SECP to introduce new cost reforms in mutual funds from July 2025

The Securities and Exchange Commission of Pakistan (SECP) held an extensive consultation session with representatives from the Mutual Funds Association of Pakistan (MUFAP) and senior officials from Asset Management Companies (AMCs) and Pension Fund Managers. 

According to a statement, the primary agenda was to discuss proposed amendments to the Non-Banking Finance Companies and Notified Entities Regulations, 2008, focusing on cost rationalization for retail investors.

The session was chaired by the Chairman SECP, accompanied by the Commissioner of the Specialized Companies Division, the Commissioner of the Supervision Division, and senior officials from the Fund Management, Pension, and Supervision Division.

During the session, after deliberations, consensus was reached on replacing the TER Capping Regime with a Management Fee Capping approach with the aim of lowering the cost burden on retail investors. It was also agreed to disallow any reimbursement of indirect expenses from the mutual funds and adequate disclosures on total expenses charged. 

The proposed amendments will take effect from July 1, 2025, ushering in a new era of retail-focused strategies in the mutual fund industry and allowing for a smooth transition.

In addition to the expense regime reforms, discussions were held on the establishment of a Market Development Fund aimed at pooling resources for investor education. This initiative seeks to enhance financial literacy, promote a savings culture among households and businesses, and strengthen the retail investor base in the fund management industry.

It was also agreed that a digital strategy and roadmap for the growth of the mutual fund industry shall be formed, aimed at reaping the benefit of fintech, efficient payment solutions, better distribution models and enhancing financial inclusion. It was also acknowledged that while significant progress has been made to improve customer onboarding infrastructure in the shape of digital onboarding, Central Gateway Portal and KYC sharing mechanisms, there is a need to further improve the customer onboarding process by reducing unnecessary documentation and making it as seamless and user friendly as possible. 

The proposed amendments also emphasize Shariah compliance for mutual and pension funds, mandating alignment with Shariah Governance Regulations. The SECP had earlier sought public feedback through a consultation paper aimed at rejuvenating the expense and distribution regimes to reduce investor costs, foster a culture of savings, optimize returns, and expand retail participation in the capital markets. Following this process, draft amendments to the Regulations were formally notified on January 15, 2025, initiating further industry consultation. 

The session also covered recent developments in the capital market and the important role of the mutual fund industry in growth of capital markets. It was emphasized that by implementing these reforms, the SECP aims to create a more transparent, efficient, and investor-friendly mutual and pension fund industry that supports economic growth and strengthens the financial ecosystem.