Mutual funds appreciate by 12 per cent

Equity category may outperform stock index, says analyst.

KARACHI: The size of the mutual funds industry appreciated 12 per cent in the last six months (July-December) to stand at Rs223 billion. The industry showed signs of recovery on the back of demand witnessed in the money market funds category as well as the equity market’s tremendous performance over the last three to four months, says InvestCap in a research note.

A mutual fund is a professionally managed collective investment scheme that pools money from investors and invests typically in investment securities such as stocks, bonds, short-term money market funds, commodities among others. Income is earned from dividends on stocks and interest on bonds. By owning shares in a mutual fund instead of owning individual stocks or bonds, the risk is spread out.

Equity category to shine

Despite the prevailing economic instability in the country amid higher interest rates, the equity market continues to show an upward trend, said InvestCap analyst Mazhar Sabir.

“Local investors are expected to generate more interest in the market on expectation of early launch of a leverage product alongside stable foreign inflows,” said Sabir.

“From the equity funds perspective, stock funds having invested heavily in blue chips may outperform the stock market index.”

Open-ended funds dominate

The value of open-ended funds increased by 16.2 per cent to reach Rs195 billion while closed-end funds showed a decline of 11.2 per cent to Rs28 billion.

The reason behind the two categories moving in the opposite direction was the fact that three closed-end funds converted into open-ended funds during the period under review.

The money market funds earned an average annualised return of 11.3 per cent during the first six months (July-December) of financial year 2010-11 as fund managers in the money market got better rates in short-term placements, said Sabir.

The income funds posted an average annualised return of 11.1 per cent from July to December, but the size of the funds shrank seven per cent to Rs43 billion. The category has been continuously declining for the past six months.

Published in The Express Tribune, January 19^th, 2011.