Posted By: Fairlink- Sources Aknowledged
Friday, September 17, 2010
Stock markets have always been a point of attractive investments. The higher level of risk or volatility in stock markets induces investors to foresee higher returns to compensate this risk. But the point that is highly valid is opportunities in stock exchange for a common man. I am talking about people that save money from their salary or monthly income. They are those who have lesser technical knowledge but ambition to get handy returns to meet their future monetary requirements.
I have mentioned several times on my blogs that one of the reasons of financial crises across the globe is that individuals were thinking like businesses, businesses were behaving like banks and banks were dealing like hedge funds. The importance of understanding of roles is very important. Stock market is not a lottery scheme neither it is cinema ticket of three hours movie but unfortunately many brokers market it like same. When we are talking about investments in stock of a company, so it simply means that we are investing in a company as her owner. But in this world of greed people presents stocks like a lottery ticket that can convert return within days. Even it happens but it is not so good for common man to take position in stock market.
Investment in stock needs a detailed company analysis and analysis of industry to economy. It is always difficult to carry all these analysis for a common man but they generally take positions in stock market by seeing price boards. This is really a risk that can mature and once it matures people start crying.
Across the world Mutual Funds are the best place for common man to take investment exposure in stock market. Mutual Fund provides an opportunity to diversify even if you have five thousand rupees to invest. Other than this you can not get a diversified investment position with five thousand rupees.
As per the recent figures reported in National news papers (as on May 25 2010) through association of mutual funds Pakistan Mutual Fund industry is having a size of PKR 221 billion. This is consisting of PKR 187 billion on open end fund and PKR 34 billion in close end funds. As per economic survey 2008-09 there are 99 mutual funds active in the country, in this tally 76 are open end funds and 23 are close end funds.
Now if you see the size of Mutual Funds in Pakistan i.e. PKR 221 billion in comparison to total scheduled bank deposits of PKR 4.5 trillion (as on Jan 2010 by State Bank of Pakistan) so Mutual Fund Industry is just 4.9% of total deposits of scheduled banks. If I compare this central tendency by the Mutual Fund Industry of U.S.A. so as on Dec 2007 it was standing at US$ 11.5 trillion against Bank Deposit of U.S. banks of US$ 7 trillion. It means U.S.A. mutual fund industry before 2008 (pre actualize crises age) was 160% of total bank deposit of U.S.A. If we see our neighbor India so they have Asset under Management of INR 4933 billion (as on 2009, KPMG report) before their bank deposits of INR 5.8 trillion (Reserve Bank of India), it means Mutual funds assets are 84.5% of total deposits of Indian banks.
I can not deny that mutual funds or equity funds have been growing gradually in Pakistan but the proportion of investments in mutual funds is relatively lower in comparison to the bank deposits that offer lower returns. It is the requirement of time that fund management companies have to develop a marketing plan to access masses. The masses those are always keen to multiply their limited savings. Even though they have limited savings but the population of this country can turn it into a big success story.
Common man is not aware of technicalities. They can not understand how beta of stock can be calculated. They can not understand the risk management features of funds. It is necessary for fund mangers to develop easy to understand marketing material, so common man can access mutual funds with confidence. It is always better to train a mass marketing sales force for funds that shall access people who are interested to keep their funds park in National Saving schemes that offers return that even can not cover inflation.
We just need to have a new dynamic mindset for our mutual fund industry and it can be done by shifting the focus of selling funds to common man by aggressive marketing. We need to develop comprehensive and easy to use online fund management tools that offer one window solution to invest in fund. It shall cover majority of our youth that is above 50% of country’s total population. They can definitely invest in multiple of five thousands.
Regardless of many constraints to have saving for a common man in this country, they need to have a smart solution to invest minimum or whatever they have and mutual funds can do it. Equity, infrastructure, fixed income funds can be a popular terms in the country if they shall be marketed by fund mangers aggressively in the tone and style of common man. It is in fact a common man that can be more worthy to fund management than big investors. Generally they have long term plans and it is always better to have million clients than thousand. This is also a diversification within.
Posted By: Fairlink- Sources Aknowledged