The National Investment (Unit) Trust is getting bigger and bigger. Boosted by growth in dividend income along with Rs1.45 billion earned from the difference between unit selling and buying price (element income), the country’s leading and oldest mutual fund saw profits jump 29 percent in the first nine months of current fiscal year.
As its fund managers remained focused increasing their holdings, together with the growth in AUM and better take-home profits shared by the KSE listed companies, the fund’s dividend income increased to Rs1.57 billion in 9MFY11 as against Rs1.28 billion earned in the year-ago period. However, the expansion in fund portfolio slightly tailed off its capital gains.
Backed by high appetite for equity securities and better performance of investment portfolio, the fund’s AUM reached Rs37 billion at the end of March, as against Rs32.9 billion same period a year earlier.
“As the government has imposed capital gains tax, NIT’s fund managers refrained from aggressive trading which resulted in lower capital gains,” market sources told BR Research.
The NIT-State Enterprise Fund also recorded phenomenal growth in dividend income, while its capital gain remained stagnant at last year’s level. However, SEF’s net income fell on account of lower element income. Element income can be defined as the difference between unit selling and buying price.
During the same period, the NIT-EMOF fund recorded a slight drop in net income in the face of growth in dividend income and capital gain. It seems that growth in expenses due to higher impairment losses on equity securities and higher management participation fee might have been behind the decline in EMOF’s net income.
To take the benefit of rising interest rate environment, NIT started two fixed income mutual funds in last fiscal year, NIT-GBF and NIT-IF. As GBF and IF holds 98 percent and 69 percent exposure in government securities and bonds, respectively, higher discount rate helped funds record remarkable growth in the net incomes of both these funds.
With the AUM of around of Rs2.9 billion, NIT-GBF earned 12 percent for investors in the previous quarter, outperforming the benchmark return of 11.59 percent, which is the weighted average yield of the 6-month T-bill and 1-month deposit rate of A and above rated scheduled ban (with a ratio of 70 percent and 30 percent ratio).
The future of NIT-GBF and NIT-IF funds look promising as both funds will gain from the higher discount rate. However, even if the discount rate decreases down the line, NIT-GBF and NIT-IF investors would book growth in income from capital gains.