industry is booming with money under management standing tall at Rs289 billion at the end of October, representing a 17 per cent growth over the earlier month and a huge addition of Rs66 billion (30 per cent) in the 10 months since January.

The growth in October was fed by money market funds that took a giant leap of 46 pr cent over the earlier month, to scale over the Rs100 billion mark.

Fixed income fund category appreciated by 11 per cent and Islamic money market fund category showed a growth of 9 per cent month-on-month (MoM).

The open-end funds, which account for 127 (93 per cent) of the total 141 mutual funds in the country posted a stellar growth of 19 per cent (MoM) to touch Rs268 billion while the closed-end funds declined by 4 per cent, during the period, to close at the figure of Rs21 billion.

Analyst Mazhar A Sabir at brokerage InvestCap worked out that during the four months of the current financial year (July-Oct), the local funds industry had risen 16 per cent mainly due to 49 per cent growth in money market fund size, 18 per cent increase in fixed income funds and 14 per cent rise in the Islamic income funds.

And in the 10 months (Jan-Oct), mutual funds industry witnessed a handsome growth of 30 per cent (from Rs223 billion in Dec-10).

The Income funds return rose, aided by 1.50 per cent (150bps) cut in policy rate.

“As was expected, in the declining interest rates scenario, fixed income or long-term paper holders reaped benefits as income funds category earned an average annualised return of 16 per cent MoM during Oct-11, representing improvement of 400bps over the earlier month return of 11 per cent MoM,” an analyst said.

During the 10 months of the current commercial year 2011-12 (10MCY11), the income fund category return cumulatively increased to an average of 11.7 per cent.

The other category of funds, money market funds surpassed the Rs100 billion mark to reach Rs115 billion.

In September, it had witnessed a decline of 16 per cent MoM.

With such a quantum leap, money market funds category now contributes as much as 43 per cent to the total size of open-end funds.

These funds have reflected growth of 46 per cent MoM and a heavy increase of 130 per cent in 10MCY11.

In October, the money market funds category earned an average annualised return of 14.3 per cent MoM, up 212bps over preceding month’s 12.2 per cent.

Analysts said that the main reason for improvement in the return was timely shifting of funds by fund managers into six months T-bills (from three month papers) to seize the benefits, expected on account of possible policy rate cut, which materialised.

During 10MCY11, cumulative annualised return of the money market funds category averaged at 12.5 per cent.

Going forward, the fixed income category of mutual funds were still thought to be a safe haven, based on the State Bank of Pakistan’s stance on growth, proven by the aggressive cut in discount rate in the last Monetary Policy Statement (MPS).

In doing so, the Central Bank’s key objective is to boost private sector lending. The next MPS is due later this month.

Retail and institutional investors continue to prefer placing funds either in the fixed income or money market funds in order to preserve their capital and also earn a stable return.

The trend is thought to continue till the investors’ confidence in the revival of economy builds up and other investment avenues, such as the stock market, starts to perform.