Analysis: Islamic Funds vs. Non Islamic Funds

By Riffat Mughal

Mutual Funds Association of Pakistan (MUFAP) has indicated that mutual fund industry has seen growth of 23.95 percent during the year end on June 30, 2011 while 7.87 percent during fourth quarter of financial year 2010-11 (4Q-FY10-11). MUFAP reveals that industry's total net assets expanded by 7.87 percent on quarter over quarter basis.

Industry Net Assets jumped by 7.87%

Overall mutual fund industry shined in fourth quarter as its growth increased by 7.87 percent during 4Q-FY10-11 as industry's net assets increased to Rs 248.012 billion.

Net Assets- Open End 4Q-FY10-11 Review

The overall open-end funds (inclusive both Islamic and non Islamic funds) witnessed growth of 9.79 percent and net assets of the category surged to Rs. 222.537 billion. In open end Asset Allocation Fund net assets declined by 0.84 percent to Rs 3.066 billion and Islamic Asset Allocation Fund also fell by 2.77 percent to Rs 1.263 billion in 4Q-FY10-11.

Open end Balanced Fund went down by 7.50 percent to Rs 3.525 billion during period under review as compared to Rs 3.811 billion net assets in the previous quarter. Open end Islamic Balanced Fund showed a better position than non Islamic Balanced Fund though it also declined but by less percentage, it fell by 2.77 percent to Rs 1.263 billion net assets during the period.

Capital Protected Fund sharply declined by 26.21 percent to Rs 3.368 billion in 4Q-FY10-11, from Rs 4.564 billion in the corresponding quarter. Islamic Capital Protected Fund 100 percent declined from Rs 0.709 billion in the previous quarter as Meezan Capital Protected Fund the only Islamic Capital Protected Fund matured during the period.

The open end non Islamic Equity Fund showed growth of 4.97 percent to Rs 52.458 billion during the period under review, while Islamic open end Equity Fund performed better than non Islamic Equity Fund that is grew by 8.62 percent to Rs 5.320 billion in 4Q-FY10-11. This proves that investments made in Islamic Equity Funds are more profitable than non Islamic equity funds.

Open end Income Fund net assets witnessed minor growth of 0.04 percent to Rs 47.504 billion. On the other hand Islamic Income Fund net assets remarkably raised by 27.32 percent to Rs 20.793 billion in 4Q-FY10-11 against Rs 16.331 billion reported in the 3Q-FY10-11. This indicates that making investments in Islamic Income Funds are more reliable source of increasing margins. 

According to MUFAP the industry has seen growth of 23.95 percent during the year end on June 30, 2011 mainly because of Money Market Funds. In the fourth quarter non Islamic Money Market Funds showed healthy growth of 22.84 percent as its net assets rose to Rs 77.304 billion in the quarter against Rs 62.932 billion reported in the previous quarter. Islamic Money Market Funds went up by meager 5.19 percent to Rs 7.170 billion during the period under review indicating that non Islamic Money Market Funds has more potential and growth due to availability of more channels/instruments for investment purpose and they offer healthy return too.

Total non Islamic open end funds net assets upped by 8.94 percent to Rs 187.225 billion in 4Q-FY10-11 and total Islamic open end funds grew by 14.52 percent to Rs 35.313 billion during the quarter.   

Net Assets- Pension Funds 4Q-FY10-11 Review

The pension funds overall net assets went up by 9.64 percent with net assets touching Rs. 1.558 billion in the fourth quarter FY11. Non Islamic pension fund represents 8.09 percent growth and its net assets increased to Rs 0.655 billion during the quarter. Islamic Pension fund showed higher growth in net assets as it climbed by 10.81 percent to Rs 0.902 billion during 4Q-FY10-11 this shows that people are having interest in pension funds and are ready to make their investments. According to MUFAP there is a need to educate investors regarding investments in pension funds to save their future.

Net Assets- Closed End Funds 4Q-FY10-11 Review

According to the data provided by MUFAP that closed end funds does not performed well as it net assets decreased by 7.32 percent to Rs. 23.917 billion during 4Q-FY10-11. Non Islamic closed end Asset Allocation Funds declined by 2.25 percent in the fourth quarter to Rs 0.435 billion. The Balanced Fund declined by 2.66 percent to Rs 1.317 billion during the quarter under consideration while Islamic Balanced Funds net assets showed a growth of 3.25 percent to Rs 1.523 billion and represents that Islamic Balanced Fund performed well during the period.

The closed end net assets Equity Funds declined by 10.02 percent to Rs 17.810 billion while Islamic Equity closed end funds show rise of 2.96 percent as it assets reached to Rs 1.707 billion indicate that Islamic Equity Funds are much better than non Islamic Equity Funds. MUFAP is working on creating awareness (particularly among individual investors and retirement funds managed on behalf of its members who are individuals) to invest a portion of their savings in equity related funds. This is important, as one of the objectives of long term savings is to be a hedge against inflation.

Income Fund went up by 3.97 percent to Rs 1.125 billion during the quarter. Among closed end funds Islamic funds demonstrate better performance as its net assets during the quarter increased by 3.10 percent to Rs 3.230 billion while non Islamic closed end funds depicted the decreased of 8.76 percent to Rs 20.687 billion in 4Q-FY10-11.

http://www.halaltamweel.com/1060/PAKISTAN-Halal-Funds-Mutual%20Funds-Update.aspx