Marketing of Mutual Funds in Pakistan: Opportunities & Challenges By Sohail Yaqoob

History of Mutual Funds in Pakistan 1962 - Government of Pakistan established NITL which launched first Open End Equity Fund in Pakistan – NIT 1966 - Government of Pakistan established ICP which launched series of Closed End Funds (25). Only in the Mid 90s, the sprouts of mutual funds is witnessed 1994-95 - More funds launched in private sector 2006 - Total number of AMCs are 30 managing 56 mutual funds Locally, we have witnessed the sprouts of mutual funds only in the mid 90s Earlier, and for a long time, we had two funds, both in the public sector -NIT, Open-End fund launched in 1962 -ICP, a series (25 nos.) of Close-End funds launched in 1966 More funds launched in private sector – 1994-95 The growth spurned due to: economic revival, segregated divesture of ICP to private sector, and global trends - The divesture of ICP funds in lots was a landmark strategy in the Mutual Funds industry of Pakistan

Mutual Funds Industry in 2006 Total Industry Size - Rs. 171 billion (US$ 2.83 billion) Total number of Funds - 56 Total number of AMC - 30 Open end Rs. 129.73 bn Closed end Rs. 41.33 bn Open end 34 Closed end 22 Locally, we have witnessed the sprouts of mutual funds only in the mid 90s Earlier, and for a long time, we had two funds, both in the public sector -NIT, Open-End fund launched in 1962 -ICP, a series (25 nos.) of Close-End funds launched in 1966 More funds launched in private sector – 1994-95 The growth spurned due to: economic revival, segregated divesture of ICP to private sector, and global trends - The divesture of ICP funds in lots was a landmark strategy in the Mutual Funds industry of Pakistan Public Sector 1 Private Sector 29

Major Market Players National Investment Trust Ltd. JS ABAMCO Ltd. Arif Habib Investment Management Ltd. Al Meezan Investment management Ltd. Atlas Asset Management Ltd. UBL Fund Managers Ltd. Locally, we have witnessed the sprouts of mutual funds only in the mid 90s Earlier, and for a long time, we had two funds, both in the public sector -NIT, Open-End fund launched in 1962 -ICP, a series (25 nos.) of Close-End funds launched in 1966 More funds launched in private sector – 1994-95 The growth spurned due to: economic revival, segregated divesture of ICP to private sector, and global trends - The divesture of ICP funds in lots was a landmark strategy in the Mutual Funds industry of Pakistan

Asset Management Companies in Pakistan

Mutual Funds in Pakistan

Year-wise Growth of Mutual Funds Since 2001

Total Mutual Funds Industry as % of GDP for the year 2005-2006 Source: State Bank of Pakistan

Mutual Funds Industry to Bank Deposits (September’ 2006) Source: State Bank of Pakistan

Worldwide Mutual Fund Industry History and Inception of Mutual Funds First modern day mutual fund was opened in North America in 1924 The GREAT DEPRESSION of 1930s in USA has stalled the growth of mutual funds sector, like many other economic activities Yet it was, 1990s that mutual funds became mainstream investments in the USA and around the globe At the end of June 2006, total mutual fund assets all over the world were $ 19.413 trillion

Worldwide Mutual Fund Industry

Asia/Pacific Mutual Fund Industry

Islamic Mutual Fund Industry One of the fastest growing sectors BUT As compare to over all mutual fund industry, it is at infancy stage of growth and development The wider acceptance of equity funds by Shariah Scholars in early 1990s paved the way to launch Islamic mutual funds. Currently, approximately 250 Islamic Institutions in some 75 countries, managing funds worth over USD $200 billion. The Islamic mutual funds market is one of the fastest growing sectors within the Islamic Financial System. Yet when compared to the mutual fund industry at large, Islamic mutual funds are still in their infancy stage of growth and development. The wider acceptance of equity funds by Shariah Scholars in early 1990s paved the way to launch Islamic mutual funds. Currently there are over 250 Islamic Institutions in some 75 countries that are managing funds worth over USD $200 billion

Comparison of Islamic vs World Wide Mutual Fund Industry

Comparison of Pakistan’s vs. World Wide Islamic Mutual Funds

Total Mutual Fund Industry in Pakistan - Rs. 171.00 bn Size of Islamic Mutual Funds in Pakistan-Rs. 9.12 bn (5.33%)

Size of Islamic Mutual Fund in Pakistan - Rs. 9.114 bn Market Share of Al Meezan Investments - Rs. 6.925 bn

Total Mutual Fund Industry in Pakistan - Rs. 171 bn Market Share of Al Meezan Investments - Rs. 6.925 bn as of September 30, 2006

Why Mutual Funds lagging in Pakistan? Controlled by Public Sector, initially Lack of awareness Interest rates were too high Education Distribution Low savings

How many people know? What is Mutual Fund? What are different types of Mutual Funds? Why an individual invest in Mutual Fund? How can Mutual Funds be purchased? A Mutual Fund is a single portfolio of investments managed by an investment management company on behalf of its many investors. This allows each investor access to a professional managed pool of funds, actively managed by an Asset Management Company. By investing in the stock market through mutual funds, investors overcome the shortcomings faced regarding inability to adequately diversify, manage and efficiently trade their portfolios. A Mutual Fund is a pool of money in unit holders put their savings/ investments, which is managed by Professional Fund Managers (Asset Management Company) who invested it in different securities like shares, debt securities, money market securities etc. The pool is divided into units

What are the Advantages of investing in Mutual Funds? Experienced and Professional Fund Management Diversified portfolio Economies of Scale Liquidity Convenient processing Affordability Transparency Stringent regulator Benefits of investing in a Mutual Fund. Professional Fund Management- by making the strategy that best suits the investor’s objective Diversification- portfolio of various stocks Economies of Scale- in terms of research and execution costs Liquidity – by selling & redeeming shares on an on-going basis in case of open end funds Experienced and Professional Fund Management Diversified portfolio Economies of Scale Liquidity Convenient processing Affordability Transparency Stringent regulator

What should be done to become a significant contributor in the global market? (Opportunities) Putting collective efforts at industry level Comprehensive analysis of investors’ needs and preferences Education of People about mutual funds at mass level Product innovations by launching specialized products. Widening, broadening and deepening the markets Tapping overseas investor base Team Work at Industry Level from MUFAP For education at mass level to use Print and Electronic Media. Banking and other related industries to utilize their network formutual fund platform Performing in-depth market research to collect data on investors’ needs, preferences etc. Analysis of the customer to provide customized and targeted solutions to customer needs Fgh Cont…

What should be done to become a significant contributor in the global market? (Opportunities) Marketing in semi-urban and rural areas Improving quality of service Quick dissemination of information Banking and other related industries to utilize their network for mutual fund distribution Expanding distribution network by discovering non- non-traditional channel of distribution Team Work at Industry Level from MUFAP For education at mass level to use Print and Electronic Media. Banking and other related industries to utilize their network formutual fund platform Performing in-depth market research to collect data on investors’ needs, preferences etc. Analysis of the customer to provide customized and targeted solutions to customer needs Fgh Cont…

What should be done to become a significant contributor in the global market? (Opportunities) Understanding the importance of retail market Separate funds for various investors’ segments. Promoting standardize performance measurement procedures at industry level Creating positive image about the fund and changing the nature of the market Better technology aiming at providing quality service Team Work at Industry Level from MUFAP For education at mass level to use Print and Electronic Media. Banking and other related industries to utilize their network formutual fund platform Performing in-depth market research to collect data on investors’ needs, preferences etc. Analysis of the customer to provide customized and targeted solutions to customer needs Fgh

How can Mutual Funds be marketed? Advertisement through Print Media Newspapers Magazines Advertisement through Electronic Media Television Radio Outdoor Advertising Hoardings Banners Cont…

How can Mutual Funds be marketed? Direct Marketing Personal Selling Telemarketing Direct Mail to existing as well as potential investors Below the line activities (BTL) Participation in exhibition Information desk as public places Arranging seminars - Corporate as well as Educational Selling through Intermediaries/Distributors Cont…

How can Mutual Funds be marketed? Comprehensive website and link with other popular websites Providing quick response to the Customers through Distribution Centers Call Centers Emails Providing up to the mark value addition services

What about the target market? Individuals Institution Government Institutions Private Organizations Provident / Pension Funds Trusts / Funds / Welfare Organizations Educational Institutions Overseas investors Semi-urban and rural Segment The mutual fund can be segmented into following main categories on the basis of their investment and return needs: Retail Segment Institutional Segment Trusts Overseas investors Corporate Segment Semi-urban and rural Segment

What would be the appropriate marketing strategy for each segment? Individuals Indirect selling through distributor network and regular campaigns through print and electronic media, exhibition Institutions Personalized and direct marketing Trusts / Funds / Welfare Organizations Direct selling as well as indirect selling through distributor network and creating awareness through appropriate media Individuals Indirect selling through distributor network and creating awareness through appropriate media Institutions Personalized and direct marketing to sustain and increase sales volumes Trusts / Funds / Welfare Organizations Cont…

What would be the appropriate marketing strategy for each segment? Overseas investors Personalized and direct marketing, prompt and timely service, website links, advertisement in foreign print media, seminars / conferences, road shows Educational Institutes Personalized and direct marketing Semi-urban and rural Segment Electronic media, simplified literature in rural languages, visits by mobile vans with audio-visual aids, hoardings, wall paintings and educational films Overseas investors Personalized and direct marketing with quick dissemination of information, coupled with prompt and timely service to sustain and increase sales volumes Educational Institutes Personalized and direct marketing to sustain and increase sales volumes Semi-urban and rural Segment This is the largest untapped market in Pakistan. Strategies to be emphasized are electronic media, simplified literature in rural languages, visits by mobile vans with audio-visual aids, hoardings, wall paintings and educational films etc.

Challenges for Mutual Fund Industry Lack of diversified products range Understanding of investors’ need Public awareness at mass level Un-stability of Stock Market Dearth of liquid debt instruments Protecting and maintaining the integrity and quality Ensuring performance Maintaining momentum to ensure viability Providing competitive returns For Islamic mutual funds to progress, a variety of challenges need to be overcome. The significant challenges are mentioned as following: Protecting and maintaining the integrity and quality of the key attractions of Islamic financial products, Ensuring performance compares favorably with non-Islamic financial products. For Islamic finance to maintain its momentum it will need to ensure its viability and that any inappropriate associations do not undermine the integrity or quality of the products and services on offer. The returns have to compare well on a risk-adjusted basis with non-Islamic ones. Cont…

Challenges for Mutual Fund Industry Mitigating the Risk involved Inadequate Intellectual Capital Comforting & convincing with bad past investment experiences Budgetary constraints for Marketing activities. Low saving and Investment oriented society Information disclosure and transparency Choosing appropriate distribution network Right timing to launch funds In time after sale activities Strict monitoring of regulators For Islamic mutual funds to progress, a variety of challenges need to be overcome. The significant challenges are mentioned as following: Protecting and maintaining the integrity and quality of the key attractions of Islamic financial products, Ensuring performance compares favorably with non-Islamic financial products. For Islamic finance to maintain its momentum it will need to ensure its viability and that any inappropriate associations do not undermine the integrity or quality of the products and services on offer. The returns have to compare well on a risk-adjusted basis with non-Islamic ones.

Recommendations Team work for the growth of mutual fund industry Mass awareness and education about mutual funds Strengthening distribution network Understanding the fact that related financial industries are not a threat Promoting healthy business practices and ethical code of conduct Disseminating timely information Establishing affiliations with mutual funds associations in other countries and promote one-to-one contacts Media should play a more supportive and constructive role for awareness and disseminating information Looking forward, for our mutual fund industry we would like to make several recommendations: We have to understand the power of team work for the growth of mutual fund industry Mass awareness and education about mutual funds Strengthening distribution network to ultimately make it the main source of revenue generation Understanding the fact that related financial industries are not a threat Promoting healthy business practices and ethical code of conduct Disseminating timely information Establishing affiliations with mutual funds associations in other countries and promote one-to-one contacts Media should play a more supportive and constructive role for awareness and disseminating information

becoming a true success story in the world’s financial markets. The winning formula is the troika of performance, service and trust for meeting long-term goals and becoming a true success story in the world’s financial markets.

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