Stock market-linked Mutual Funds: SECP concerned about lack of investors’ interest

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has expressed serious concern that the stock market -linked Mutual Funds have not attracted new investors.

According to the data compiled by the SECP, the decline in Equity Funds Share of stock market linked equity funds dropped significantly from 40% in 2019 to only 10% in 2023. It is important to note that despite charging highest Selling and Marketing Expenses as part of their Total Expense Ratio, the stock market linked Mutual Funds could not attract new investors. This resulted to overburden existing investors and perceived as taxing existing investors to attract new ones.

The SECP has published a consultation paper, suggesting various alterations to the total expense regime (TER) and distribution paradigm for mutual funds and pension funds. These suggestions aim to reduce the burden on retail investors, optimize their returns, inculcate better saving habits, and increase retail penetration.

SECP imposes some curbs on modaraba companies

The asset management company (AMC) industry grew from Rs 500 billion to Rs 2.0 trillion (2019 to Dec 2023) largely due to the money market and fixed income segments influenced by high interest rates. Despite overall growth in AMC industry, retail investors’ holdings reduced from 40% to 38% during the same period.

The SECP paper reviews the current regime in three parts, i.e.; the TER framework for mutual funds, the TER of pension funds, and a review of distribution models. While evaluating the current TER frameworks for mutual and pension funds, the paper suggests alterations to reduce the financial burden on investors, enhance their long-term returns, and guarantee equity and transparency in the expenses of fund managers.

The problems that have impeded the growth of the distribution network and affected retail penetration are discussed in the third part of the paper. Further, it recommends a transformative framework to revamp the distribution model and improve its usability and accessibility for average investors. The proposed changes are designed to align with international best practices and ensure that pension fund participants receive the maximum value from their savings.

SECP requests public feedback in order to introduce regulatory changes aimed at creating a more efficient, transparent, and equitable system that better meets the needs of investors.

Copyright Business Recorder, 2024