Individuals who can afford to part with a million or more scarcely give a second thought to a class of investable assets. But a small saver spends sleepless nights worrying over where to put his life-long savings: where the principal is fully protected and the investment earns a decent return.

A successful investment guru once said: “A wise man makes his own decisions; an ignorant man follows public opinion.” While that is true, investment options tend to shrink or expand in relation to the money available.

The first savings option majority savers think about is the National Savings Schemes (NSS). Normally a refuge for small savers and senior citizens, the National Savings Certificates (NSC) no longer offer enough returns.

Being the biggest source of non-bank borrowing for the government, things took a turn for the worse after former finance minister Shaukat Aziz (1999-2004) decided to tap the cheapest source of borrowings through Treasury Bills and Pakistan Investment Bonds. He slashed the returns on NSS and, ever since then, they are revised downwards every six months or at the government’s whim.

“The Bahbood Saving Certificates (BSC), designed for senior citizens, were supposed to offer the highest returns. Eight years ago — till June 2009 — the certificates provided Rs1,342 on an investment of Rs100,000,” grumbles a doddering old man at an NSC office in Karachi. “That return has gradually evaporated by 42 per cent. Now you get just Rs780 on the same investment.”

The Regular Income Certificate, an alternative to BSC, was once a reliable source of monthly income as well. While only widows and retirees can invest up to Rs5 million in Behbood, Regular Income Certificates are open for all. Like the BSC, the profit on these certificates has reduced too: from Rs1,133 per month, eight years ago to Rs545 at present.

However, investment in NSS is risk-free and government guaranteed. For less risk-averse investors who opt for higher returns, stocks are the preferred asset class. But the trouble with equities is that no one can second-guess the market trend.

A successful investment guru once said: “A wise man makes his own decisions; an ignorant man follows public opinion.” While that is true, investment options tend to shrink or expand in relation to the money available

The Pakistan Stock Exchange which offered a fabulous average return of 25pc in the last 10 years and capped it all by an eye-popping 46pc return last year — the highest among Asian markets, took a sudden turn for the worst in May this year.

Until Wednesday last, the stock market was already down by 25pc from the peak attained on May 25, and provided negative return of 15pc to investor year-to-date.

Individuals who were unlucky to have invested in some high-valued shares have seen almost half of their wealth wiped off.

Investors who lack knowledge and skill enter the equity market through mutual funds which are often managed by professional fund managers. Since they tend to maximise investors’ returns and mitigate the risk of market uncertainties, the number, size and various class of funds have grown phenomenally in recent years.

Abdul Azeem, head of research at Spectrum Securities, says that by the end of September, as many as 218 funds had a whopping Rs618 billion under management.

The funds include Shariah-compliant (equity and money market), fixed income, aggressive fixed income, index tracker funds, general pension fund, frequent payout fund and capital protected fund. Investors can choose the fund that suits their need or apportion a part of the money to several different funds.

Those who want to keep themselves away from all forms of equities often spread their savings: they park their money in a banks’ savings account or buy saving certificates.

Many invest in other options: gold — a safe haven — soared for 15 years but has stagnated over the past two years; savings in US dollars which no longer offer a healthy return due to the stability of the currency; and prize bonds which are literally like investing in lottery tickets.

Mr Azeem worked out the returns on various asset classes between January and October this year, according to which one-year term deposits with banks offered a nominal return of 4.20pc, one-year Treasury Bills 5.95pc, Special Saving Certificates 5.80pc, Pakistan Investment Bonds 6.20pc, Defence Saving Certificates 7.44pc, gold 10.48pc, and dollar 0.58pc, whereas stocks offered a negative return of 15.4pc. These would be a pittance as ‘real return’ after inflation adjustment of 4.01pc.

Samiullah Tariq, director research and business development at Arif Habib Ltd, provided a chart showing average return on various classes of assets over the last 17 years.

Against the Consumer Price Index at 7.75pc, stocks offered real return of 20.6pc; gold 10.6pc; T-Bills 8.56pc; Defence Saving Certificates 10.76pc; bank deposits 4.21pc and dollar 3.80pc. Real estate is an asset class which only high-net-worth individuals and institutions with minimum investable sum of Rs10 million can explore.

Like individuals, institutions including banks are also hard-pressed to choose a low-risk, high-return asset class to park excess liquidity. Much of the depositors’ money has continued to flow from banks to government papers like PIBs and T-Bills; banks enjoyed a good spread by depriving depositors of a fair return.

But fund managers suggest that the returns on Treasury Bills, which were at a high of 13.7pc in 2010, have fizzled out to just 6.25pc currently. Similarly, PIB rates have fallen during the period from 12pc to eight per cent.

Institutions lament the lack of debt market in Pakistan. They offer whatever is available in the form of government bonds, corporate bonds and Term Finance Certificates. Banks have to comply with Capital Adequacy Ratios and are not permitted to invest more than a quarter of their investable sum in equities.

Published in Dawn, The Business and Finance Weekly, November 6th, 2017