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Quarterly Newsletter

APRIL JUNE 2011 VOLUME 3


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 hedge against 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.

I N S I D E
MUFAP Activities Meeting of the Board of Directors Meeting of the Committees Meeting 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 company Standardized 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 feedback@mufap.com.pk

Quarterly Newsletter
APRIL JUNE 2011 VOLUME 3

MUFAP ACTIVITIES Overview


Meeting of the Board of Directors The Board of Directors held five meetings during the quarter April 2011June 2011.

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 reforms a. Mandatory legal requirement to offer funded retirement schemes b. Scope of SECP Regulation c. Removal of Tax Anomalies in Retirement Schemes d. Tax Incentives for long term savings e. Legislation for SECP to regulate Retirement Schemes Saving and Related Issues-a. MUFAP Codes (Advertising Standards and Code of Qualification for Distributors) b. Rationalization of current taxation laws c. Creation of enabling environment for mutual funds to access government corporations and departments d. Educating Investors e. Increasing investment options and creation of alternative products f. Reducing cost of intermediation g. Removing pricing and tax anomalies on National Savings Schemes (NSS) h. Developing the Bond/TFC Market Bond Market a. BATS Trading b. Listing Regulation c. Legal Framework Real Estate Investment Trust (REITs) a. Amendments in REITs Regulations b. Review of Real Estate Laws and practices c. Review of Real Estate Tax Laws Particularly relating to Transfer Duty on sale d. Regulation of Brokers Corporate Governance a. Auditing Standards b. Capacity building of stock exchanges c. MUFAP Code of Ethics and Standards of Professional Conduct d. Performance Measurement e. Capacity building of the regulator

LIST OF NO. OF BOARD MEETINGS HELD AND ATTENDED DURING THE QUARTER APRIL TILL JUNE 2011 Dates Name of Directors Mr. Shahid Ghaffar Dr. Amjad Waheed Mr. Babar Ali Lakhani Mr. Farid Ahmed Khan Ms. Maheen Rahman Mr. Mir Adil Rashid Mr. Mohammad Habib-Ur-Rahman Mr. Mohammad Shoaib Mr. Nasim Beg Mr. Rashid Mansur Mr. Wazir Ali Khoja Mr. Yasir Qadri Mr. Shamshad Nabi 22April Yes Yes No Yes No Yes Yes Yes No Yes No No Yes 16May Yes Yes No Yes No No Yes Yes No No No Yes Yes 30May Yes Yes No Yes No Yes Yes Yes No Yes No Yes Yes 15June Yes Yes No Yes Yes Yes No 1 No No 2 No No 30June Yes Yes 3 4 No No Yes No Yes No No Yes Yes Total (Out of 5) 5 5 0 4 1 3 4 3 1 2 0 3 4

1 2 3 4 5 6 7 8 9 10 11 12 13

2.

3.

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.

4.

5.

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Quarterly Newsletter
APRIL JUNE 2011 VOLUME 3

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 Income Tax Ordinance Reference Amendments (ITO) Section 2(11c) new clause Definition of Collective Investment Scheme incorporated for better clarity 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. 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. 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 from income tax under Clause 23A of Part I of Second Schedule of the ITO, the withholding regime and chargeable clause brought in line. 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. Rule 6 of Seventh Schedule Dividend to be received by banking companies from its associated asset management company to be taxed at 20%. CVT on debt instruments removed in order to develop the nascent debt market.

No. 1. 2.

Finance Bill Reference 1(b) 4

3.

4.

21

5. 6. 7.

32 33

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 was that 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. The transfer of accumulated balance from provident fund scheme (PF) to VPS is allowed under Income Tax Rules. MUFAP proposed that any subsequent withdrawal of balance transferred from PF to VPS should not be subject to tax, as no tax credit is applicable on contribution to PF. MUFAP proposed that all retirement schemes should be taxed under EET regime {(i) exemption from income tax of amount contributed to retirement schemes, (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 employers 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. Top 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.

2. 3.

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Quarterly Newsletter
APRIL JUNE 2011 VOLUME 3

Public Awareness Committee Public Awareness Committee officially unveiled the long-awaited money market awareness campaign on June 7, 2011. The multi-faceted awareness campaign, cofinanced 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 Money Market Public Asset Management Limited, NBP Fullerton Campaign Print Ad. Asset Management Limited, PICIC Asset Management Company Limited and UBL Fund Managers Limited.

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 Mr. Mohsin Ali Chaudhry (Left), Mr. Khawar Ansari (Right) designed to provide a platform 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. Top

Awareness

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. Top 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. Top 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 Mr. John Micklethwait, Editor-in-Chief of The Economist a combination of addressing at the ICI Annual Conference in Washington DC, USA 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

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. Top 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. Top

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Quarterly Newsletter
APRIL JUNE 2011 VOLUME 3

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. Top SECP gets taxation regime reformed For details see page 3. Top

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 an impressive 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.

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. Top 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 unlisted companies 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. Top Standardized Trust Deed for Mutual Funds CDC-MUFAP finalized Standardized Trust Deed for Mutual Funds. The CDC and 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. Top

Q1-FY11

Q2-FY11 12,031.46 (Dec 30, 10) 11,588.97 (Dec 30, 10)

Q3-FY11 12,681.94 (Jan 17, 11) 12,476.12 (Jan 17, 11)

Q4-FY11 12,508.42 (Jun 23, 11) 11,955.21 (Jun 08, 11)

ALL TIME HIGH 15,676.34 (Apr 18, 08) 18,996.33 (Apr 17, 08) Source: KSE

KSE-100
(Highest Close)

10,519.02 (Jul 30, 10) 10,483.36 (Jul 30, 10)

KSE-30
(Highest Close)

Q1-FY11 KSE-100 Index KSE-30 Index Market Cap. (PKR bn) Net Foreign inflow (US$ mn) Avg. daily vol. (mn shares) 10,013.31 9,674.34 2,772.38 106.19 62.04

Q2-FY11 12,022.46 11,588.24 3,268.95 143.80 124.19

Q3-FY11 11,809.54 11,561.50 3,147.55 52.38 122.08

Q4-FY11 12,496.03 Source: KSE 11,586.49 3,288.66 (22.19) 74.02


Source: KSE

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Quarterly Newsletter
APRIL JUNE 2011 VOLUME 3

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 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 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 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
Source: Monetary Policy Information Compendium, SBP

Top 27-Apr-11 22-Jun-11 25-May-11 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 liquidity management. 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
Tenor 3-month 6-month 12-month Q1-FY11 12.25%-13.09% 12.35%-13.27% 12.30%-13.73% Q2-FY11 12.97%-13.46% 13.19%-13.62% 13.31%-14.12% Q3-FY11 13.46%-13.80% 13.64%-13.90% 14.13%-14.34% Q4-FY11 13.22%-13.57% 13.56%-13.79% 14.02%-14.26%
Source: SBP

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 6-Month 12-Month Cut-off Rates Cut-off Rates Cut-off Rates 07-Apr-11 13.30% 13.69% 13.87% 21-Apr-11 13.25% 13.62% 13.87% 05-May-11 13.07% 13.48% 13.79% 19-May-11 13.21% 13.60% 13.84% 02-Jun-11 13.53% 13.76% 13.91% 16-Jun-11 13.49% 13.74% 13.91% 30-Jun-11 13.49% 13.74% 13.91%

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. Top Amount Accepted 200.98 232.65 254.19 158.83 135.49 180.36 72.83

Source: Monetary Policy Information Compendium, SBP

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Debt Market The table below summarizes the TOP 15 traded TFC/Sukuk during the Q4-FY11: TFCs / Sukuks Pakistan Mobile Communication Ltd. United Bank Ltd. NIB Bank Ltd. Engro Corporation Ltd. Allied Bank Ltd. Bank Al-Habib Ltd. Optimus Ltd. Bank Alfalah Ltd.-Fixed Engro Fertilizer Ltd. Askari Bank Ltd. United Bank Ltd. United Bank Ltd. Soneri Bank Ltd. Bank Al-Habib Ltd. United Bank Ltd. Detail IV I I II II IV III III I III I I II Face Value (PKR million) 889.45 616.11 312.72 283.35 179.89 128.94 124.83 121.94 107.35 99.96 78.05 76.82 49.88 49.87 44.34 Trade Value (PKR million) 817.65 620.64 301.32 281.22 176.82 133.64 100.36 121.08 102.97 103.28 73.79 77.77 49.93 46.57 40.19 Transactions 27 11 13 4 4 9 3 6 6 3 8 7 1 3 6 Trade Price Range 87.00 - 94.23 96.75 - 99.00 96.00 - 96.50 98.70 - 100.0 97.00 - 98.75 103.0 - 104.0 78.00 - 82.00 98.13 - 98.25 93.00 - 97.50 103.0 - 103.65 94.00 - 94.75 101.0 - 101.7 100.1 - 100.1 90.78 - 96.00 87.05 -91.00
Source: MUFAP

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. Top 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 Asset Type Asset Allocation Balanced Capital Protected Equity Income Money Market Islamic Asset Allocation Islamic Balanced Islamic Capital Protected Islamic Equity Islamic Income Islamic Money Market Total Q3-FY11 3,091.59 3,811.16 4,564.27 49,973.76 47,056.85 62,932.22 1,299.35 781.62 708.60 4,897.64 16,330.71 6,815.58 202,263.35 Q4-FY11 3,065.70 3,524.98 3,368.47 52,458.09 47,503.60 77,304.26 1,263.06 766.58 5,319.98 20,792.83 7,169.87 222,537.44 Growth Rate -0.84% -7.51% -26.20% 4.97% 0.95% 22.84% -2.79% -1.92% -100.00% 8.62% 27.32% 5.20% 9.79% Closed-End Funds Q3-FY11 445.49 1,352.65 19,793.56 1,081.63 1,474.80 1,657.75 25,805.87 Q4-FY11 434.53 1317.25 17,809.9 9 1,124.76 1,523.43 1,707.32 23,366.2 1 Growth Rate -2.46% -2.62% -10.02% 3.99% 3.30% 2.99% -7.32%
Source: MUFAP

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Funds launched during the quarter Q4-FY11 The following fund was launched during the quarter: Fund Name HBL Islamic Money Market Fund HBL Islamic Stock Fund MCB Islamic Income Fund Meezan Capital Protected Fund-II UBL Government Securities Fund Pak Oman Government Securities Fund Category Islamic Money Market Islamic Equity Islamic Income Islamic Capital Protected Income Income Inception Date 9-May-2011 9-May-2011 19-June-2011 07-July-2011 25-July-2011 28-July-2011
Source: MUFAP

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. Top 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.

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 MCB Sarmaya Mehfooz Fund-1 Meezan Capital Protected Fund JS Principal Secure Fund II Capital Protected Capital Protected Islamic Capital Protected Capital Protected 30-May-2011 25-June-2011 29-June-2011 27-July-2011
Source: MUFAP

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 Mr. Nasim Beg 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,

Mr. Farid Ahmed Khan

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.

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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 distribution network 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 we do 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 an investment 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 will tell 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 market 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 or plans 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. Top

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 Alternative
By 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 a 10 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 20year 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 10percent 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 home amidst 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. Top

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 NSS is 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 Financial 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 NSS also 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.

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

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Recommendations for the Government of Pakistan The NSS should be targeted towards small savers and as in India institutions should not be allowed to invest their company cash or employees funds in NSS

Know Your Client (KYC) requirements should be made applicable 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 raises penalties, it will still be able to attract the target amounts as banks / mutual funds returns are substantially lower than NSS rates.

As in India, NSS rate of return should be linked to bank deposit rates of the same maturity, and not to sovereign bond yields. Penalties on NSS for premature redemptions should be raised substantially to reduce interest rate risk of the Government Higher tax rates slabs should be applicable on all NSS and bank deposits 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 Defence Saving Certificates, both having a 10-year maturity, should be in line with 10-year bank deposit rate.

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. Top

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: feedback@mufap.com.pk www.mufap.com.pk

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INDUSTRY STATISTICS
Schemes Asset Allocation Balanced Capital Protected Equity Income Money Market Islamic Asset Allocation Islamic Balanced Islamic Capital Protected Islamic Equity Islamic Income Islamic Money Market Total FY06 4,291 6,574 71,191 28,602 1,378 4,064 116,100 Net Assets - Open End Schemes (PKR in million) FY07 FY08 FY09 FY10 FY11Q1 2,582 4,985 2,508 2,389 2,897 7,459 12,353 7,100 5,182 4,536 2,617 5,019 6,194 7,147 5,443 113,147 104,162 61,542 39,374 39,621 112,327 140,381 78,461 62,092 57,532 114 3,282 32,046 41,293 1,073 965 5,108 3,162 248,440 1,832 1,916 579 7,425 9,103 287,870 1,520 1,358 582 4,501 7,855 624 175,528 1,178 911 637 4,601 7,289 5,224 168,071 1,223 833 656 4,531 6,479 6,250 171,293 FY11Q2 3,116 4,041 5,583 50,877 52,384 50,378 1,360 753 686 4,996 15,087 6,722 195,983 FY11Q3 3,092 3,811 4,564 49,974 47,483 62,932 1,299 782 709 4,898 16,331 6,816 202,690 FY11Q4 3,066 3,525 3,368 52,458 47,504 77,304 1,263 767 5,320 20,793 7,170 222,537 Top

Source: MUFAP

Schemes Pension Islamic Pension Total

FY06 -

Net Assets - Pension Funds (PKR in million) FY07 FY08 FY09 FY10 FY11Q1 FY11Q2 305 349 572 535 576 466 530 729 721 786 770 878 1,301 1,255 1,362

FY11Q3 606 814 1,421

FY11Q4 655 902 1,558 Top FY11Q4 435 1,317 17,810 1,125 1,523 1,707 23,917 Top

Source: MUFAP

Schemes Asset Allocation Balanced Capital Protected Equity Income Money Market Islamic Asset Allocation Islamic Balanced Islamic Capital Protected Islamic Equity Islamic Income Islamic Money Market Total

FY06 629 618 38,860 1,513 2,029 43,649

Net Assets - Closed End Funds (PKR in million) FY07 FY08 FY09 FY10 FY11Q1 646 592 283 345 374 2,135 1,971 1,243 1,144 1,221 108 1,397 1,297 1,404 806 44,609 38,145 22,171 24,036 23,762 1,027 1,115 1,084 1,111 1,020 1,598 2,219 52,341 1,424 1,906 46,549 1,143 1,174 28,394 1,278 1,404 30,723 1,326 1,476 29,986

FY11Q2 425 1,343 846 20,490 1,049 1,413 1,637 27,203

FY11Q3 445 1,353 19,794 1,082 1,475 1,658 25,806

Source: MUFAP

Open End Funds Closed End Funds Pension Total

FY06 116,100 43,649 159,749

Industry-wide - Net Assets (PKR in million) FY07 FY08 FY09 FY10 FY11Q1 248,440 287,870 175,528 168,071 171,293 52,341 46,549 28,394 30,723 29,986 770 878 1,301 1,255 300,781 335,189 204,801 200,095 202,534

FY11Q2 195,983 27,203 1,362 224,548

FY11Q3 202,690 25,806 1,421 229,916

FY11Q4 222,537 23,917 1,558 248,013 Top

Source: MUFAP

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Asset Allocation Balanced Capital Protected Equity Income Money Market Islamic Asset Allocation Islamic Balanced Islamic Capital Protected Islamic Equity Islamic Income Islamic Money Market Total

FY06 8,562 1,933 10,580 41,149 1,598 1,581 65,402

FY07 2,943 3,007 2,624 21,609 178,192 594 1,310 1,879 4,018 216,176

Sales (PKR in millions) FY08 FY09 FY10 6,538 849 461 9,585 827 627 2,591 2,951 2,848 39,580 14,638 11,825 385,817 128,626 113,145 115 4,813 84,831 2,049 2,507 581 4,934 22,288 476,585 458 255 9 931 14,596 676 169,628 387 526 764 9,108 13,094 237,618

FY11Q1 135 130 3,104 13,478 24,004 18 36 116 692 2,226 43,938

FY11Q2 187 2 3,049 9,566 33,642 89 20 225 10,274 31 57,084

FY11Q3 350 8 1,898 7,282 30,869 22 37 196 4,553 1,368 46,583

FY11Q4 199 26 5,234 15,343 45,001 25 30 631 18,616 2,684 87,791


Source: MUFAP

Top

Asset Allocation Balanced Capital Protected Equity Income Money Market Islamic Asset Allocation Islamic Balanced Islamic Capital Protected Islamic Equity Islamic Income Islamic Money Market Total

FY06 4,829 4,318 15,138 26,705 154 1,312 52,456

FY07 5,119 3,831 57 16,577 104,836 900 452 1,954 927 134,653

Redemptions (PKR in millions) FY08 FY09 FY10 3,621 2,166 1,164 5,841 2,934 3,605 164 806 233 37,407 13,103 15,799 369,510 180,573 133,660 3 1,683 57,790 1,604 1,522 2,469 17,547 439,689 634 505 10 1,615 16,187 54 220,269 795 1,213 26 1,984 10,000 8,812 235,081

FY11-Q1 83 322 1,790 1,568 18,870 15,632 187 155 441 1,572 1,350 41,969

FY11-Q2 284 996 34 6,550 16,392 25,454 34 194 807 615 1,881 24 53,264

FY11-Q3 448 416 1,114 3,205 12,468 21,923 100 45 620 3,457 1,434 45,231

FY11-Q4 136 185 602 3,957 15,092 38,019 45 46 724 362 5,955 2,493 67,616
Source: MUFAP

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Asset Allocation Balanced Capital Protected Equity Income Money Market Islamic Asset Allocation Islamic Balanced Islamic Capital Protected Islamic Equity Islamic Income Islamic Money Market Total

FY06 3,733 (2,386) (4,558) 14,445 1,444 268 12,946

FY07 (2,176) (824) 2,567 5,032 73,356 (306) 858 (75) 3,091 81,523

Net Sales (PKR in millions) FY08 FY09 FY10 2,917 (1,317) (703) 3,744 (2,108) (2,978) 2,427 2,145 2,614 2,173 1,535 (3,973) 16,307 (51,947) (20,516) 112 3,129 27,042 444 985 581 2,465 4,741 36,896 (175) (249) (1) (684) (1,592) 622 (50,641) (407) (687) (26) (1,219) (892) 4,282 2,537

FY11-Q1 52 (192) (1,790) 1,536 (5,392) 8,373 (169) (119) (0) (325) (881) 876 1,969

FY11-Q2 (98) (994) (34) (3,501) (6,825) 8,189 54 (174) (807) (390) 8,393 8 3,821

FY11-Q3 (98) (408) (1,114) (1,307) (5,186) 8,946 (78) (8) (0) (424) 1,097 (66) 1,352

FY11-Q4 63 (159) (602) 1,277 251 6,982 (20) (16) (724) 269 12,661 191 20,175
Source: MUFAP

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Asset Allocation Balanced Capital Protected Equity Income Money Market Islamic Asset Allocation Islamic Balanced Islamic Capital Protected Islamic Equity Islamic Income Islamic Money Market

FY06 62.90% 28.98% 27.48% 7.49% -4.54% 30.68% -

FY07 18.79% 27.16% 5.57% 44.11% 9.07% 23.38% 14.86% 25.09% 9.81% -

Open End Funds' Return** FY08 FY09 FY10 -3.29% -22.33% 9.23% 1.87% -25.01% 14.24% 5.26% 14.67% 8.96% -4.29% -39.31% 18.93% 8.58% 7.68% 8.95% 8.75% 10.33% 10.68% 5.49% -1.17% -0.40% -0.70% 7.52% -2.63% -15.11% 0.76% -30.12% 8.06% 7.79% 6.93% 16.83% 13.62% 29.34% 5.64% 10.10%

FY11Q1 1.92% 2.49% 13.75% 1.64% 7.08% 10.40% 7.36% 6.29% 12.41% 5.76% 11.39% 9.91%

FY11Q2 12.13% 12.00% 12.88% 19.43% 9.21% 11.49% 7.92% 13.30% 18.78% 19.33% 8.36% 10.11%

FY11Q3 2.99% 4.69% 2.21% 1.85% 8.24% 12.49% 1.43% 5.25% 3.32% 6.69% 11.41% 10.92%

FY11Q4 -0.43% -3.15% 3.10% 1.10% 7.49% 11.96% -0.65% 0.41% 2.84% 11.73% 11.63%
Source: MUFAP

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Equity Debt Money Market Islamic Equity Islamic Debt Islamic Money Market

FY06 -

FY07 -

Pension Funds' Return** FY08 FY09 FY10 -4.40% -26.78% 20.32% 3.54% 12.67% 7.67% 6.25% 10.00% 3.54% 0.13% 6.71% 5.96% -8.72% 9.91% 9.17% 23.13% 8.87% 6.69%

FY11Q1 3.25% 9.05% 9.87% 4.11% 9.49% 8.44%

FY11Q2 19.54% 8.85% 9.98% 19.56% 7.74% 8.42%

FY11Q3 4.07% 11.93% 11.27% 6.18% 10.51% 8.28%

FY11Q4 -0.43% 7.54% 7.78% 2.13% 8.92% 8.98%


Source: MUFAP

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Asset Allocation Balanced Capital Protected Equity Income Money Market Islamic Asset Allocation Islamic Balanced Islamic Capital Protected Islamic Equity Islamic Income Islamic Money Market

FY06 19.23% 22.18% 9.11%

FY07 17.32% 14.95% 14.79% 29.22% 2.70%

Closed End Funds' Return** FY08 FY09 FY10 5.41% -45.64% 26.44% 0.92% -29.19% 0.12% -4.25% -1.13% 8.16% 0.35% -37.80% 13.30% 12.15% 5.76% 12.46%

FY11Q1 9.53% 5.79% 9.43% 2.79% 4.58%

FY11Q2 16.70% 3.20% 18.88% 17.74% 11.28%

FY11Q3 5.84% -0.84% -2.87% 3.15%

FY11Q4 5.30% -0.48% 1.05% 16.94%

22.73% 21.40%

24.94% 9.38%

1.76% -2.78%

-10.86% -31.63%

22.81% 31.40%

3.76% 5.09%

12.10% 20.12%

4.33% 4.79%

3.30% 2.99%

Source: MUFAP

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* Annualized ** Average for the Industry

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