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Recall that FY14 ended on a slightly dull note for mutual funds. However, since the beginning of FY15, the woes seem to be calming down with the improving returns of mutual funds.
The industry size is also growing, with assets under management standing at Rs411 billion as of October 2014, according to the Mutual Funds Association of Pakistan (Mufap). The figure depicts a rise of 3.66 percent month-on-month, while on a yearly basis a healthy surge of 22.71 percent is to be cherished.
Equity funds have so far been performing well. Since July 2014, equity funds have, on average, yielded an average absolute return of 10.13 percent, thus shooting ahead of the benchmark KSE-100 index, which managed to gain 7.9 percent during the same period. Also, a good number of funds (14 out of 21) have been able to outperform the benchmark since the beginning of FY15.
On the fixed-income side, income funds are in a healthier position yielding around 12 percent on fiscal year to-date basis. That payoff is much higher than the approximately 8 percent returns realized in FY14. Soaring return on income funds is simply the fruit of hefty investments in PIBs. As of October 31, 2014, PIBs represented over 65 percent of the total assets of leading income funds. With a 50bps cut in discount rate, revaluation gains on PIBs boosted the returns.
Aggressive income funds, on the other hand, were seen enhancing their investments in treasury bills (likely of longer tenors). They were also slashing their cash balances, perhaps led by expectations of discount rate moving south in the Nov 14 monetary policy announcement.
With the industry looking forward to another rate review in January 15, cash balances and placements with banks and NBFCs are likely to be directed to PIBs and treasury bills of longer tenors. Hence, revaluation gains and better returns in the near future will be the likely outcome.


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Performance in FY14*
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Mutual Fund Classification FY15 TD FY14 FY13
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Fixed Income Funds
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Aggressive Fixed Income (Annualized Return) 10.4% 10.08% 9.8%
Income (Annualized Return) 12.1% 8.31% 9.2%
Money Market (Annualized Return) 8.8% 8.25% 9.0%
Islamic Income (Annualized Return) 6.4% 8.10% 9.3%
Islamic Money Market (Annualized Return) 6.9% 6.30% 8.6%
Islamic Aggressive Fixed Income (Annualized Return 8.1% 12.41% 7.7%
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Equity Funds
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Equity (Absolute Return) 10.1% 34.23% 50.0%
Islamic Equity (Absolute Return) 11.9% 22.29% 48.3%
Index Tracker (Absolute Return) 5.3% 30.55% 38.8%
Islamic Index Tracker (Absolute Return) 7.1% 24.40% 49.6%
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Source: MUFAP Average returns

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