KARACHI, July 12: Eleven of the 15 mutual funds that posted the highest rise in Net Asset Value (NAV) during the January-March 2003 quarter were the ICP mutual funds, an indication that erstwhile laggard funds have received a new lease of life under private managers.

The 10th ICP, which came to the lot of PICIC under the privatization deal posted the greatest appreciation of 13.85 per cent in NAV during the quarter to Rs25.54 on March 31, from Rs22.43 on January 1, 2003. The next seven mutual funds that showed the highest appreciation in NAV were all managed by ABAMCO Limited. These included: 3rd ICP, up by 8.47 per cent to NAV of Rs25.75, from Rs23.74; BSJS Balanced Fund Limited (BBF) up by 8.07 per cent to Rs16.87, from Rs15.61; 15th ICP higher by 6.81 per cent to Rs24.31, from Rs22.76; 12th ICP better by 5.97 per cent to Rs22.91, from Rs21.62; Unit Trust of Pakistan (UTP) higher by 5.92 per cent to Rs7,197, from Rs6,795; 21st ICP, up by 5.84 per cent to Rs7.07, from Rs6.68 and 1st ICP appreciating by 5.28 per cent to Rs21.52, from Rs20.44.

In respect of highest appreciation in NAV, on ninth place stood Al Meezan Mutual Fund Limited, with Al Meezan Investment Management Limited as the investment advisers; its NAV grew by 5.21 per cent to Rs17.89 at the end of March, from Rs17 on January 1. UTP-Islamic Fund improved its NAV by 5.16 per cent to Rs525.78, from Rs500; the fund being managed by ABAMCO. Between 11 and 16 places stood other ICP funds, managed by the two private buyers.

Pakistan Stock Market Fund managed by Arif Habib Investment Management Limited stood at the 17th place as regards appreciation in NAV during the quarter, rising by 1.84 per cent to Rs70.14, from Rs68.87. And NIT took the 22nd slot with NAV appreciation during the quarter by 0.58 per cent to Rs17.24 at March 31, from Rs17.14 on January 1.

But for all that the happy augury is that mutual funds in Pakistan appear to be reawakening in the midst of the current stock market boom. Around the world, millions of investors put their money in mutual funds. These provide a vehicle whereby investors can invest their funds in securities under the direction of investment adviser. It is much cheaper to hire one investment manager to manage a mutual fund for thousands of investors with a common goal then for each investor to hire a stock broker and incur heavy transaction costs. More than 40 million people, or one out of every three households in America, invest in mutual funds; In US alone, currently, over $3 trillion is invested in the industry.

But compared to those developed markets, the mutual fund industry in Pakistan is still in its infancy. There are currently 38 funds with listed capital of Rs4,761 million and aggregate market capitalization at Rs11,338 million. The latter measuring to only 1.4 per cent of the aggregate KSE market capitalization of Rs782 billion.

Only until recently, mutual funds were the worst performers on the stock market. But things look to be changing, all the same. The development of mutual funds should go a long way in encouraging and broadening the base of share ownership and development of capital markets in Pakistan. But to attract more small savers towards mutual funds, the industry must give them comparatively high returns. And, like the National Investment Trust (NIT) did, they should preferably be in cash.

Last week, NIT — the largest open-end mutual fund with around Rs34 billion under management — announced payment of cash amounting to Rs2,690 million in dividend to the unit-holders at Rs1.75 per unit for the year ended June 30, 2003. The payout reflected the highest cash payout by NIT in eight years. Chairman and MD of NIT Tariq Iqbal Khan told a press briefing that he believed in remunerating unit-holders in cash from profit earned during the year. It has to be seen what other mutual funds do.

Meanwhile, Arif Habib Investments — the fund manager for Pakistan Stock Market Fund (PSM) and the Pakistan Income Fund (PIF) — declared bonus for unit-holders in the two funds for the financial year ended June 30, 2003. On PSM, a bonus of Rs20 per unit (40 per cent on the face value of Rs50 per unit) was announced, while on PIF, the declaration of bonus was Rs6.00 per unit, which equated with 12 per cent on the face value of Rs50 per unit. Arif Habib Investments now has managed funds of over Rs3.4 billion in four different funds. Besides PSM and PIF, it also manages the MetroBank — Pakistan Sovereign Fund (MSF) and Pakistan Premier Fund.

Given the robust profitability of corporates and mutual funds in the current bull market, there is some debate on whether companies and funds ought to pass on cash to the shareholders or disburse bonus shares (units). Most analysts believe that where companies such as textile mills require funds for BMR and expansion, it might be prudent for boards to resort to bonus capitalizations and conserve funds. But since bonuses dilute equity, earning per share/unit and book value, it is only logical that shareholders/unit-holders should prefer to receive hard cash.

That also gives them the option to either keep the money or reinvest it in same or other securities. Small share holders have often been seen arguing with managements at annual general meetings (AGMs) to recommend dividends in cash. Such shareholders/unit-holders actually put their faith in the old wisdom: “A bird in hand is better than two in the bush!”