Incentive to support mutual funds industry: SECP cuts fee on online investment in pension funds

KARACHI: Watchdog Securities and Exchange Commission of Pakistan (SECP) on Friday reduced fund management charges on online investment in pension funds – a move seen to scale up the underperformed mutual funds industry.

“The SECP has issued a directive restraining pension fund managers from charge sales load up to 1.5 percent of the contribution if an investor carries out transaction online or through website,” a statement said. “(Otherwise), the fund managers can charge sales load up to three percent of the contribution.”

Industry analysts said the decision would encourage investment in pension funds, which account for around four percent of total net assets of Rs622 billion managed by asset management companies.

“The move is fantastic,” said Asif Soomro, senior adviser at Swedish asset manager Tundra Fonder. “Though the scale of pension funds attracting salaried class would remain low, there comes a relief.”

Assets under management for closed-end funds amounted to Rs23 billion during the last fiscal year, while assets under management for open-end funds stood at Rs574 billion, Mutual Funds Association of Pakistan said.

Total assets of mutual funds are around four percent of banking industry assets of Rs16 trillion, indicating a spacious growth room for the funds industry.

Soomro said returns on funds are high as compared to banking investment modes, “but funds are not aggressively expanding in the market due to low margin”.

“See, the margins may not be increased, but scale can,” he added.

Mohammad Sohail, chief executive officer at Topline Securities termed lack of education and low saving rate in Pakistan as two key hurdles in the growth of mutual funds industry. “Pakistan has one of the lowest saving to GDP ratio,” Sohail said. “Then there is a perception that investments in banks and saving schemes are risk free as compared to mutual funds.”

Sohail said mutual funds industry has seen growth in the past decade. “The mutual funds need to enhance distribution network. Individuals are now inclining to shariah-based funds.”

Out of Rs23 billion assets of pension funds, over 15 billion rupees are invested in shariah-compliant pension funds. There are 19 pension funds operating in the market, out of which 10 are shariah-compliant and nine are conventional.

While number of asset management companies declined to 20 in 2017 from 27 in 2012, number of funds increased to 233 from 159 during the five years.

Analysts said government should further increase incentives, such as tax credits on investment in funds.

Currently, government grants tax credit of up to 20 percent of taxable income from funds. Further, individuals above 40 years of age can also avail even higher tax benefits.

Globally, governments prefer to borrow money from mutual funds, which is more stable source of revenue

“In Pakistan, I think the participation (of mutual funds in government money borrowing operation) may be less than a quarter,” Soomro of Tundra Fonder said.