The Securities and Exchange Commission of Pakistan (SECP) has laid down the criteria for mutual funds investment in listed equity securities, under which a substantial part of the mutual funds investment would only be made in those equity securities which meet the requirements pertaining to free-float and minimum number of traded days
A spokesman for SECP said that the criterion has been finalised to safeguard the interests of unit holders of collective investment schemes, while ensuring better risk management by the Asset Management Companies (AMCs).
The SECP had taken an initiative to strengthen the risk management framework already in place at AMCs. For this purpose, a detailed in-house study was conducted by the SECP to identify the eligible securities for mutual funds’ investment. As a result of the said study and after consultation with the stakeholders, a criteria has been finalized for identification of eligible equity securities for mutual fund’s investment.
According to the criteria, a substantial part of the mutual funds’ investment shall be made in equity securities which meet the requirements pertaining to free-float and the minimum number of traded days. AMCs are also required to consider the financial strength of the investing company, i.e. net worth, trading status on PSX, and its regulatory compliance. Moreover, weightage shall also be given to the observations in respective auditor’s reports.
It is important to mention the the mutual fund industry of Pakistan has shown tremendous growth in the recent past. The assets under management of AMCs have increased from Rs 546 billion as of June 30, 2017 to Rs 694 billion as of March 31, 2017, showing an increase of Rs 148 billion or 27 per cent during the first nine months of FY 2016-17. The significant increase in assets under management further necessitates the need for adequate risk management to protect investors.
