The mutual funds managers of the country have strongly opposed the imposition of 35 percent tax on their earnings in CFS funding, saying that this would adversely affect the fast growing mutual funds industry.
The government should consider that mutual funds industry is a passthrough entity and all profit or loss goes to the investors, Mir Muhammad Ali, CEO of UBL fund manager said in an interview with Business Recorder. "We are only managers of these investments, and the government is going to impose tax on investors, which is not being practised in any country around the globe", he said.
Previously, all the earnings of mutual funds industry, including their earnings from investment in CFS at the share market were tax-free. However, in the FY08 budget it has been proposed to impose 35 percent tax on the earnings from CFS funding.
On the other hand, Ali said, the share market could witness a liquidity crunch situation as the mutual funds industry provides huge funding in CFS investment. After imposition of 35 percent tax on income by investment in CFS, the mutual funds industry would not invest in this mode of financing at the share market, he added.
Regarding growth of mutual funds industry in the country, he noted that GDP growth of past ten years averaged at around 5 percent, and a target of 6 percent to 7 percent per year over the next two years has been set in the face of continuous structural reforms and privatisation. The corporate earnings are expected to grow at an average of 12 percent over the next two years and Pakistan has been included in the N11 (next 11 fastest growing economies).
Because of these reforms and better GDP growth rate, the mutual funds industry has now become a Rs 230 billion industry from Rs 211 billion on March 31, 2007, and it was worth only Rs 175 billion at the end of December 2006.
"Many new companies, banks and professionals are coming in this field and they are promoting the mutual funds", he said, adding that mutual funds "are going to be popular" in this country as they are all over the world.
In Pakistan, there are total 61 mutual funds, out of which 39 are open-end and 22 are closed-end finds, while there are 33 assets management companies in the country. Having 5.5 percent ratio to total banking deposits as compared with 15 percent in India, the mutual funds industry is very much needed to attract more investment in this sector.
He said that most of the people invest in mutual funds because of better returns. The bank deposit rates are low and people are converting their investments to mutual funds because of huge potential in this industry.
However, he said, the number of investors in mutual funds is very small. There are only 150,000 investors in this industry, while in India there are over 20 million investors in this sector.
He admitted that the number of investors in mutual funds industry was very low because mutual funds managers paid their attention only to urban areas and the rural areas were neglected in this regard. The absence of real fund managers in rural areas provided a chance to fake investment companies to start their activities in these areas.
Regarding UBL fund managers, he said that this is the first asset management company of any local bank in the country which is operational since 2002. "We are the largest private sector open-end fund manager in the country and we are managing over Rs 22 billion fund," he said. "We started with Rs 4 billion, which increased to Rs 9 billion on the beginning of 2007, and now it has reached Rs 22 billion level," he added.
He said that they are at present managing four funds, including United Growth & Income Fund (UGIF), United Stock Advantage Fund (USF), United Composite Islamic Fund (UCIF) and United Money Market Fund (UMF). "All of our funds are growing tremendously and giving good returns to the investors", he added.
He said that they would be launching a new fund, named United Islamic Income Fund, and it would be Shariah-compliant, short-term investment fund.
He said that UBL fund managers were planning to open offices in rural areas to provide opportunities to the people of those areas to invest in the mutual funds industry. "On the other hand, we are planning to attract salaried class of the country, too," he said.
Regarding investment requirement, he said that with UBL Fund Managers a person could start with an initial investment of Rs 1000 and could save reasonable money with passage of time.
He said that they have launched all their funds in UAE and now they have planned to launch these funds in Qatar, Bahrain and other states in the Middle East in near future.
"We are trying to create awareness among the general public to invest in mutual funds, which is the best opportunity and gives better returns to the investors", he said, adding that the Securities and Exchange Commission of Pakistan (SECP) should also take steps to create awareness among the masses.