Bank Alfalah | SME Toolkit

Falling size of mutual funds

Business Recorder (BR) Research

Perhaps, these aren’t satisfying times for mutual fund investors. With the size of the country’s mutual fund industry being only a fraction of the banking sector’s deposits, even a slight strike to the industry’s assets can perturb its investors. March 2015 saw the size of the mutual fund industry shrinking to Rs453 billion, a fall of nearly three percent over the preceding month. But, don’t fret; the industry size is likely to mend soon.

It should be noted that this is the first decline that has come into sight ever since the beginning of FY15. Barring March 2015, mutual funds have consistently performed better and the expansion in industry size is a strong manifestation of that. Since the beginning of FY15, mutual fund industry size has expanded by over Rs66 billion, a healthy rise of 17 percent.

March’s decline is, however, attributable to the deadening of the stock market during the month that sparked selling pressures across the board. KSE100 shed 3,398 points or 10 percent during the month, thereby leaving investors with bleeding hearts. As has been the industry norm during distressed times, equity funds were faced with burgeoning redemption pressures, thereby taking the size of equity fund category down by more than 12 percent over the preceding month. Equity funds now form 21 percent of industry’s assets (Dec’14: 24 percent).

Moreover, the tale of money market funds wasn’t rosy either. Recall that money market funds had enjoyed the heavyweight status in our mutual industry for a long time. But trends are shifting gears now! With the fund size previously boasting the largest share of over 30 percent in the industry, its contribution has dropped to 23 percent (as of March 2015), thereby positioning it as the second largest category.

It seems like the outflows from money market funds is being diverted to income funds with revaluation gains on longer-bonds being investors’ primary consideration. Consequently, income funds now form the bulkiest category in this industry, boasting a preeminent share of 24 percent. The spell is likely to last for some time as with further cuts in interest rates in the offing, investors are likely to harvest better returns on income funds.

However, on a year-on-year basis, assets of mutual fund industry are still higher by 16 percent. Thanks to the strong performance of equity and income funds in general, which have depicted an increase in asset size of 13 percent and 113 percent, respectively.

Be that as it may, the industry size will pick up as soon as the equity market regains its lost strength. Addition of new mutual funds in diverse categories is also an encouraging sign. Since the beginning of CY15, four new mutual funds have been launched, bringing in an additional inflow of Rs4 billion into the industry. So for the investors, a temporary decline in asset size shouldn’t be a cause for concern!

Source: MUFAP

* Includes Islamic and conventional both

This article originally appeared on April 13, 2015, on Business Recorder (BR) research.

Apply For Sme Loans