Chief Executive Officer Mutual Funds Association Of Pakistan – MUFAP

CV: 

Mashmooma has been associated with the asset management industry in Pakistan for over ten years with her forte being in investment management and product development. She has played an instrumental role in launching the first Islamic open-end mutual fund in Pakistan as well as the launch of the voluntary pension scheme in Pakistan under the Voluntary Pension System Rules. She has been actively involved with MUFAP throughout her career and also has previously worked in senior positions in Atlas Asset Management Limited, JS Investments and Crosby Asset Management. 

Blurb:

Before making any investment decisions, the investor must keep into consideration its risk profile and liquidity requirements and time horizon.

Evolve: How did you find 2014 and what are the greatest challenges being faced by the Asset Management Companies on the whole in Pakistan?

Mashmooma Zehra Majeed: 2014 has been a tough year for the mutual funds in Pakistan. The erratic tax policies introduced by the Government over the past two years have severely affected the growth of the industry. It has been very unfortunate that there is still great lack of understanding as to the dynamics and importance of the mutual fund industry in the economy. Furthermore many additional unjustified taxes are being imposed on the industry (most of which are under litigation in the Sindh High Court) which have also impacted the returns and thereby the growth. MUFAP is persistently engaged with the SECP and the Government towards addressing these industry issues.

The biggest challenge the Asset Management Industry is facing is expanding the reach and penetration of the industry to promote savings in a very non-conducive environment. 

The taxation framework remains unbalanced and remains amongst the top most issue for the growth and development of the mutual fund industry. It is important for the mutual fund industry's survival and growth that the tax anomalies are removed and a conducive environment is present for the industry to do its proper role in the economy as it does internationally. Mutual Funds are the biggest savings avenue worldwide which unfortunately has not been the case over here in Pakistan. While on hand Government is offering high returns on fixed rate Government instruments and schemes making it difficult for market return instruments such as mutual funds to compete, on the other hand it is also imposing double taxation and levies on the mutual funds that are not present on other investment avenues. A level playing field between mutual funds and other savings and investment avenues is must for mutual funds and pension funds industry to grow and promote savings and investments in the country which is currently at the lowest in the region.

It is also imperative for long term sustainable growth of the mutual funds industry that the retail investor base increases. Asset Management Industry vis-a-vis the Banking Sector presents a bleak picture, not only in terms of assets under management, but also with regard to participation and outreach to the general public. Currently, asset management companies are offering a diversified range of mutual and pension funds to meet the risk appetite of investors, yet the awareness in the masses is lacking of the options available to them. The industry's next focus must be on conducting a comprehensive and sustained public awareness campaigns to bring across to the attention of the individual investors, the diverse investment features and benefits that mutual funds and voluntary pension schemes offer to them. As the asset management companies are operating on very little margins it leaves them very little room to promote and market the mutual funds properly. The Government and SECP are also required to facilitate asset managers to promote, educate and encourage investors to save.

Evolve: While comparing Pakistani Asset Management Companies to other countries what are the most important global challenges you perceive?

Mashmooma Zehra Majeed: Mutual Funds in Pakistan have very limited penetration within the country therefore it is too premature to compare them globally. The industry here is still in a very nascent stage and has to develop and grow internally before we can be in a position to offer them globally. 

Evolve: What is the real potential of Mutual Fund for conventional investment in Pakistan? Do you think that there are certain geographic areas or sectors as easier targets for Asset Management Companies in Pakistan? 

Mashmooma Zehra Majeed: Mutual Funds in Pakistan are governed under the SECP Regulatory framework. The Framework primarily only allows investments in conventional asset classes such as equity, fixed income and money market. Commodities as an asset class was introduced as an investment avenue in 2012 but those too only that are listed and traded on the PMEX. Therefore all the products that have been launched are in these assets classes only. Over the last few years, we have seen that the Shariah Compliant mutual funds are seeing a positive interest and inflow from individual investors. Additionally the number of individual investors in Capital Preservation Funds is showing an uptrend. This indicates that small investors generally investing in a very risk averse method. Currently asset management companies are not permitted to launch REITs or Private Equity Funds. The Regulations are under amendments and once those amendments are introduced by the SECP, then we can expect asset management companies to consider launching funds in such alternative asset classes. 

Evolve: What is the competitive landscape? How important is ‘Continuous Innovation’ in market regarding Asset Management Companies?

Mashmooma Zehra Majeed: Currently we have 21 asset management companies operating in Pakistan. 

Innovation is definitely required on a continuous basis. Asset Management is a service based industry and therefore continuous improvements are required to improve the service quality to the investors. Technology is an area which can easily be used to improve market penetration and this should be an area for continuous innovation. Also product development remains a key area for continuous innovation to introduce products that cater to the evolving investor needs. 

Evolve: Are you satisfied with marketing strategies opted by Pakistani Asset Management Companies? Do you think that they are successfully creating awareness about mutual funds?

Mashmooma Zehra Majeed: Marketing and Public Awareness has remained an area where asset management companies have not been able to focus much upon mostly due to lack of resources. As asset management companies mostly operate on low margins, they have less resource to dedicate towards this. This is where they need to get together and conduct joint campaigns as an industry so that the outreach can be more and it would work in the beneficial interest of the entire industry. 

Evolve: In your view what macro factors, Asset Management Companies must be kept in focus while making strategy for coming years?

Mashmooma Zehra Majeed: The key area of sustainable growth going forward is in the retail and retirement funds sector. This is where the asset management companies must focus their strategies and major efforts. 

Evolve: Where do you see the asset management sector in Pakistan within the next five years?

Mashmooma Zehra Majeed: If the taxation framework remains what it is today and the anomalies are not addressed, we don't see much growth in the industry. However if the taxation anomalies are addressed, the industry can easily double in the next five years. Mutual Funds currently amount to 5% of bank deposits, while it’s around 13% in India and over 100% in USA. So the potential to grow is there. It just needs an environment to grow and develop. 

Savings is a key determinant of economic growth of a developing country because higher savings rate leads to higher investment that enhances productive capacity of the economy. In Pakistan, there has been a discouraging trend in terms of investment and savings as a percentage to GDP. Pakistan’s savings rate at 13.8% of GDP is significantly below that of world average of 25% and Emerging Markets and Developing Economies average of 33%. Pakistan's savings rate is much lower than that of the other countries in the Sub Continent, namely India at 30.197 % and Bangladesh at 30.192%. This indicates that rigorous steps are required to promote savings and investments with major focus on investors’ awareness and education as well as removing the taxation anomalies and regulatory issues hampering the growth. The Government should encourage long term investments and take measures to incentivize the long term savings. These long term savings generally come from private equity funds, private pension funds, Real Estate Investment Trusts, endowments, insurance companies, mutual funds, infrastructure funds which need to be encouraged and facilitated to mobilize savings from retail investors and provide those funds for long term investment financing.

Evolve: What are the main themes investors should pay attention to as we head into 2015?

Mashmooma Zehra Majeed: Mutual Funds are long term savings. Any investor who invests in mutual funds should keep that in mind when investing. Before making any investment decisions, the investor must keep into consideration its risk profile and liquidity requirements and time horizon. A certain portion must be allocated towards equities if they have a time horizon of over 3 to 5 years as otherwise they would be unable to maintain the purchasing power of their money. Instead of following the latest trends a systematic investment approach must be adopted. 

Evolve: Any message for the readers of EVOLVE?

Mashmooma Zehra Majeed: Mutual Funds are popular worldwide because they make investing in financial markets easy. From an investors' viewpoint mutual funds have several advantages such as professional management and research to select quality securities, diversification so that the investor is not putting all his eggs in one basket and ability to invest small amounts also and grow savings over the period with the ability to convert the Units into cash at any time and receive the amount within 6 working days. Therefore an investor in Pakistan should also consider Mutual Funds as their preferred savings vehicle as they can invest their savings at their ease and convenience as per their unique requirements.