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I N S I D E MUFAP Activities
Meeting of the Board of Directors
Meeting of the CommitteesMeeting with SECP
Events
SECP Updates
SECP begins redrafting of Company
Law
SECP proposes changes in NBFC
Regulations, 2008
SECP issues the first draft of Debt
Securities Trustee Regulation
SECP gets taxation regime reformed
SECP allows investment in Futures
Contract
SECP amends the format of Statement
in Lieu of Prospectus issued by a
private company on its conversion into
public companyStandardized Trust Deed for Mutual
Funds
Market Development in Q4-FY11
Equity Market
Money Market
Debt Market
Mutual Funds Industry
Interview
Chairman of MUFAPs Public Aware
Committee; Mr. Farid Ahmed Khan
Articles
The Alternative
(By Mr. Muhammad Sohail)
Implications of National Savings
Schemes on the Economy and
Financial Sector
(By MUFAP)
Industry Statistics
Net Assets Open-Ended Schemes
Net Assets Voluntary Pension Funds
Net Assets Closed-Ended Funds
Industry-wide - Net Assets
Sales
Redemptions
Net Sales
Open-Ended Schemes Return
Voluntary Pension Funds Return
Closed-Ended Funds Return
The Team:
Editors
Ms Shafaq Khuram
Mr. Zulfiqar Azam
Researcher
Mr. Siraj Ali
For any feedback or comments
Dear Readers,
Welcome to the June edition of our quarterly e-Newsletter.
Almost a year back, the Board of Directors of Mutual Funds Association of Pakistan(MUFAP) decided that MUFAP should publish a Year Book and quarterly Newsletter. The
first Year Book for the year ended June 30, 2010 was published last year and the first
Newsletter covering the period July 2010 to December 2010 (six months) was put on
MUFAP web-site in January 2011. Since then MUFAP is regularly issuing the Newsletter on
a quarterly basis. This is the third issue and hopefully this process will continue in future.
The objective of these publications is to provide the first hand industry information to the
readers, who may be industry members, other financial institutes, researchers, investors,
stakeholders and the general public. It is also our aim to keep our readers informed
regarding the developments in the industry, capital market and on the regulatory front.
From the day one MUFAP has been in forefront to bring transparency and good
governance in the industry and we hope to continue this process with greater vigor.
During the year ended June 30, 2011, the industry witnessed a growth of 23.95%.
However, this growth is mainly in money market funds. There is a need to educate
investors (and particularly individual investors and retirement funds managed on behalf of
its members who are individuals) to invest a portion of their savings in equity related
funds. This is important, as one of the objectives of long term savings is to be a hedgeagainst inflation.
On December 24, 2010, Mr. Mohammad Ali took charge as Chairman, Securities and
Exchange Commission of Pakistan (SECP). He visited MUFAPs office on January 28, 2011
and was the first Chairman of the SECP to do so. Mr. Asif Jalal Bhatti, Mr. Shahid Nasim
Executive Directors and Mr. Rashid Piracha, Director accompanied the Chairman SECP on
the visit to MUFAP. The Chairman, SECP had emphasized on the need for MUFAP to
prepare a five years plan. This was done by the MUFAP. In MUFAPs five year plan MUFAP
had strongly emphasized on the need to increase the savings rate and to invest the
savings prudently for better return for investors and for productive purposes for the
development of economy and not for budget support. MUFAP in the five year plan has
specially emphasized on the need to promote retirement funds, as they promote long
term savings and have a lasting effect on boosting the savings rate and contribute to
public good. MUFAP also submitted concrete proposals for removal of tax anomalies
among retirement schemes and setting up a regulatory regime for retirement schemes.
MUFAP also submitted proposals for development of bond market, REITs and
improvement in corporate governance, including governance at stock exchanges. A
summary of MUFAPs proposal is given in the Newsletter.
MUFAP fully agreed with the Chairman, SECP that a five year plan (subject to constant
review) was essential for the capital market. With the support of the Government of
Pakistan and the commitment of the Commission, this plan will put MUFAP and the
mutual fund industry on track for progress. We are happy that the SECP has considered
our proposal and an active dialogue is now in place between MUFAP and the SECP. As a
result of MUFAPs continuous follow-up and SECPs support, the Government removed
some of the tax anomalies in the retirement schemes by amending section 63 of the
Income Tax Ordinance (ITO). The Government also agreed to extend the holding period for
tax credit under section 62 of the ITO from one year to three years. These measures will
contribute towards promoting savings for the longer term and post retirement welfare.
Savings for retirement helps towards self sufficiency in the post retirement years when the
retired person may not have other sources of income. In addition to savings for
retirement, one needs to save for other expenses, like health care, housing, and children
education. We believe that both sections 62 and 63 are important and Government should
encourage long term savings. We are very happy to note that the SECP has been playing
an active role in the development of bond market and working towards introducing
regulations which will bring about protection for investors.
Public awareness remains a pressing long-term issue and MUFAP has been investing
resources in building awareness. Our interview with the Chairman of the Public Awareness
Committee for Mutual Funds gives a briefing on the recently launched Money Market
Funds campaign.
I hope you enjoy reading this issue and find it interesting and insightful. I would like to
take the opportunity to thank all the participants who have contributed to the success of
this Newsletter. I would also request the readers to give their recommendations for the
improvement of the newsletter.
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MUFAP ACTIVITIES Overview
Meeting of the Board of Directors
The Board of Directors held five meetings during the quarter April 2011-
June 2011.
LIST OF NO. OF BOARD MEETINGS HELD AND ATTENDED DURING THE
QUARTER APRIL TILL JUNE 2011
Name of Directors
Dates Total
(Out
of 5)22-
April
16-
May
30-
May
15-
June
30-
June
1Mr. Shahid
GhaffarYes Yes Yes Yes Yes 5
2Dr. Amjad
WaheedYes Yes Yes Yes Yes 5
3Mr. Babar Ali
LakhaniNo No No No 3 0
4 Mr. Farid AhmedKhan Yes Yes Yes Yes 4 4
5Ms. Maheen
RahmanNo No No Yes No 1
6Mr. Mir Adil
RashidYes No Yes Yes No 3
7Mr. Mohammad
Habib-Ur-RahmanYes Yes Yes No Yes 4
8Mr. Mohammad
ShoaibYes Yes Yes 1 No 3
9 Mr. Nasim Beg No No No No Yes 1
10Mr. Rashid
MansurYes No Yes No No 2
11Mr. Wazir Ali
KhojaNo No No 2 No 0
12 Mr. Yasir Qadri No Yes Yes No Yes 3
13Mr. Shamshad
NabiYes Yes Yes No Yes 4
1. Meeting was attended by Mr. Muhammad Owais Wasti (CFO) from Al
Meezan Investment Management Ltd. for Mr. Mohammad Shoaib.2. Meeting was attended by Ms. Rubina Rizvi (Senior Law Officer) from
National Investment Trust Ltd. for Mr. Wazir Ali Khoja.
3. Meeting was attended by Mr. Amir Mobin (CFO) from Lakson
Investment Ltd. for Mr. Babar Lakhani.4. Meeting was attended by Mr. Faisal Mangroria (CFO) from ABL Asset
Management Co. for Mr. Farid Ahmed Khan.
The activities undertaken by Board are as follows:
Five Year Plan
MUFAP, in consultation with its member institutions, identified the need
for a strategic plan to ensure sustainability and growth of mutual fund
industry. The 5-year comprehensive plan is designed with a view to achieve
long-term strategic goals by providing consultation to SECP in framing
effective regulatory guidelines that can help bring best practices to the
industry. The plan identified restrictions to growth and development of
mutual fund market, and recommended specific areas of improvements for
the current regulatory and supervisory framework. The key
recommendations in the plan included:
1. Pension reformsa. Mandatory legal requirement to offer funded retirement
schemes
b. Scope of SECP Regulationc. Removal of Tax Anomalies in Retirement Schemesd. Tax Incentives for long term savingse. Legislation for SECP to regulate Retirement Schemes
2. Saving and Related Issues--a. MUFAP Codes (Advertising Standards and Code of
Qualification for Distributors)
b. Rationalization of current taxation lawsc. Creation of enabling environment for mutual funds to
access government corporations and departments
d. Educating Investorse. Increasing investment options and creation of alternative
products
f. Reducing cost of intermediationg. Removing pricing and tax anomalies on National Savings
Schemes (NSS)
h. Developing the Bond/TFC Market3. Bond Market
a. BATS Tradingb. Listing Regulationc. Legal Framework
4. Real Estate Investment Trust (REITs)a. Amendments in REITs Regulationsb. Review of Real Estate Laws and practicesc. Review of Real Estate Tax Laws Particularly relating to
Transfer Duty on sale
d. Regulation of Brokers5. Corporate Governance
a. Auditing Standardsb. Capacity building of stock exchangesc. MUFAP Code of Ethics and Standards of Professional
Conduct
d. Performance Measuremente. Capacity building of the regulator
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MUFAP Proposals incorporated in Finance Act 2011
Following proposals submitted by MUFAP to Federal Board of Revenue (FBR) through the Securities and Exchange Commission of Pakistan were incorporated
in the Finance Bill 2011, which was later adopted by the National Assembly.
Amendments in the Income Tax Ordinance 2001 through Finance Bill, 2011
No. Finance Bill ReferenceIncome Tax Ordinance Reference
(ITO)Amendments
1. 1(b) Section 2(11c) new clause Definition of Collective Investment Scheme incorporated for better
clarity
2. 4 Section 62 The investment limit in new issues and mutual funds enhanced from
10% to 15% of taxable income with maximum raised from Rs.
300,000 to Rs. 500,000. Life Assurance also included as eligible
investment. The holding period of investment extended from one
year to three years.
3. 5 Section 63 The maximum limit of Rs. 500,000 for contribution to Voluntary
Pension Scheme (VPS) for eligibility to tax credit removed. With this
in respect of contribution, level playing field has been achieved
between VPS and pension/ gratuity schemes offered by employers.
4. 21 Section 156 B On retirement 50% of accumulated amount withdrawn from VPS
shall not be subject to withholding tax. As withdrawal of 50% of
accumulated amount from VPS on retirement is exempt fromincome tax under Clause 23A of Part I of Second Schedule of the
ITO, the withholding regime and chargeable clause brought in line.
5. 32 Clause IIA, Part IV of 2nd
. Schedule, VPS has been exempted from minimum tax in line with mutual fund,
provident fund, pension fund, etc., to remove the anomaly.
6. 33 Rule 6 of Seventh Schedule Dividend to be received by banking companies from its associated
asset management company to be taxed at 20%.
7. CVT on debt instruments removed in order to develop the nascent
debt market.
Following proposals made by MUFAP were not incorporated in the Finance Bill, 2011.
1. Transfer of accumulated balance from gratuity and superannuation fund to VPS to be allowed tax free. MUFAPs view point presented before FBR wasthat VPS and employers managed retirement schemes should compete with each other and it should be left to employees to decide which scheme they
should join. MUFAP had no objection if transfer of balance is allowed from VPS to employer managed schemes.
2.
The transfer of accumulated balance from provident fund scheme (PF) to VPS is allowed under Income Tax Rules. MUFAP proposed that any subsequentwithdrawal of balance transferred from PF to VPS should not be subject to tax, as no tax credit is applicable on contribution to PF.
3. MUFAP proposed that all retirement schemes should be taxed under EET regime {(i) exemption from income tax of amount contributed to retirementschemes, (ii) exemption of investment income from income tax and (iii) pension to be taxed}. MUFAP emphasized that EET was its preferred choice,
being equitable; if that was not possible, then it is only fair that VPS should also be brought under EEE tax regime, like rest of the emplo yers retirement
schemes. Both options were not accepted by FBR. Considering that on retirement, fifty percent of the accumulated balance withdrawn from VPS is not
subject to income tax and tax withholding and the remaining amount drawn as monthly pension may be subject fifty per cent rate of tax, if the aggregate
income of the individual after reaching the superannuation age is below one million rupees annually, VPS is also partly tax exempt at the third stage.
Meetings of the Committees
MUFAPs Committees held many meetings to finalize important, well planned proposals on behalf of industry. The key findings and recommendations are
outlined below:
Rules and Regulations Committee
On May 5, 2011, SECP released notification of proposed amendments to Non-Banking Finance Companies and Notified Entities Regulations, 2008 in order to
solicit public comment on the regulation. The committee reviewed the proposed amendments in detail and suggested changes to regulations relating to
Trustee, fee payable to the Commission, minimum size of open-end scheme, maximum holding in open-end scheme and suspension period of redemption.
Among other things, MUFAP also addressed other long-standing issues not covered in SRO such as approval of related party transactions, requirement to make
minutes of Investment Committee meetings, inclusion of investment plan, charging of Shariah fee, uniformity of Investment permissibility across different
structures, requirement of obtaining ranking of CIS, regularization period when CIS is in breach of prescribed investment limits, investment limit for Index
Tracker funds, charging of license fee for ETF/Index Tracker funds, requirement to prepare statement of changes in equity, minimum equity requirement for
AMC and existing fee structure of commission.
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Mr. Mohsin Ali Chaudhr Left , Mr. Khawar Ansari Ri ht
Money Market Public Awareness
Campaign Print Ad.
Mr. John Micklethwait, Editor-in-Chief of The Economist
addressing at the ICI Annual Conference in Washington DC, USA
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Public Awareness Committee
Public Awareness Committee officially
unveiled the long-awaited money market
awareness campaign on June 7, 2011. The
multi-faceted awareness campaign, co-
financed by 12 AMCs, aimed at increasing
the awareness of the benefits of money
market funds to inculcate financial literacy
to potential investors to help them make
informed decisions. The campaigns
participating companies include ABL Asset
Management Limited, Al Meezan Asset
Management Limited, Arif Habib
Investments Limited, Askari Investment
Management Limited, Atlas Asset
Management Limited, HBL Asset
Management Limited, JS Investments
Limited, Lakson Investments Limited, MCB
Asset Management Limited, NBP Fullerton
Asset Management Limited, PICIC Asset
Management Company Limited and UBL Fund Managers Limited.
Phase I was a one month long campaign. The Committee has been working
to evaluate the results of Phase I in order to develop the media tools for
Phase II of the campaign which is scheduled to go out at the end of
October.
Meeting with SECP
A meeting was held between Board of Directors of MUFAP and SECP
representatives on the 3rd July, 2011 at the SECPS Karachi Office to
discuss the issues related to amendments in Non-Banking Finance
Companies and Notified Entities Regulations, 2008.
Events
ICI Annual Conference in Washington DC, USA
The Investment
Company Institute
(ICI) General
Membership
Meeting took
place in May 4-6 in
Washington DC at
the Marriott
Wardman Hotel.
What made this
event special was
that it was actually
a combination of
four conferences
in way in which participants could attend any plenaries or sections of any
of the four different conferences: ICIs 53rd Annual General Membership
Meeting, Mutual Funds Compliance Program Conference, Operations &
Technology Conference and Investment Companys Directors Workshop.
The objective was to reconnect with other IIFA members around the world
as well as hear topical and prominent speakers like the newly appointed
Editor-in-Chief of The Economist Mr. John Micklethwait and Chairman of
the U.S. Securities and Exchange Commission Ms. Mary Schapiro. This
insight into the strategies, thoughts and concerns of world trailblazers and
decision-makers gave a very clear snapshot of world economics. Special
sections of the conference on Risk Management as well as on the special
needs of small versus medium versus large asset management companies
were also very edifying.
Overall, it was a very successful conference that was great value add. The
Conference was attended by Ms. Tara Uzra Dawood, CEO of Dawood
Capital Management Limited.
IFC WORKSHOP ON CORPORATE GOVERNANCE
The International
Finance Corporation
(IFC), a member of
the World Bank
Group, held an Inter
Active Workshop on
on June 21, 2011 at
MUFAP. This half-day
workshop was
designed to provide aplatform to build capacity of MUFAP member Institutions to improve
techniques for assessing and contributing to the improvement of
Corporate Governance practices of investee companies. The opening
session of the workshop was addressed by Mr. Khawar Ansari who stressed
the significance of good corporate governance to optimize operational and
financial efficiency and outlined the need for fostering accountability,
fairness, transparency and responsibility to streamline business processes
effectively. The second session of the workshop was delivered by Mr.
Mohsin Ali Chaudhry, in which he elaborately explained the corporate
governance methodology and discussed various diagnostic tools to assess
corporate governance of a company. The workshop was concluded with a
dynamic participatory session included case studies, group discussion and
open questioning. Conference was attended by 15 senior professional staff
members from MUFAP Member Institutions and MUFAP.
SECP UPDATE
SECP begins redrafting of company law
The Securities and Exchange Commission of Pakistan (SECP) has initiated
re-drafting of the Companies Ordinance 1984 to make it compatible with
the best global practices. The new law, under the guidance of the
Corporate Law Review Commission, is planned to be finalized within the
next 12 to 18 months so that global regulatory regime should prevail in the
corporate sector of Pakistan.
SECP Proposes Changes in NBFC Regulations, 2008
Securities and Exchange Commission of Pakistan (SECP) vide S.R.O. 350
(I)/2011 dated 5th May, 2011, as part of its continuous efforts for
development of the capital markets, has proposed certain amendments in
the NBFC & Notified Entities Regulations, 2008 (the Regulations) aimed
at encouraging the growth of mutual funds and also placed these
amendments on its website to solicit comments from the public and
concerned quarters. MUFAP proposed its comments on the amendments
in the NBFC & Notified Entities Regulations, 2008. SECP also heard
MUFAPs proposal in a meeting held on July 3rd
, 2011 at the SECP office in
Karachi.
http://www.laksoninvestments.com.pk/http://www.picicamc.com/http://www.picicamc.com/http://www.picicamc.com/http://www.picicamc.com/http://www.laksoninvestments.com.pk/ -
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Source: KSE
Source: KSE
Source: KSE
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SECP issues the First Draft of Debt Securities Trustee Regulations
The first draft of Debt Securities Trustee Regulations (DST Regulations) has
been notified in the official gazette to solicit public opinion as required
under Sub-section (1) of Section 506 (A) of the 1984 Companies Ordinance.
The DST Regulations are aimed at safeguarding and protecting the interest
of the investors in the debt securities; ensuring that provisions of the Trust
Deeds executed between the issuers and the trustees are not breached; to
monitor compliance by the issuers of the terms and conditions of the
respective trust deeds; to monitor maintenance of the security, if any; to
monitor the payment of profit/markup/interest to the holders and
redemption of the securities; and to redress the complaints of debt
securities holders.
The key areas covered in the DST Regulations are the eligibility
requirements for registration; seeking registration and renewal; duties and
responsibilities of Debt Securities Trustees; maintenance of records and
documents; suspension/cancellation of registration; compliance with the
code of conduct; and list of minimum contents of the Trust Deed. Under
the DST Regulations, registration has been made compulsory to act as
trustee and only scheduled banks, development finance institutions and
investment finance companies can act as Debt Securities Trustees.
SECP gets taxation regime reformed
For details see page 3.
SECP allows investment in Futures Contract
SECP has taken an in-principle decision to allow equity/equity oriented
CISs to invest in futures contracts. However, before proceeding with the
investment the concerned AMC shall seek approval of the Commission as
mandated by the constitutive documents of the relevant CIS.
SECP amends the format of Statement in Lieu of Prospectus issued by a
private company on its conversion into a public company
SECP has amended the Statement in Lieu of Prospectus which is contained
in Part III of Second Schedule of the Companies Ordinance, 1984, required
to be filed with the registrar by a private company converting into a public
company. Previously, Prospectus required to be filed by public unlistedcompanies for obtaining Commencement of Business Certificate was
substituted with new one. Relevant information regarding the company,
i.e., Corporate Universal Identification Number, Registered Office and
contact details have been added keeping in view the requirements of all
the stakeholders. Previous format contained some cumbersome and
difficult information. Amended format contains more detailed and
simplified information on authorized and paid-up capital of the company,
particulars of directors, chief executive, secretary etc, remuneration
payable to these persons, number and amount of shares and debentures
issued or agreed to be issued, amount of discount, if any, allowed on issue
of any shares, details of every agreement entered, preliminary expenses,
rate of dividends in previous years etc.
Standardized Trust Deed for Mutual Funds
CDC-MUFAP finalized Standardized Trust Deed for Mutual Funds. The CDCand MUFAP teams had been working together for more than a year
towards finalizing a Standardized Trust Deed for Mutual Funds. The
finalized draft of the Standardized Trust Deed for Mutual Funds was
submitted to the SECP on the 22nd
July, 2011. The Standardized Trust Deed
for Mutual Funds once approved by the SECP will help in saving a lot of
time and money in the approval process for the Trust Deeds for Mutual
Funds set up in the future.
Market Developments in Q4 FY11
Equity Market
The KSE-100 index waved a cheerful farewell to the fiscal year 2011 as it
climbed 2,300.34 points, or 26%, to 12,300.44. The stock market staged animpressive rebound in the first two quarters, bringing the return of the
index to 23.66% for the first six months, while in the latter ones market
volatility rose sharply and index posted a subdued gain of 2%. During the
last quarter of FY11, index moved in a narrow band of 909 points touching
a high of 12,508.42 and slipping to a low of 11,599.28 with thin volumes
across the board amid limited foreign and institutional interest. The
lackluster activity dominated the market throughout the trading sessions
of April, however, finishing the month with 248.90 points up, or 2.1%, to
12,057.54. Rising inflation, widening fiscal deficit, energy and gas shortfall,
security concerns, increased power tariffs, circular debt issue and higher
global commodity prices kept investors on the sidelines. However,
encouraging corporate earnings, rising foreign exchange reserves, current
account surplus and recovery in global stocks and commodities drove the
modest improvement in the last few trading sessions of the month. Due to
the volatile law and order conditions, the market continued to move at a
snails pace in May to close marginally up 65 points, or 0.5% at the
12,123.15 level. The market crawled up towards the later part of the
month on the back of positive budget related news particularly relaxation
in CGT and intactness of deemed duty as well as assurance about no
imminent foreign aid withdrawal and sovereign rating revision. The last
month of fiscal year 2011 presented a non-descript pattern as the index
edged up 372.88 points, or 3.08%, to 12,359.36. Despite low-volume
market environment, index managed to record light gains amid
cancellation of flood tax surcharge, unchanged corporate taxation on the
banking sectors, phased withdrawal of FED on cement, deregulation of oil
prices and discovery in exploration sector. The market is in need of fresh
catalysts to regain momentum.
Q1-FY11 Q2-FY11 Q3-FY11 Q4-FY11
KSE-100 Index 10,013.31 12,022.46 11,809.54 12,496.03
KSE-30 Index 9,674.34 11,588.24 11,561.50 11,586.49
Market Cap. (PKR bn) 2,772.38 3,268.95 3,147.55 3,288.66
Net Foreign inflow (US$ mn) 106.19 143.80 52.38 (22.19)
Avg. daily vol. (mn shares) 62.04 124.19 122.08 74.02
Q1-FY11 Q2-FY11 Q3-FY11 Q4-FY11 ALL TIMEHIGH
KSE-100(Highest Close)
10,519.02
(Jul 30, 10)
12,031.46
(Dec 30, 10)
12,681.94
(Jan 17, 11)
12,508.42
(Jun 23, 11)
15,676.34
(Apr 18, 08)
KSE-30(Highest Close)
10,483.36
(Jul 30, 10)
11,588.97
(Dec 30, 10)
12,476.12
(Jan 17, 11)
11,955.21
(Jun 08, 11)
18,996.33
(Apr 17, 08)
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Source: Monetary Policy Information Compendium, SBP
Source: SBPSource: Monetary Policy Information Compendium, SBP
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Money Market
SBP adopted various policy measures aimed at controlling the growth of
monetary aggregates in order to achieve monetary and price stability.
Open Market Operations (OMOs) remained the major tool for liquiditymanagement. The liquidity constraint forced SBP to increase money
injection into the market. SBP injected Rs. 220.85 billion and mopped up
Rs. 375 billion during Q4-FY11 through OMOs.
Strong export earnings and robust growth in remittances, expansion in
foreign exchange reserves, increase in NFA of the banking system,
relatively disciplined government borrowings from the central bank,
favorable external current account position and stable financial markets
allowed SBP to keep the key policy rate unchanged at 14 percent in the last
monetary policy review during the fourth quarter of FY11.
However, the debt burden combined with inflation has created challenges
for private productive activity and needs satisfactory implementation of
fiscal reforms.
Movement in KIBOR
Treasury Bills
A total of 7 T-bill auctions were held by SBP during the quarter in which a
total amount of Rs 1,235.33 billion was raised. No change in the SBP policy
rate has led the banks to diversify their investment in all tenors of T-bills.
T-Bill Auctions (Amount in PKR billion; rates in %)
3-Month
Cut-off Rates
6-Month
Cut-off Rates
12-Month
Cut-off Rates
Amount
Accepted
07-Apr-11 13.30% 13.69% 13.87% 200.9821-Apr-11 13.25% 13.62% 13.87% 232.65
05-May-11 13.07% 13.48% 13.79% 254.19
19-May-11 13.21% 13.60% 13.84% 158.83
02-Jun-11 13.53% 13.76% 13.91% 135.49
16-Jun-11 13.49% 13.74% 13.91% 180.36
30-Jun-11 13.49% 13.74% 13.91% 72.83
A total of 6 T-bill auctions were held by SBP during the quarter in which a
total amount of Rs 962.30 billion was raised. No change in the SBP policy
rate has led the banks to diversify their investment in all tenors of T-bills.
Pakistan Investment Bonds
The Government compensated the earlier shortfall in borrowings through
PIBs by accepting more than targeted amounts in the last three auctions as
it raised a net amount of Rs 80.66 billion through PIB auctions against the
target of Rs 80 billion during the quarter. Investors seemed to be most
interested in 10 year PIBs, as about 52.07% of the money was raised
through this tenor.
PIB Auctions (Yields in % and Face Value in PKR billion)
Cut-off rate Offered Accepted Target
27-Apr-11
3-Year 14 9.28 5.48 4
5-Year 14.07 4.85 3.45 4
7-Year R 0.65 R 1
10-Year 14.1 25.8 14.53 8
15-Year R 0.05 R 1
20-Year R 1 R 1
30-Year R 0.95 R 1
Total - 42.58 23.46 20
25-May-11
3-Year 14 16.23 12.57 4
5-Year 14.06 4.93 2.53 4
7-Year R 0.25 R 1
10-Year 14.1 18.3 12.7 8
15-Year 14.11 0.15 0.1 1
20-Year 14.14 0.1 0.1 1
30-Year R 0.1 R 1
Total - 40.06 28 20
22-Jun-11
3-Year 14 12.21 10.96 4
5-Year 14.05 3.72 2.87 4
7-Year R 0.1 R 1
10-Year 14.09 19.67 14.77 8
15-Year 14.1 0.5 0.2 1
20-Year 14.14 0.2 0.2 1
30-Year 14.19 0.2 0.2 1
Total - 36.6 29.2 20
GoP Ijarah Sukuk
The Government accepted a total of Rs. 45.80 billion against received bids
of Rs. 51.25 billion in the latest Ijara Sukuk auction held on May 9, 2011.
Tenor Q1-FY11 Q2-FY11 Q3-FY11 Q4-FY11
3-month 12.25%-13.09% 12.97%-13.46% 13.46%-13.80% 13.22%-13.57%
6-month 12.35%-13.27% 13.19%-13.62% 13.64%-13.90% 13.56%-13.79%
12-month 12.30%-13.73% 13.31%-14.12% 14.13%-14.34% 14.02%-14.26%
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Debt Market
The table below summarizes the TOP 15 traded TFC/Sukuk during the Q4-FY11:
TFCs / Sukuks Detail Face Value
(PKR million)
Trade Value
(PKR million)
Transactions Trade Price
Range
Pakistan Mobile Communication Ltd. - 889.45 817.65 27 87.00 - 94.23
United Bank Ltd. IV 616.11 620.64 11 96.75 - 99.00
NIB Bank Ltd. I 312.72 301.32 13 96.00 - 96.50
Engro Corporation Ltd. I 283.35 281.22 4 98.70 - 100.0
Allied Bank Ltd. II 179.89 176.82 4 97.00 - 98.75
Bank Al-Habib Ltd. II 128.94 133.64 9 103.0 - 104.0
Optimus Ltd. - 124.83 100.36 3 78.00 - 82.00
Bank Alfalah Ltd.-Fixed IV 121.94 121.08 6 98.13 - 98.25
Engro Fertilizer Ltd. III 107.35 102.97 6 93.00 - 97.50
Askari Bank Ltd. III 99.96 103.28 3 103.0 - 103.65
United Bank Ltd. I 78.05 73.79 8 94.00 - 94.75
United Bank Ltd. III 76.82 77.77 7 101.0 - 101.7
Soneri Bank Ltd. I 49.88 49.93 1 100.1 - 100.1
Bank Al-Habib Ltd. I 49.87 46.57 3 90.78 - 96.00
United Bank Ltd. II 44.34 40.19 6 87.05 -91.00
State Bank reduces policy rate by 50 bps to 13.5%
The State Bank of Pakistan (SBP) has decided to reduce its policy rate by 50 basis points to 13.5 percent with effect from August 01, 2011. This was announced
by Mr. Yaseen Anwar, Acting Governor, State Bank of Pakistan, while unveiling the Monetary Policy Statement.
Mutual Funds Industry
The total net assets expanded by 7.87% quarter over quarter. This growth applies to open-end funds, pension funds and closed end funds. The open-end funds
went up by 9.79% to Rs. 222.537 billion, pension funds went up by 9.67% to Rs. 1,557.85 million and closed end decreased by 7.32% to Rs. 23.917 billion.
Net Assets - (PKR in millions)
Open-End Funds Closed-End Funds
Asset Type Q3-FY11 Q4-FY11Growth
Rate
Q3-FY11 Q4-FY11Growth
RateAsset Allocation 3,091.59 3,065.70 -0.84% 445.49 434.53 -2.46%
Balanced 3,811.16 3,524.98 -7.51% 1,352.65 1317.25 -2.62%
Capital Protected 4,564.27 3,368.47 -26.20% - - -
Equity 49,973.76 52,458.09 4.97% 19,793.56 17,809.9
-10.02%
Income 47,056.85 47,503.60 0.95% 1,081.63 1,124.76 3.99%
Money Market 62,932.22 77,304.26 22.84% - - -
Islamic Asset Allocation 1,299.35 1,263.06 -2.79% - - -
Islamic Balanced 781.62 766.58 -1.92% 1,474.80 1,523.43 3.30%
Islamic Capital Protected 708.60 - -100.00% - - -
Islamic Equity 4,897.64 5,319.98 8.62% 1,657.75 1,707.32 2.99%
Islamic Income 16,330.71 20,792.83 27.32% - - -
Islamic Money Market 6,815.58 7,169.87 5.20% - - -
Total 202,263.35 222,537.44 9.79% 25,805.87 23,366.2
-7.32%
Source: MUFAP
Source: MUFAP
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Mr. Nasim Beg
Mr. Farid Ahmed Khan
Top
Funds launched during the quarter Q4-FY11
The following fund was launched during the quarter:
Fund Name CategoryInception
Date
HBL Islamic Money Market Fund Islamic MoneyMarket 9-May-2011
HBL Islamic Stock Fund Islamic Equity 9-May-2011
MCB Islamic Income Fund Islamic Income 19-June-2011
Meezan Capital Protected
Fund-II
Islamic Capital
Protected07-July-2011
UBL Government Securities
FundIncome 25-July-2011
Pak Oman Government
Securities FundIncome 28-July-2011
Funds Matured during the quarter Q4-FY11
The following funds have been dissolved after completing their fixed
duration:
Fund Name Category Maturity Date
JS Capital Protected Fund IV Capital Protected 30-May-2011
MCB Sarmaya Mehfooz Fund-1 Capital Protected 25-June-2011
Meezan Capital Protected Fund Islamic Capital
Protected
29-June-2011
JS Principal Secure Fund II Capital Protected 27-July-2011
A Note of Appreciation for Services rendered to the Industry
Mr. Nasim Beg resigned from the Board of Directors
of MUFAP on the 27th
June, 2011 on his
appointment and elevation to the position of
Executive Vice Chairman of Arif Habib Investments
Limited. We would like to place on record the
valuable services always very willingly and
generously provided by Mr. Nasim Beg to MUFAP
from its early years both as a Director and Chairman
of MUFAP in recent years. He has always made himself available to
MUFAP to serve on the professional Committees of the Board both as a
Member and Chairman of the Committees and has contributed very ably
and significantly on industry issues and for industry development matters.
With his qualities of leadership, his high ethical and professional standards
he has been a role model for all of us. We are looking forward to Mr.
Nasim Beg continuing to make himself available to help and guide us
whenever needed.
Rejoining of National Asset Management Limited (NAMCO)
The General Body Meeting of MUFAP approved the re-admission of the
National Asset Management Company Limited (NAMCO) with effect from
the 18th May, 2011 as a member of MUFAP. We welcome NAMCO on its
resuming its membership of MUFAP.
KASB Funds acquires Crosby Asset Management
KASB Funds Limited (KFL) announces the successful completion of
acquisition of Crosby Asset Management (Pakistan) Limited (CAMPL) and
its simultaneous merger with and into KASB Funds Limited.
As per the approval of SECP, Crosby Asset Management Limited merged
into KASB Funds Limited and the rights to manage Crosby Dragon Fund,
Crosby Phoenix Fund and AMZ plus Income Fund have been transferred to
KASB Funds Limited w.e.f July 20, 2011.
Review of compliance with the mandatory disclosure requirements of FMR
Since the beginning of the exercise to review the FMRs for compliance with
the mandatory disclosure requirements, weve witnessed a considerable
improvement. The following companies are conforming to the
recommended format as per our verification of FMRs for the month of
June 2011:
- Al Meezan Investment Management Limited,
- Arif Habib Investments Limited (a subsidiary of MCB Bank Limited),
- Atlas Asset Management Limited,
- BMA Asset Management Company Limited,
- Crosby Asset Management (Pakistan) Limited,
- Habib Asset Management Limited,
- HBL Asset Management Limited,
- JS Investments Limited,
- Pak Oman Asset Management Company Limited,
- PICIC Asset Management Company Limited
From our next issue we plan to mention names of those AMCs who are
NOT compliant with the standardized format of the monthly FMR.
Interview with the Chairman of MUFAPs Public Awareness Committee;
Mr. Farid Ahmed Khan
To improve awareness among investors that there
are several investment options available in the
market place, and making investors aware of the
risks and rewards associated with such investment
avenues, MUFAP established a Public Awareness
Committee to accomplish its goals by drawing and
activating campaigns. We decided to speak with the
Chairman of MUFAPs Public Awareness Committee
to discuss the recently launched campaign, its goals,
challenges and accomplishments.
What inspired you to lead the Public Awareness Committee? What would
you like to accomplish as a committee chair?
I really wanted to work with a team to create some difference in whatever
way I could and when I shared the view with Chairman MUFAP, he
suggested that perhaps the awareness committee is one of the platforms
where it can be achieved. Thats how I ended up here. To be honest, I feel
that one year is too short a period of time in order to achieve our strategic
objective as it requires a sustained collaborative effort of 25 AMCs and
bringing everyone together on a single common platform to achieve
shared goals takes some time. What we can accomplish and want to
accomplish may be in this short period of time:
a)To start rebuilding the image of funds which was tarnished during
2008/09.b) Focus on initiatives aimed at enhancing investor education to bring back
the investors who seemed to be shying away from the industry.
c) Work with regulators, stakeholders and other key market participants to
spread the message as wide as possible to promote savings and
investments in the market and thereby contributing to the economic
progress. The idea is to build mutual cooperation and understanding with
the major stakeholders (KSE, CDC, NCCPL, and SECP) for the effective
regulation and development of capital market with a clear direction.
Source: MUFAP
Source: MUFAP
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Can you put forward your thoughts on how the mutual fund industry can
further create awareness for its products and also build the trust and
respect of the general public?
Trust and respect will only come with time and performance. If you keep
performing and delivering quality on time, people will come to respect you.
Its true that our industry has gone through some tough times but so has
been the stock market. Track record of consistency and performance can
earn the trust. The first and foremost thing to create awareness is to
develop investor education programs for both urban and rural areas.
Through comprehensive public awareness program like face-to-face
interactions, road shows, public forums and seminars, we can educate our
investors about what our products are, how we can help them and
eventually earn their trust. The next step to create awareness of our
different products, risk profile, merits and demerits of each fund category
is to give participants an opportunity to speak directly to experts.
Do you think one day we can be at a place where we can be as popular as
banks?
When we look at banks in Pakistan, they have a rich history of 60-65 years.
A lot of them are like households names with a massive distributionnetwork while mutual fund industry is only a few years old. Most people
are unaware of mutual funds, money market fund is perhaps the simplest
of our product but people dont even know about it. It requires relentless
work and incessant efforts at creating awareness to hammer the message
down that mutual funds are an important part of their saving portfolio like
national saving schemes and bank accounts and it should rank somewhere
near that spectrum. It is a long journey but as long as we keep moving in
that direction, we will eventually achieve our goal.
Do banking groups that have asset management affiliates help in
distributing funds or they see mutual funds in competition with their own
products?
It varies from company to company. Some get a lot of support, some get
some support, some do not get any support, and it depends on where the
priority line lies for the AMC business and for the bank. With big banks wedo face this problem that their bottom-lines are huge and its very difficult
for us to make an impact or gain their attention. Therefore, we have to
regain our shareholders as charity begins at home. If the shareholders
understand, they will put it on the right priority lane. Its absolutely correct
that mutual funds are in direct competition with some of their products
but banks do have other products as well. Some banks have 5 different
credit cards, each one of them is competing with other but at the same
time each has one different feature which differentiates. So we are like
that. Similarly, people keep their money in long-term deposits but at the
same time they do keep their money in saving accounts also where they
withdraw at will, may be some part of it can come into our money market
and income funds. There will be some cannibalization but at the end of the
day the money will remain in the group/system. We have to send this
message across that there is value addition for banks as people are
becoming more and more aware of these products and if one bank does
not offer it the customer will go to some other bank. The best way is to
keep customers informed, offer them choices so that at the end of the day
its their choice which product they want to choose. Our job is to ensure
that whatever the product they choose, it remains in the group.
Money market funds now have the largest weight in fund categories
surpassing both equity and Income funds AUMs, Do you think that Money
Market Fund Category can continue to grow keeping in mind the
unchanged key policy rate in last three Monetary Policy reviews?
Money market funds are now the preferred vehicle for risk averse
investors and their growth indicates the psyche of our customers. Its just
the reflection of how the industry and market has fared over the last two
years.
Money Market category will continue to grow for as long as investors have
a low risk appetite. The moment investor risk perception changes, for
instance, if the stock market starts running again and after 6 months
people realize that stock market is up 25%, we will see a sharp growth in
stock funds as well. Money market category probably is not heavily
dependent on how the interest rate environment moves; it is more aligned
with investor risk perception and performance of other asset classes.
Investing is about making money and meeting your financial goals. What
are the key differences between investing in bank deposits and Money
market funds? What advice would you give to the general public at large to
increase odds of achieving their investments goals?
People should consider our money market funds as an alternative to bank
deposits. They are not a replacement of bank deposits. One cannot get his
salary credited to a money market account, the person needs a bank
account for it. It is certainly an option as a saving alternative. Instead of
leaving money in a saving account or current account, money market fund
is a better product which offers superior returns with a lot of flexibility.
This is how we will pitch it Use your bank account for transactions to get
credits & debits but for your savings, consider money market fund.
Can you please throw some light on goals and objectives of recently
launched Money Market awareness-building Campaign? What is your
campaign slogan? Is the campaign clearly focused on the target audience?
The objectives of this campaign were to educate investors about AMCs and
their funds. We wanted to introduce money market funds as aninvestment option next to the bank deposits and highlight the fact that this
is a vibrant industry that can work together for a common objective. It is
also an effort towards the investor education and outreach where we tried
to explain the thought process behind these funds and what benefits they
can offer to investors. We wanted to differentiate it very clearly that funds
are not just about stock market or stocks; there are different categories
available. It was a short campaign for about a month. We tried to make the
slogan as simple as possible People who think smart, invest smart. We
didnt incorporate any financial jargon because one doesnt need to be a
financial wizard to understand this product. All you need to do is perhaps
act; you dont have to think a lot about it. Its only your laziness which can
prevent you from not taking advantage of it.
My regret is that perhaps it was targeted mostly towards urban
population. Given the budget constraints and the fact that it was the first
attempt we wanted to keep it focused otherwise we would have stretched
ourselves in a major way. The objective was to target businessmen,
professionals, housewives and retired personnel. The way the response we
got, the leads that started to come through, the number of hits received on
website, it highlights that the message did go across.
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What were the key challenges faced by the committee in launching the
awareness campaign?
Initially, the biggest challenge was to define this campaign because this
effort has been going for a long time. It was not delivered because
whenever you have 20 people sitting at a table, there are 20 ideas. The key
challenge was to cut it down to the bare minimum level where everyone
agrees. It was the defining moment when we decided this is what we have
to do and we got everyone around the table agreed to it. Once that was
done, coordination was the key challenge at the execution stage but we
had a very good team of volunteers who did fantastically well. Once the
goal was clear that what we have to achieve, things started falling into
place. Other challenges were regulatory approvals.
How are you going to measure the success of the campaign?
The results can be measured along several factors, the leads; the number
of hits on website and fans on our face book page. We cannot measure the
impact in short-term as the hits tend to multiply over time. SECP and KSE
liked the idea that industry is coming together and giving a message from a
common platform. The credibility goes many folds when 12 companies are
appearing together to achieve common objectives in newspaper. Time willtell how successful it was.
What would be your strategy or advice that you would convey to the
person who will take the lead of this committee?
I would recommend that the strategy for next 3 years is to create
awareness from grass root level and keep things simple because when we
have to explain something to lay men, sometimes we take certain things
for granted that they already know that its a money m arket fund and it
does not invest in stocks. So we should keep things really simple and at
basic level where we just have to hold their hands and guide them. Once
we agree to that we just need to convey the features and benefits of
mutual funds, what they can do for you, how you can invest, how you can
reach us. Once your investor interaction starts, once he steps inside your
domain than after 1 or 2 years when he has a good experience with simple
products, he will listen to you and will look at other investment options orplans as well.
What future plans do you have to expand outreach efforts?
We want to put some publications in magazines and newspapers about
mutual funds and explain how mutual funds complement banks and other
saving products. Investor road shows seminar is next thing on our agenda.
We are planning to initiate our second phase of campaign after ramazan.
Our plan is to use this campaign and its momentum to appear on several
print and electronic media to further give the message out about our
industry achievement. We are planning to make a resource booklet
representing fundamentals of investing in mutual funds on MUFAPs and
Money Market funds website.
ARTICLES
Disclaimer: The opinions expressed in these articles are the views of the
author of the articles and not necessarily the views of MUFAP.
The AlternativeBy Muhammad Sohail
Director, KSE and CEO Topline Securities
Mounting fiscal deficit with no major external inflows has forced the
government to take steps that will defer real investment and
industrialisation in the country. The government has been promoting
investment in state-backed securities like treasury bills, Pakistan
Investment Bonds and different products of National Saving Schemes
(NSS).
NSS alone has raised Rs20 billion a month for the government for the last
three years. With some products offering returns higher than the
prevailing interest rates and inflation, a wise investor will not bother
working hard to make more returns in the economy hit by stagflation.
Lower tax on government securities
The Finance Bill, 2011 allows a taxpayer, other than a company, to bring
profit earned on government securities in Final Tax Regime. After this
amendment, the individual can avoid filing returns under the section
115(4) of Income Tax Ordinance. As a double benefit, the investor of
government securities can pay less tax (only 10%) and, that too, without
any hassle of filing tax returns.
This shows the governments desperation to raise funds at the expense of
actual investment in different sectors that can generate employment and
contribute to the overall economic development of the country. This has
negative repercussions on the already dying stock market where the
overall volume has collapsed to a 9-year low in FY11. After the tax
relaxation, investors have been provided with a window of opportunity to
make easy money by shifting their funds from stocks to government
papers.
Good returns with no risk
In the last 20 years, average annual return on benchmark 6-month treasury
bills was 10 percent. After the deduction of 10 percent withholding tax, the
net return turns out to be 9%. Most of the high net worth individuals fall in
20% tax bracket. For them the after-tax return was 8 percent a year.
In comparison, the stock market posted an average yearly return of 20%
(including 5 percent dividends) in the last 20 years. With no tax on capital
gains and a 10 percent levy on dividends, the actual after-tax return comes
to 19 percent after commission and other charges. Thus, on after-tax basis
the return on government papers, at 1,100 basis points or 11%, is less than
the equity earnings.
The situation is no more the same now. The government has announced a10 percent full and final tax on government papers in the Federal Budget
2011/12. And now the capital gains tax has been brought under the tax
ambit with no facility of it being considered as full and final for individuals.
As a result, if someone buys 6-month benchmark T-Bill, his after-tax return
will be 12.35 percent compared to 17.5% in stocks (after the deduction of
10 percent tax and 0.5% other charges). This estimate is based on the 20-
year average annual gain of 20 percent. This 5 percent additional return on
equity is far less than the historical premium of 11% that an investor used
to get for taking additional risks.
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Furthermore, the government has been kind enough to fixed-income
investors by placing them under the presumptive tax regime where the 10-
percent levy will be full and final. On the other hand, a stock investor
needs to keep all the records and hire a tax consultant to file yearly return
of investment in the stock market.
Behbood Scheme: the best bet
Another reason to invest in government securities is the attractive yield
being offered by saving schemes. NSS has attracted around Rs700 billion in
the last 3 years. On an average, Rs20 billion net investments are being
made in these products on a monthly basis. Behbood certificates offer the
highest rate of 15.4 percent and are exempt from taxes. This product is
designed for widows and senior citizens aged 60 years and above.
Interestingly, close to Rs200 billion has been invested in this product alone
in the last 3 years. With NSS still not being computerised, many investors
have touched the maximum limit of Rs3 million for an individual in sheer
violation of the rules. And the mounting inflows in this scheme justify the
decision of a smart investor, who deposits all of his funds in the product
where the after-tax return is close to the stock market earnings, with no
tax and botheration to file returns.
In FY11, the so-called benchmark KSE-100 Index rose 20 percent excluding
illiquid Nestle Pakistan. After tax and other costs, the return is close to 17.5
percent compared to risk-free, tax-free 15.4 percent profit generated
through Behbood.
Shift the focus please
The government must focus on bridging the fiscal deficit through
innovative methods rather than relying on costly debt that obviously has to
be repaid. By imposing a 25 percent tax on gas bills, the government can
raise Rs100 billion. Economic theory suggests taxing the product in
demand. Gas in Pakistan is being sold in the range of $1-$6 per Million
British Thermal Unit (MMBTU) compared to the equivalent cost of oil
which is $15 per MMBTU. Gas is preferred by everyone because it's
cheaper than oil. Housewives in Karachi enjoy uninterrupted gas supply at
nominal charges at a time when the industry is desperate for gas at a
higher cost. Many people prefer to use gas generators at their homeamidst power outages. This tax on gas or similar kind of price
rationalisation will help curtail the rising gas demand.
Similarly, if the government charges one rupee a day from mobile users,
they can raise Rs40 billion a year to help finance the deficit in the short
run. The government can also rely on the stock market to raise funds
rather than depending totally on interest bearing debt. The government
has raised more than Rs100 billion through the stock market in the past.
Thus, a vibrant capital market can help generate funds that the
government is now raising at a high cost.
Implications of National Savings Schemes on the Economy
& the Financial Sector
By Mutual Funds Association of Pakistan (MUFAP)
National Savings Scheme (NSS) plays an important role in mobilization of
savings for meeting the Governments financing needs. However, pricing
and tax anomalies in NSS need to be addressed. Addressing these
anomalies can save the Government of Pakistan up to Rs 100 billion per
annum through reduction in debt servicing costs and increase in taxes and
penalties on early withdrawal from NSS. Presently government debt
servicing at around Rs 800 billion equals about 50% of the entire
government tax revenues. These costs can be significantly brought down.
This will also reduce the interest rate risk for the government and help in
bringing the interest rates down in the country which will promote
economic growth.
MUFAP analysis indicates that there is very substantial mis-pricing in
Bahbood scheme and Special Savings Certificates. Behbood presently
offers a rate of 15.4% p.a.with zero percent tax on it. Over 90% of Pakistani
retirees do not have the savings to invest in the Behbood Scheme. They
can hardly meet their day to day expenses. The investors who invest in the
Behbood Scheme are rich and it is not right that they be provided subsidy
by the government. It is also widely believed that individuals open multiple
Behbood Deposit Accounts at different NSS Centers. There is a need to
investigate this fraudulent availing of Behbood subsidy. It is not justified to
provide subsidy to the very rich through payment of very high interest
rates and also making the rate of return paid (15.4 % per annum) on the
Behbood deposits tax free.
MUFAP has compared the NSS rates in Pakistan with similar Small Savers
Scheme in India. In India the average bank deposit rate is about 7.5% p.a.
and the average return on Savings Schemes is about 8% p.a. In Pakistan the
average bank deposit rate is around 6% p.a. and the average return on NSSis about 14% p.a. (calculated based on the prevailing rates of returns).
Thus, the Pakistani government is paying too high a rate on savings
schemes, despite the fact that the credit rating of the Government is much
higher than banks. The wide spread of over 8% between NSS rates and
bank deposits has a negative impact for the banking system. State Bank of
Pakistan has stated in its F inancial Stability Review 2009-10: more net flow
towards NSS tend to shift medium term fund or fixed deposits away from
the banking system that limits the banks ability to invest in the medium
term projects.
The Penalty structure on NSS is also very low and inconsistent. The penalty
on 10- Behbood Savings Certificate averages only 0.625% in the first 4
years and 0% in the last four years. On the 3-year Special Savings
Certificate there is almost no penalty if a saver redeems after completion
of 6-months period. Thus in reality this is a 6-month instrument providing
the return of a 3-year instrument. Low penalties on withdrawal from NSSalso exposes the Government to high interest rate risk as investors switch
at any time the interest rates rise. The Effective Penalty rates on exit for
saving schemes in Pakistan are much lower versus India.
For all schemes excluding Behbood Savings certificate there is a flat 10%
full and final tax rate on income irrespective of the income level of the
saver. In India, by contrast, the tax rate is 10% on Income level of upto INR
500,000, which rises to 20% for income levels between INR 500,001 and
INR 800,000, and 30% for income levels above INR 800,000. Behbood
Savings Certificates are completely tax exempt in Pakistan whereas in India
for Senior Citizens Savings Scheme the tax rate rises with the income levels
of the savers and reaches 30% for savers with income levels above INR
800,000.
Very high rates on NSS have a strong negative affect on the Private Sector
and on the economy. With NSS offering returns of 12%-15% per annum,
the Private Sector is forced to borrow at an even higher rate. The very high
rates on NSS are slowing down private sector borrowings as the high
interest rates become a barrier for business and industrial investment and
expansion, thus slowing down economic growth rate of the country.
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Recommendations for the Government of Pakistan
The NSS should be targeted towards small savers and as in Indiainstitutions should not be allowed to invest their company cash
or employees funds in NSS
As in India, NSS rate of return should be linked to bank depositrates of the same maturity, and not to sovereign bond yields.
Penalties on NSS for premature redemptions should be raisedsubstantially to reduce interest rate risk of the Government
Higher tax rates slabs should be applicable on all NSS and bankdeposits based on the income levels and tax bracket rates of the
investors. In India, the tax slab on NSS and banks rise to 30%
versus 10% in Pakistan.
Rate of Return on Behbood Saving Certificates and DefenceSaving Certificates, both having a 10-year maturity, should be in
line with 10-year bank deposit rate.
Know Your Client (KYC) requirements should be madeapplicable to NSS as well as they are applicable to bank and
mutual funds. This will help reduce money laundering and
improve transparency and documentation of the economy.
Even if the Government gradually reduces NSS rates and raisespenalties, it will still be able to attract the target amounts as
banks / mutual funds returns are substantially lower than NSS
rates.
The above measures will help the government save about Rs 100 billion
per annum on account of reduced debt servicing costs and higher taxes
and penalties receipts. This will also revitalize the private sector resulting in
improving tax collection and exports, and reducing unemployment rate in
the country.
Mutual Funds Association of Pakistan
207- 209, 2nd
Floor, Kassam Court, Block-5, Clifton Karachi
Tel: 92-21-35293103, 35293136-7, Fax: 92-21-35293104
Email: [email protected]
www.mufap.com.pk
mailto:[email protected]:[email protected]:[email protected]://www.mufap.com.pk/http://www.mufap.com.pk/http://www.mufap.com.pk/mailto:[email protected] -
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TopSource: MUFAP
Source: MUFAP
Source: MUFAP
Source: MUFAP
INDUSTRY STATISTICS
Net Assets - Open End Schemes (PKR in million)
Schemes FY06 FY07 FY08 FY09 FY10 FY11Q1 FY11Q2 FY11Q3 FY11Q4
Asset Allocation 4,291 2,582 4,985 2,508 2,389 2,897 3,116 3,092 3,066
Balanced 6,574 7,459 12,353 7,100 5,182 4,536 4,041 3,811 3,525
Capital Protected - 2,617 5,019 6,194 7,147 5,443 5,583 4,564 3,368
Equity 71,191 113,147 104,162 61,542 39,374 39,621 50,877 49,974 52,458
Income 28,602 112,327 140,381 78,461 62,092 57,532 52,384 47,483 47,504
Money Market - - 114 3,282 32,046 41,293 50,378 62,932 77,304
Islamic Asset Allocation 1,378 1,073 1,832 1,520 1,178 1,223 1,360 1,299 1,263
Islamic Balanced - 965 1,916 1,358 911 833 753 782 767
Islamic Capital Protected - - 579 582 637 656 686 709 -
Islamic Equity 4,064 5,108 7,425 4,501 4,601 4,531 4,996 4,898 5,320
Islamic Income - 3,162 9,103 7,855 7,289 6,479 15,087 16,331 20,793
Islamic Money Market - - - 624 5,224 6,250 6,722 6,816 7,170
Total 116,100 248,440 287,870 175,528 168,071 171,293 195,983 202,690 222,537
Net Assets - Pension Funds (PKR in million)
Schemes FY06 FY07 FY08 FY09 FY10 FY11Q1 FY11Q2 FY11Q3 FY11Q4
Pension - - 305 349 572 535 576 606 655
Islamic Pension - - 466 530 729 721 786 814 902
Total - - 770 878 1,301 1,255 1,362 1,421 1,558
Net Assets - Closed End Funds (PKR in million)
Schemes FY06 FY07 FY08 FY09 FY10 FY11Q1 FY11Q2 FY11Q3 FY11Q4
Asset Allocation 629 646 592 283 345 374 425 445 435
Balanced 618 2,135 1,971 1,243 1,144 1,221 1,343 1,353 1,317
Capital Protected - 108 1,397 1,297 1,404 806 846 - -Equity 38,860 44,609 38,145 22,171 24,036 23,762 20,490 19,794 17,810
Income - 1,027 1,115 1,084 1,111 1,020 1,049 1,082 1,125
Money Market - - - - - - - - -
Islamic Asset Allocation - - - - - - - - -
Islamic Balanced 1,513 1,598 1,424 1,143 1,278 1,326 1,413 1,475 1,523
Islamic Capital Protected - - - - - - - - -
Islamic Equity 2,029 2,219 1,906 1,174 1,404 1,476 1,637 1,658 1,707
Islamic Income - - - - - - - - -
Islamic Money Market - - - - - - - - -
Total 43,649 52,341 46,549 28,394 30,723 29,986 27,203 25,806 23,917
Industry-wide - Net Assets (PKR in million)
FY06 FY07 FY08 FY09 FY10 FY11Q1 FY11Q2 FY11Q3 FY11Q4
Open End Funds 116,100 248,440 287,870 175,528 168,071 171,293 195,983 202,690 222,537
Closed End Funds 43,649 52,341 46,549 28,394 30,723 29,986 27,203 25,806 23,917
Pension - - 770 878 1,301 1,255 1,362 1,421 1,558
Total 159,749 300,781 335,189 204,801 200,095 202,534 224,548 229,916 248,013
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Source: MUFAP
Source: MUFAP
Sales (PKR in millions)
FY06 FY07 FY08 FY09 FY10 FY11Q1 FY11Q2 FY11Q3 FY11Q4
Asset Allocation 8,562 2,943 6,538 849 461 135 187 350 199
Balanced 1,933 3,007 9,585 827 627 130 2 8 26
Capital Protected - 2,624 2,591 2,951 2,848 - - - -
Equity 10,580 21,609 39,580 14,638 11,825 3,104 3,049 1,898 5,234
Income 41,149 178,192 385,817 128,626 113,145 13,478 9,566 7,282 15,343
Money Market - - 115 4,813 84,831 24,004 33,642 30,869 45,001
Islamic Asset Allocation 1,598 594 2,049 458 387 18 89 22 25
Islamic Balanced - 1,310 2,507 255 526 36 20 37 30
Islamic Capital Protected - - 581 9 - - - - -
Islamic Equity 1,581 1,879 4,934 931 764 116 225 196 631
Islamic Income - 4,018 22,288 14,596 9,108 692 10,274 4,553 18,616
Islamic Money Market - - - 676 13,094 2,226 31 1,368 2,684
Total 65,402 216,176 476,585 169,628 237,618 43,938 57,084 46,583 87,791
Redemptions (PKR in millions)
FY06 FY07 FY08 FY09 FY10 FY11-Q1 FY11-Q2 FY11-Q3 FY11-Q4
Asset Allocation 4,829 5,119 3,621 2,166 1,164 83 284 448 136
Balanced 4,318 3,831 5,841 2,934 3,605 322 996 416 185
Capital Protected - 57 164 806 233 1,790 34 1,114 602
Equity 15,138 16,577 37,407 13,103 15,799 1,568 6,550 3,205 3,957
Income 26,705 104,836 369,510 180,573 133,660 18,870 16,392 12,468 15,092
Money Market - - 3 1,683 57,790 15,632 25,454 21,923 38,019
Islamic Asset Allocation 154 900 1,604 634 795 187 34 100 45
Islamic Balanced - 452 1,522 505 1,213 155 194 45 46
Islamic Capital Protected - - - 10 26 - 807 - 724
Islamic Equity 1,312 1,954 2,469 1,615 1,984 441 615 620 362
Islamic Income - 927 17,547 16,187 10,000 1,572 1,881 3,457 5,955
Islamic Money Market - - - 54 8,812 1,350 24 1,434 2,493
Total 52,456 134,653 439,689 220,269 235,081 41,969 53,264 45,231 67,616
Net Sales (PKR in millions)
FY06 FY07 FY08 FY09 FY10 FY11-Q1 FY11-Q2 FY11-Q3 FY11-Q4
Asset Allocation 3,733 (2,176) 2,917 (1,317) (703) 52 (98) (98) 63
Balanced (2,386) (824) 3,744 (2,108) (2,978) (192) (994) (408) (159)
Capital Protected - 2,567 2,427 2,145 2,614 (1,790) (34) (1,114) (602)
Equity (4,558) 5,032 2,173 1,535 (3,973) 1,536 (3,501) (1,307) 1,277
Income 14,445 73,356 16,307 (51,947) (20,516) (5,392) (6,825) (5,186) 251
Money Market - - 112 3,129 27,042 8,373 8,189 8,946 6,982
Islamic Asset Allocation 1,444 (306) 444 (175) (407) (169) 54 (78) (20)
Islamic Balanced - 858 985 (249) (687) (119) (174) (8) (16)
Islamic Capital Protected - - 581 (1) (26) (0) (807) (0) (724)
Islamic Equity 268 (75) 2,465 (684) (1,219) (325) (390) (424) 269
Islamic Income - 3,091 4,741 (1,592) (892) (881) 8,393 1,097 12,661
Islamic Money Market - - - 622 4,282 876 8 (66) 191
Total 12,946 81,523 36,896 (50,641) 2,537 1,969 3,821 1,352 20,175
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Source: MUFAP
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Source: MUFAP
Source: MUFAP
Open End Funds' Return**
FY06 FY07 FY08 FY09 FY10 FY11Q1 FY11Q2 FY11Q3 FY11Q4
Asset Allocation 62.90% 18.79% -3.29% -22.33% 9.23% 1.92% 12.13% 2.99% -0.43%
Balanced 28.98% 27.16% 1.87% -25.01% 14.24% 2.49% 12.00% 4.69% -3.15%
Capital Protected - 5.57% 5.26% 14.67% 8.96% 13.75% 12.88% 2.21% 3.10%
Equity 27.48% 44.11% -4.29% -39.31% 18.93% 1.64% 19.43% 1.85% 1.10%Income 7.49% 9.07% 8.58% 7.68% 8.95% 7.08% 9.21% 8.24% 7.49%
Money Market - - 8.75% 10.33% 10.68% 10.40% 11.49% 12.49% 11.96%
Islamic Asset Allocation -4.54% 23.38% 5.49% -2.63% 6.93% 7.36% 7.92% 1.43% -0.65%
Islamic Balanced - 14.86% -1.17% -15.11% 16.83% 6.29% 13.30% 5.25% 0.41%
Islamic Capital Protected - - -0.40% 0.76% 13.62% 12.41% 18.78% 3.32% -
Islamic Equity 30.68% 25.09% -0.70% -30.12% 29.34% 5.76% 19.33% 6.69% 2.84%
Islamic Income - 9.81% 7.52% 8.06% 5.64% 11.39% 8.36% 11.41% 11.73%
Islamic Money Market - - - 7.79% 10.10% 9.91% 10.11% 10.92% 11.63%
Pension Funds' Return**
FY06 FY07 FY08 FY09 FY10 FY11Q1 FY11Q2 FY11Q3 FY11Q4
Equity - - -4.40% -26.78% 20.32% 3.25% 19.54% 4.07% -0.43%
Debt - - 3.54% 12.67% 7.67% 9.05% 8.85% 11.93% 7.54%
Money Market - - 6.25% 10.00% 3.54% 9.87% 9.98% 11.27% 7.78%
- -
Islamic Equity - - 0.13% -8.72% 23.13% 4.11% 19.56% 6.18% 2.13%
Islamic Debt - - 6.71% 9.91% 8.87% 9.49% 7.74% 10.51% 8.92%
Islamic Money Market - - 5.96% 9.17% 6.69% 8.44% 8.42% 8.28% 8.98%
Closed End Funds' Return**
FY06 FY07 FY08 FY09 FY10 FY11Q1 FY11Q2 FY11Q3 FY11Q4
Asset Allocation 19.23% 17.32% 5.41% -45.64% 26.44% 9.53% 16.70% 5.84% 5.30%
Balanced 22.18% 14.95% 0.92% -29.19% 0.12% 5.79% 3.20% -0.84% -0.48%
Capital Protected 14.79% -4.25% -1.13% 8.16% 9.43% 18.88% - -
Equity 9.11% 29.22% 0.35% -37.80% 13.30% 2.79% 17.74% -2.87% 1.05%
Income 2.70% 12.15% 5.76% 12.46% 4.58% 11.28% 3.15% 16.94%
Money Market
Islamic Asset Allocation
Islamic Balanced 22.73% 24.94% 1.76% -10.86% 22.81% 3.76% 12.10% 4.33% 3.30%
Islamic Capital Protected
Islamic Equity 21.40% 9.38% -2.78% -31.63% 31.40% 5.09% 20.12% 4.79% 2.99%
Islamic Income
Islamic Money Market
Sources: MUFAP
* Annualized
** Average for the Industry