950804

CLA gives nod to 8 mutual funds

Market expecting

Rs 2.5 bn floatations

before Dec 1996

HARIS ZAMIR

KARACHI: Corporate Law Authority has given consent orders to eight Mutual Funds in the private sector worth around Rs 1.850 billion. These funds are expected to be floated before December 1996.

Meanwhile, the fate of the proposed Privatization Fund valuing around 100-200 million dollars is yet undecided. If this fund is finally okayed, then the number of Mutual Fund floatations would rise to nine and their combined value during the year would cross the Rs. 2.5 billion level.

The Emerging Market Fund would be Rs 500 million in value, the Al-Faysal Bank and NIT Fund Rs. 400 million, Investrust Fund of Elahi Group Rs 300 million, Ist International Investment Fund Rs 200 million, Bear Stearns Jahangir Siddiqi Fund Rs 150 million, and Fidelity Mutual Fund, Custodian Fund and Shoaib Capital Rs. 100 million each.

Nauman L. Sheikh, research analyst of Khadim Ali Shah said that the mutual fund industry in the country has gathered steam. With stock prices being perceived as having hit rock bottom, investment companies are slowly gathering the courage to launch their own funds, although domestic instability continues to threaten investors' interest.

There are currently 26 state-owned funds (ICP and NIT) and over 11 private-sector funds. With a series of funds awaiting launch, the market expects entry of over Rs 2 billion in additional capitalization by way of these funds. If this turns out to be true, the market would be provided these funds, the much-needed liquidity and hopefully there would also be price stability.

State-owned mutual funds listed at the stock market have outperformed the index with an average return of 42 percent against the market return of 32 percent.

The private-sector mutual funds have been the worst performers in the sector so far and are mostly trading below their par values. Some obvious reasons for this are their poor entry points into the market. Those that entered the market during the bull run of 1994, according to a KASB analysis - like Tristar Mutual Fund, Asian Stock Fund - have accumulated very expensive portfolio mixes and are currently trading at a very low discount or at a premium on their asset values.

The Mutual Fund industry is still in its infancy, compared to the other sectors and with its narrow investment product base, it does not fall easily into any categorized segment, such as income fund or aggressive growth fund.

Analysts say, the critical factors investors should consider in the case of any fund include the fund's yearly return over a set of periods as well as its average return. A fund that shows consistency in performance should be preferred rather than one that shows unnatural volatility.

A fund's performance in bearish conditions is also important as this gives an idea of both the quality of the fund's portfolio investments and the acumen of management.