"The future outlook of the mutual funds industry is
very promising and encouraging"
Money recently interviewed Najam Ali, Chairman,
Mufap & CEO, JSABAMCO and discussed about mutual
funds in Pakistan.
Money: Would you like to give an introduction about
funds management from capital market perspective?
Najam Ali: Funds management is a process whereby you
try to maximize gains for the investors while
minimizing the risk exposure. You select those
securities (equity and fixed income) in your
portfolio which gives you a desired level of return
both in terms of capital appreciation and/or
dividend income, depending upon your investment
Mutual fund manage funds by pooling together money
provided by various investors for investment into
equity and fixed income markets with the objective
to provide better relative returns to investors
compared to other savings and investment
alternatives. The pool of funds is managed on behalf
of the investors by a team of specialized
individuals, commonly known as fund managers or
Money: How can you differentiate conventional
investments in banks from investments in mutual
Najam Ali: One of the main differences is that Mutual
Fund returns are tax-free returns whereas
conventional investments in banks are subject to 10%
withholding tax which means in real terms you get
less than the quoted returns.
Other main advantages offered to Mutual Fund
Open-End Fund holders is that they can redeem their
funds anytime they want too except for certain
specialized funds (at the prevailing Redemption
price of the fund which is quoted on the daily
basis), whereas in Banking Sector you canít withdraw
your invested money before maturity without paying a
Moreover, investment banks generally offer fixed
rates on Certificate of Deposits or Investments;
whereas mutual fund returns are variable; thus
giving the investor the opportunity to earn beyond
Money: How can we encourage general public to invest
in mutual funds?
Najam Ali: The general public can be encouraged to
invest in mutual funds through investor education
and awareness campaigns through electronic and print
media as well as through seminars, workshops and
conferences for wide scale public dissemination of
information on mutual funds. Once the public is
aware of the advantages of investing in mutual funds
compared to the other types of conventional
investments such as bank deposits they would
undoubtedly invest in mutual funds.
Money: Money: What is the impact of volatile stock
market on Fund Managers?
Najam Ali: Fund managers backed by strong research and
risk management function uses various tools and
strategies to mitigate volatility in returns and
provide better returns to investors even in time of
market volatility. The fund managers generally hold
a medium to long term perspective of the market and
therefore may be subject to temporary fluctuations
in prices of stocks which tend to stabilize over the
medium to long term.
Money: Money: Would you also like to highlight on
Najam Ali: Portfolio management is the art and science
of making decisions about investment (asset) mix and
policy, matching investments to objectives, asset
allocation for individuals and institutions, and
balancing risk vs. performance. Portfolio management
is all about strengths, weaknesses, opportunities
and threats in the choice of debt vs. equity,
domestic vs. international, growth vs. safety, and
numerous other tradeoffs encountered in the attempt
to maximize return at a given appetite for risk.
Money: What is the size of Mutual Funds Sector in
terms of investments in rupees and number of funds?
Najam Ali: Mutual Funds As of September Ė 06 (source
Money: What steps are taken by MUFAP to protect
interests of its members?
Najam Ali: MUFAP has developed guidelines in the area
of advertising and communications for Asset
Management, Investment Advisory Services & Mutual
Funds in Pakistan to promote fair competition among
investment firms. The Standards are aimed at
promoting a self regulatory structure within the
Mutual Fund Industry of Pakistan, which in turn,
will ensure clarity, honesty & integrity in all
matters of advertising, marketing and promotions.
MUFAP has also adopted the CFA Institute Asset
Manager Code of Professional Conduct. This Code sets
forth minimum ethical and professional standards for
providing asset management (including investment
advisory) services to clients. The goal of this Code
is to provide a useful framework for all asset
managers to provide services in a fair and
professional manner and to adequately disclose key
elements of these services to clients
MUFAP is striving to achieve inter alia the
∑ To promote a cadre of well trained Agents and
distributors and to implement a programme of
training and certification for all intermediaries
and other engaged in the industry
∑ To promote best practices in the mutual fund
∑ To interact with the Government, Securities and
Exchange Commission of Pakistan (SECP), State Bank
of Pakistan and other bodies on all matters relating
to the Mutual Fund industry.
Money: Is there any impact of global funds sector
on the Pakistani industry?
Najam Ali: Not much because international funds
who come to Pakistan donít exactly invest in mutual
funds, rather they invest in stocks directly,
therefore I donít see any direct link between the
two, however Pakistani mutual fund industry can not
remain isolated from developments taking place
internationally and is adapting the international
trends and best practices.
Money: What are the current issues of funds
Najam Ali: 1. Inadequate regulatory framework to
cater for new products and growing needs of
2. Limited investment options.
3. Lack of awareness among the general public.
Money: How do you foresee the future of mutual
fund sector in next ten years?
Najam Ali: The future outlook of the mutual
funds industry is very promising and encouraging.
The industry holds several exciting opportunities
for both corporate and individual investors
including the retired persons. These days, the
mutual fund industry is generating keen interest
among a growing number of investors. It is
attracting fund managers and leading players of
industrial and corporate sector as sponsors.
Moreover, it has been providing versatile and
attractive investment avenues to the general public
while paying comparatively better returns based on
dividend yields and capital gains. In the recent
years, SECP has also taken a number of steps to
promote the development of mutual funds industry.
These measures envisage multifaceted reforms to help
the industry in managing its risks prudently, give
operational autonomy, and reduce fragmentation as
well as to protect investorsí interest.
Comprehensive disclosure requirements at the time of
public offering and subsequent reporting on the
affairs of funds have been prescribed and enforced.
In addition, managers have been given flexibility to
establish their trusts or companies as well as to
float equity, debt or hybrid funds. The steps taken
by the Securities and Exchange Commission of
Pakistan (SECP) to promote equity markets in general
and mutual funds industry in particular are in line
with overall macro-economic policies of the
government and will help boost investment in mutual
fund sector in years ahead.
I see the future bright ahead however there are
challenges facing the industry such as stiff
competition among mutual funds, limited investment
avenues and effective management of risk due to the
recently increased volatility in the markets.
Money: Do you have any support or are you looking
towards the government to promote mutual fundís
Najam Ali: Mutual Funds Association of Pakistan
is playing a pioneering role in the promotion of
mutual fund sector in Pakistan by acting as a
facilitator between the market participants and the
regulators. It disseminates essential information on
various funds, the fund managers, the stock market
as well as the regulatory environment under which
open and closed-end. MUFAP is also striving to
achieve the following:
∑ To enhance the professional and ethical standards
in all areas of operation of Mutual Fund industry to
ensure that they are in line with international best
∑ To provide a centre of excellence for the
development of knowledge and understanding of the
Mutual Fund industry
∑ To promote public understanding of mutual funds
and engage in promotional activities to ensure
ongoing education of the public on Mutual Fund
Money Business & Personal Finance, issue No. 14.