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Mufap proposes amendments in SECP rules CDC be allowed to act as custodian for closed-end mutual funds

RECORDER REPORT

KARACHI: The Mutual Fund Association of Pakistan (Mufap) has proposed the Securities Exchange Commission of Pakistan (SECP) rules to be amended allowing central depository company to act as the custodian for the closed-end mutual funds and fee structure to be raised to two percent of the net assets.

According to Mufap, a meeting was held on Wednesday at Pak Libya Holding Company under the chairmanship of Shamim Ahmed Khan of SECP with Zaigham Mahmood Rizvi, chairman, Habib-ur-Rehman, vice-chairman and Amjad Waheed Secretary of Mufap.

Shamim Ahmad informed the meeting that the SECP was fully satisfied with the role being played by Mufap in development of secondary market.

He said that the SECP favourably viewed the fiscal and regulatory issues concerning the mutual fund sector and would do its best to introduce various measures for further promoting the mutual fund industry in particular and the financial sector in general.

He appreciated the extraordinary performance of NIT, Abamco, Al-Meezan Mutual Fund and Asian Stock Funds during the last year.

The Mufap chairman, proposed that the rules governing the mutual funds can be amended to allow a central depository company to act as the custodian for the closed-end mutual funds in addition to the commercial banks. This would be efficient and cost effective for the mutual funds.

Mufap Chairman Zaigham said that the present fee structure of closed-end mutual funds was lower (one percent of the net assets), and good fund managers were reluctant to enter the asset management business. Mufap requested for an upward revision of fee to two percent. Mufap also requested the SECP to relax the exposure rules for closed-end as well as for open-end mutual funds to allow special type of funds such as sector funds or debt funds to be offered to public, provided that the relaxation in the rules is approved by SECP on case-to-case basis and the investment policy of such funds is clearly laid down in the prospects.

Mufap has also proposed that it should be made mandatory for the closed-end funds to announce their net assets value at the end of each month.

At present, this is being done by most of the closed-end funds on voluntary basis.

Mufap suggested that the private sector mutual funds may be excluded from the definition of "Saheb-e-Nisab" as done in the case of NIT units and ICP mutual funds. At present certain assets held by the private sector mutual funds are being subjected to Zakat twice once by mutual funds and then the unit/shareholders of the fund.

Similarly, NIT units and ICP mutual funds held by companies/statutory corporation are being subjected to Zakat. Thus Zakat is payable once by the companies/statutory corporations on their investment in NIT units and ICP mutual fund certificates and then shareholders of the companies/statutory corporation pay Zakat on their shareholding. Anomalies in Zakat and Ushr Ordinance 1980 and the Zakat (collection and refund), rules 1981 need to be removed.

Mufap has proposed that both NIT units trust schemes in the private sector may be allowed as 'permissible investment' for investment of Employees Old Age Benefits Institution (EOBI) rules, 1979, on the same conditions as laid down in rules for other investment.

The association suggested that the audited accounts of EOBI and all provident/pension/gratuity funds should be filed with Registrar of companies and be available for public inspection. All organisations having turnover of over Rs 200 million should be required to have provident/pension/gratuity funds for their employees. This will inculcate savings. The provident fund rules as contained in the companies ordinance and the Trusts Act may be made uniform, Mufap proposed that the unit trust schemes in the private sector should made approved security under the Issuance Act and for investment of Statutory Liquidity Reserves of banks and non-banking financial institutions.

Mufap has also launched its website (www.mufap.com) to create awareness among the general public and its shareholders about the mutual fund industry.