KARACHI, April 14: Pakistan Capital Market Fund (PCMF) —- a closed-end mutual fund under management of Arif Habib Investments — proposes to convert to an open-end fund, the first such conversion in Pakistan. In a press briefing which followed the announcement made at the Karachi Stock Exchange on Thursday, Nasim Beg, chief executive at Arif Habib Investments, said that the conversion would allow investors to benefit from full value of the Net Asset Value (NAV) whenever they wished to cash out. “Currently the investors cannot benefit from the full value of the fund as the market price is at a discount to the Net Asset Value.”

The significance for the investors in the fund appeared to be that while their investment stood locked up in closed-end fund and could only be traded at the stock exchange quoted market price, in NAV, they could capture the entire benefit by receiving the NAV whenever they opted to seek an exit.

The NAV, last calculated on April 8, stood at Rs13.98, while the market price of the certificate in PCMF at the opening of the market on Thursday was Rs10. As the announcement came, investors who were quick to realise the gap of about Rs4, which could bridge up on conversion of the fund from closed to open-end, lapped up the PSMF stock. That shot the value up by Rs1.50 to Rs11.50 on a trading in 2.8 million certificates. At the close of the market, there were still 1.8 million buyers (bid volume) but the stock could not be transacted as it had hit the upper circuit breaker.

In line with the mutual funds sector as a whole, PCMF has been trading at a huge discount to its NAV and the recent bear market had even further widened the gap. The market price on March 31 stood at Rs9.85, representing a discount of as much as 40.2 per cent compared to the fund’s NAV.

PCMF also announced its financial results for the nine months ended March 31 on Thursday, posting a net income of Rs474 million and earning per certificate at Rs3.16.

Giving other details about PCMF, Mr Beg said that it was one of the six closed-end funds under the Pakistan Mutual Fund series managed by Arif Habib Investments and that PCMF was the first closed-end fund set up under a trust structure.

The stock market announcement, made under Regulation No.28 of the Listing Regulations pertaining to ‘material information’, affirmed that the conversion was subject to certificate holders and regulatory approval and the conversion date would be announced at the time of approval.

PCM was launched in January last year with Rs1.5 billon and the value had grown to Rs2 billion, Mr Beg said, adding that it was in spite of having paid out two dividends: the first one within a period of five months at 8.25 per cent and an interim dividend at 12.5 per cent in January this year for the current financial year to close on June 30, 2005. The chief executive of Arif Habib Investment said: “PCMF has delivered a total return of 40 per cent (on dividend adjusted IRR basis) to its investors since inception based on NAV of Rs13.81 as of March 31, 2005.”