People urged to make safe investments for old age

Speakers suggest why mutual funds are better than other options.

KARACHI: People should plan for their post-retirement lives to avoid financial problems in old age, Mutual Funds Association of Pakistan (Mufap) Chairman Imran Azim said while addressing a seminar on “Mutual funds and voluntary pension funds: An efficient way to save” at the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) House on Friday.

The seminar was organised by Mufap and the Central Depository Company of Pakistan (CDC), a public limited company which handles electronic settlement of transactions carried out at all three stock exchanges of the country.

“Pakistan is not a welfare state. Everyone should make safe investments for his post-retirement life,” Azim said.

He said mutual funds did not gain popularity in Pakistan for a long time although they were introduced in 1963. It was only 2002 onwards, he added, that mutual funds became a widely accepted mode of investment in the country.

The mutual funds industry, which was worth Rs390 billion in 2008, faced a severe downturn that year. However, during the year ended on June 30, 2011, the industry witnessed a growth of 23.95%, consolidating its position to a certain extent.

Total net assets managed by asset management companies (AMCs) in 2011 were Rs249,199 million.

Speaking at the seminar, NAFA Funds CEO Dr Amjad Waheed highlighted a number of reasons why investment in mutual funds was better than keeping savings in conventional bank accounts.

He said the returns generated by a pool of investment, which was managed by a professional fund manager with sound financial knowledge, were higher than a majority of other investment options. “Because of a diversified portfolio, the risk factor is minimised and returns are high,” Waheed said, adding liquidity and convenience made mutual funds a preferred mode of investment.

He also emphasised that the regulatory body and the trustee should put in place checks and balances, ensuring that the AMCs followed rules and protected the interests of investors.

Noting the fact that people tend to invest in the money market during economic slowdowns because of its less volatility, he said the equity market in Pakistan would rise again with the increase in the pace of economic recovery.

Currently, the mutual funds investment in Pakistan as a percentage of total size of the economy is just 0.49%. The figure seems remarkably low if compared to the United States (80.64%), the United Kingdom (39.32%) and Australia (164.99%).

Mutual funds investment in India as a percentage of gross domestic product (GDP) is 2.74%.

Speakers at the seminar noted that the low investment in mutual funds was mainly because a few government savings schemes offered higher returns. They added that the government heavily borrowed through treasury bills, which made other instruments of savings less attractive.

They said mutual funds encouraged savings for productive purposes in contrast to government borrowings, which served as a means to bridge the gap between state revenue and expenditure, thus causing inflation.

Published in The Express Tribune, February 4^th, 2012.