THE mutual fund industry is booming with money under its management standing tall at Rs289 billion, with an addition of Rs66 billion in 10 months since January this year.

But many money managers are not enthused. They observe that the growth, in most part, is driven by the fixed income category or the money market fund segment.

At present there are 127 open-end funds operating in the country, which together account for Rs268 billion under management. The remaining 14 closed-end funds hold Rs21 billion. Money market funds category, which commands Rs115 billion, contributes as much as 43 per cent to the total size of the open-end funds. These funds have shown growth by a massive 130 per cent year-to-date.

During 10 months (Jan-Oct), cumulative annualised return of the money market funds category averaged at 12.5 per cent.

Imran Azim, chairman Mutual Fund Association of Pakistan (Mufap) — a trade body of asset management industry — though expressing satisfaction over the industry stride, was quite frank in admitting that the benefits were yet to reach the ‘grass-root level’, which was the major purpose of the funds. He said individuals still preferred to invest in National Savings Schemes (NSS), possibly deriving more confidence from assurance of return and the government backed guarantee.

He said roughly 70 per cent of funds with the mutual funds were invested in money market funds or cash funds, like T-bills or income funds, such as Pakistan Investment Bonds (PIBs), Term Finance Certificates (TFCs) and other debt instruments.

The chairman Mufap said the industry still needed to grow to meet the international standards, where investors parked more money in mutual funds than in any other investment avenue — and in the US, even bank deposits.

He stressed that investors had yet to realise that their money grew faster with mutual funds which were managed by professional people having training and experience to manage investments effectively.

“Investor awareness seminars ought to be planned under the aegis of the apex regulator, Securities and Exchange Commission of Pakistan,” he said.

Manzoor Ahmed, Chief Operating Officer at the National Investment Trust (NIT) — the largest mutual fund in the country with Rs75 billion under management — was also unhappy over all money pushed into money market funds and fixed income funds, which invested unit-holders money in short-term, three to six months deposit, T-bills, commercial papers of short-term duration and overnight lending in money market.

He said the trend in developed market was to place 60 per cent of all funds in the equity markets and 40 per cent in money market. Such was not the case in Pakistan.

He said that the investor preference for fixed income funds was quite understandable. “They have developed a more risk averse attitude,” he said, but stressed that money ought to be channeled in the equity market and debt instruments, which went into long-term industrial ventures, so essential for country’s economic growth. “Churning out money in short-term investment vehicles does nobody any good,” he said.

Analyst Mazhar A Sabir at brokerage Invest Cap 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.

The Income funds return rose, aided by 1.5 per cent (150 basis points) cut in the State Bank of Pakistan policy rate. In the declining interest rates scenario, fixed income or long-term paper holders reaped benefits.

During the 10 months of the current year (Jan-Oct), the income fund category returns cumulatively increased to an average of 11.7 per cent. Going forward, the fixed income category of mutual funds was 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).

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,” said the analyst.

Several enterprising entrepreneurs complained of high minimum paid-up capital requirement (MPCR) to set up an asset management company—the managers of mutual funds.

According to the Asset Management Companies Rules, 1995, the MPCR has been fixed at Rs30 million. It was believed that the regulators were currently considering whether or not to reduce the minimum capital requirement. But a major money manager said setting a lower bar was fraught with risks as fund managers with weak financial strength may sprout, putting unit-holders money in jeopardy.

The country has a long history of still-born listed banks; commercial banks, financial institutions and companies that raised money from investors and then disappeared without a trace and scores of modarabas-sponsors who fled with bagful of investors’ money. So is it possible for currently working mutual funds also to gather unit-holders money and run?

Mr Manzoor at NIT thought that in case of mutual funds, it was difficult to resort to such fraudulent practice.

He reasoned that most major asset management companies were backed by banks and as everyone knows the greatest asset for banks was public confidence, which they could ill-afford to lose.