SEMINAR ON CAPITAL MARKETS AND MUTUAL FUNDS AT ICMA PAKISTAN, ISLAMABAD
MARCH 26, 2015
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The purpose of this session is to create awareness and education about capital market and in no way to invite or solicit investment in capital market. Please note that investment in capital market is subject to risk and therefore any decision for investment shall be taken with due care.
The views expressed herein are those of the presenters and do not necessarily reflect the views of the Securities and Exchange Commission of Pakistan (SECP) or its employee. 3
Investor Understanding Mutual and Education Capital Market Pension Funds Program Operations in Pakistan
4 Investor Education: Financial Inclusion 5
Share of Population with Formal Financial Access (%)
14% in Pakistan (Lowest in the Region)
3 Regional Comparison 6
Population 187,000,000 73,722,988 158,570,000 66,870,000
194,000 4,132,704 2,804,629 3,050,000 # of Investors (.13%) (5.6%) (1.77%) (4.6%)
Insurance 0.7% 1.28% 0.94% 4.1% Penetration
# of CIS Unit 140,000 3,626,017 1,550,000 N/A Holders (.075%) (4.9%) (2.3%)
Participants of 2,000 2,638,310 3,400,000 N/A Pension Funds (.001%) (3.6%) (5.1%)
Savings Rate 13.8% 12.7% 19% 30.7%
Literacy Rate 56% 90.8% 48.8% 93.5%
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180 Million Population 11 Million Global ranking is 27 30 Million 2 Million Internet Users 9th most visited website 15 Million Mobile Web Users PAKISTAN 20th largest country on internet Facebook Internet 16.7% 36% Penetration of Penetration Internet Users Facebook 6.1% Penetration of Total Population TARGET MARKET 8
Youth,School & College SalariedClass students
Tradersand Professionals Businessmen Non Resident Pakistani 9
Educate and create awareness amongst general public about saving and investment including financial planning and budgeting Increase awareness about the financial markets (capital market, non-banking financial and insurance sectors) and how to go about making an investment Educate target groups about different financial products; risks involved; rights and responsibilities and investor protection services
Build investor confidence in capital market, non-banking financial and insurance sectors. 10 11 Jama Punji
Jamapunji, an urdu word meaning “all savings”. The term is mostly used in connotation of lifelong savings of an individual. The mid age group of the target audience take this word as life-long savings and the younger group identifies the term as savings till date. 12
Ø Under the IEP, education would be imparted through:
Ø :
Ø Web Portal
Ø Mobile Applications
Ø SMS
Ø Social Media
Ø
Ø Seminars, Investor Days, Workshops DIGITAL MEANS FOR INVESTOR EDUCATION 13
The Web Portal, through subscription by participants, shall be a source of data to tap potential investors and deepen the capital market of Pakistan.
Features of Web-Portal Public/ Private Member Area Education Center Mock Trading Platform Risk Profiler & Scam Meter Quizzes & Games Publications News & Alerts Live Chat Window Media Center (Documentaries, Videos, Webcasts & Podcasts) Poll and Surveys DIGITAL MEANS FOR INVESTOR EDUCATION 14
PTA approved mobile short code service in multi language connect with existing/potential investors & insurance consumers promote investor & insurance education awareness & protection campaign. provide a platform to report complaints. Investor alerts/notifications/news DIGITAL MEANS FOR INVESTOR EDUCATION 15
Mobile applications shall be developed and made available to registered users. Features include: Scam meter Branch locator Verification of market participants Games DIGITAL MEANS FOR INVESTOR EDUCATION 16
Investor Education Web Page Setup & Design Facebook , Twitter & LinkedIn Page Management Promotional activities Placement of digital advertisements PHYSICAL MEANS FOR INVESTOR EDUCATION 17 Targeting General public, Corporate Institutions, Clubs, Associations, etc. and Students of universities and schools ü Seminars ü Conferences ü Lecture Series ü Quizzes/Competitions
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• Understanding • Working of • Investor Capital Market Stock Market Protection
1 2 3. 20 A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds from general public (Investors). It is defined as a market in which money is provided for periods longer than a year. 21
Channelize Savings
Fund raising Option
Investment Avenue
Secondary market benefits
Bank Based vs Market Based 22 Instruments of Capital Market Common Shares/Ordinary Shares Preference Shares Corporate bonds//Sukuk Govt bonds/Sukuk Futures Contracts Stock & Index Futures Stock and Index Options 23
Service Issuers Investors Providers
Providers of Users of Funds SROs funds
Companies Intermediaries Individual
Support Substantial services Institutional shareholders providers 24
• Initial public offerings (IPOs)- Companies may require funds for expansion / new projects • Offer for sale of Shares – Sponsors of successful companies may want encash their investments • Minimum Capital of Rs.200 million • Approval of Prospectus from SECP • Approval of Listing from Stock Exchange
• Listing of Debt Securities for General Public
• Listing of Debt Securities for Sophisticated Investors
• Listing of small and medium enterprises on SME Board 25
Self Regulatory Organizations • Stock and Commodity Exchanges • Clearing and Depository Companies Intermediaries • Stock and Commodity Brokers • Agents of Stock Brokers • Clearing and Custodian Members Support services providers • Credit Rating Agencies and Auditors • Consultants, Advisors, Lead Managers & Book Runner • Balloters, Transfer Agents & Underwriters 26
Direct Indirect Investment Investment Stock Market Mutual Funds • Dividends • Equity Funds • Capital Gains • Debt Funds • Fixed Returns • Money Market • Speculation Funds etc. 27
Karachi Stock Exchange Ltd established in 1947
Lahore Stock Exchange Ltd established in 1970
Islamabad Stock Exchange Ltd established in 1989 Central Depository Company of Pakistan Limited established in 1997 National Clearing Company of Pakistan Limited established in 2001 Pakistan Mercantile Exchange Limited established in 2002 and operations started in 2007 28
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Regulatory Chief Regulatory 6 appointed by SECP 4 elected by Affairs Officer Shareholders 01 being Chief Executive Commercial Managing Affairs Director Board of Director Company Secretary
Internal Audit 30
Equity Derivatives
Bonds SME 31
Karachi Bonds Deliverable Over-the- Automated Automated Futures counter System System Market (OTC) (KATS) (BATS) (DFM) Market 32
Risk Transmission Trading Reporting Management of Data to Engine Engine System NCCPL 33 34
9 elected by Shareholders Board of 1 nominated by SECP Directors 1 being CEO
Chief Audit Executive Committee Officer
Chief Chief Chief Internal CFO/Company Information Operating Auditor Secretary Officer Officer 35
Broker Clearing KSE Brokers Member (BCM) LSE Brokers ISE Brokers
Non-Broker Banks Clearing Financial institutions Member (NBCM) Mutual funds
Custodian City Bank Clearing Standard Chartered Member (CCM) Douche Bank Clearing Members 36
Exchange Non-Exchange Leverage Trades Trades Market
Institutional Regular or Margin Trading Delivery System Ready System (MTS) (IDS)
Margin Futures Market IDS for CCMs Financing System (MFS)
Broker to Broker Securities Negotiated Deal Settlement Lending & Market (NDM) (B2B) Borrowing (SLB) 37
Trading Preparation Auto Pay Automated data from of Balance and Collect Securities Stock Order System Settlement Exchanges 38 39
Central Depository System (CDS)
Account-holders Participants Issuers/Registrars Pledgees
Main Account Main Account Debt Securities Banks/DFIs
House Account House Account Equity Securities Stock Exchanges
Sub-accounts Private Co Sec Clearing Company 40
Automated Settlement Transactions
Free-Delivery Securities Transactions
Corporate Actions related Transactions
Other Transactions e.g. conversion, merger 41
Custodial RTA Services Services
Trustee IT Services Services 42 43
Governance Structure
Regulation of Members/Brokers
Trading, Clearing and Settlement 44
Cash Settled Deliverable Futures Futures Contracts Contracts 45 46
Stock Market
Broker
Investor 47 MARKET OPERATING SYSTEMS
Trade Flow 48
Securities Obligation Money Obligation Clearing & Settlement Trading 49
Broker
Stock Central Clearing Exchange Depository Company
Clearing TREC holder Participant Member
Automated Central Clearing and Trading Depository Settlement System System (CDS) System 50
Investor Pre-trade Order Order Making Registration Margin Execution
Trade Data transfer Netting of Balance Confirmation to NCCPL Trades Orders
Money Instruction to Debit Buying Credit Selling Obligation Clearing Bank Broker Broker
Securities Instructions Pick from Park in Buyer Obligation to CDC Seller A/c A/c 51
Participants Stock Clearing Depository Investor Broker Clearing Bank Exchange Company Company
Functions Execution of Obligation Money Securities Investment Broking Trades Settlement Obligations Obligation
System Brokerage Automated Clearing & Electronic Central Private Accounting Trading Settlement Banking Depository System System System System System System
Action Order Order Transfer of Transfer of Making Order Order netting Execution Matching funds Securities 52 53
} Always deal with the market intermediaries registered with the stock exchanges and SECP.
} Before placing an order with the market intermediaries, please check about the credentials of the brokers from the relevant stock exchange or from SECP.
} Carefully read and understand the contents of Account Opening Form.
} Collect copies of all documents executed with the Brokers and ensure that documents or forms are fully filled in.
} Always settle the dues through the normal banking channels with the market intermediaries. 54
} Adopt trading / investment strategies commensurate with your risk-bearing capacity as all investments carry some risk.
} Be cautious about stocks which show a sudden spurt in price or trading activity, especially low price stocks.
} There are no guaranteed returns on investment in the stock market.
} Give clear and unambiguous instructions to your broker.
} Always insist on contract notes from your broker.
} Always keep copies of all investment documentation (e.g. application forms, Trade confirmations, payment receipts). 55
} Always keep copies of documents you are sending to companies, Brokers or their Agents and Registrar etc.
} Send important documents by a reliable mode (preferably through registered post) to ensure delivery.
} Follow up diligently and promptly e.g. If you do not receive the required documentation within a reasonable time, contact the concerned person immediately.
} In case of dispute, file arbitration application with the concerned stock exchange. 56
} Don’t execute any documents with any intermediary without fully understanding its terms and conditions.
} Don’t deal based on rumors or ’tips/dheyan’.
} Don’t fall prey to promises of guaranteed returns.
} Don’t get misled by companies showing approvals / registrations from Government agencies as the approvals could be for certain other purposes and not for the securities.
} Don’t get carried away with advertisements about the financial performance of companies in print and electronic media. 57
} Don’t blindly imitate investment decisions of others who may have profited from their investment decisions.
} Don’t forgo obtaining all documents of transactions, in good faith even from people whom you know.
} Don’t forget to take note of the risks involved in an investment.
} Don’t get misled by guarantees of repayment of your investments through post-dated cheques.
} Don’t hesitate to approach concerned persons and then the appropriate authorities.
} Don’t get swayed by promises of high returns. 58
} Decision to keep custody of shares should be taken wisely- CDC Investor account provides more protection as it is operated solely upon the instructions of investors
} Ensure that you are receiving SM alerts or email alerts for each movement of security in your sub-account with the broker. subscription to these services is now mandatory. Check whether broker has entered correct contact details
} Subscribe to NCCPL UIS services to regularly check trading in your name by broker 59 60 61
} Unauthorized buying and selling of securities } Unauthorized pledge of securities } Overcharging of Commission } Non providing of Account opening forms } Non providing of trade confirmations } Non providing of Account Balances } Difference in Ledgers issued by the Brokers compared to the actual holdings in CDC account. } Squaring off the positions without giving margin calls } Charging liquidation charges to the clients 62 } .- A broker, in his dealings with the clients, shall faithfully execute the orders for buying and selling of securities at the best available market price and not refuse to deal with a small investor merely on the ground of the volume of business involve.
} A broker shall promptly inform his client about the execution or non-execution of an order,
} .- (1) A broker shall not refuse to promptly issue to his clients purchase or sale notes for all the transactions entered into by him with his clients.
} .- A broker shall not disclose or discuss with any other person or make improper use of the details of personal investments and other in formation of a confidential nature of a client which he comes to know in his business relationship. 63
} .- (1) A broker shall not encourage sales or purchase of securities with the sole object of generating brokerage or commission.
} A broker shall not furnish false or misleading quotations or give any false or misleading advice or information to a client with a view of inducing him to do business in particular securities and enabling himself to earn brokerage or commission
} .- A broker shall not deal or transact business knowingly, directly .or indirectly or execute an order for a client who has failed to carry out his commitments
} .- A broker, when dealing with a client, shall disclose whether he is acting as a principal or as an agent. 64
} .- A broker shall not make a recommendation to any client who might be expected to rely thereon to acquire, dispose of, retain any securities unless he has reasonable grounds for believing that the recommendation is suitable for such a client upon the basis of the facts.
} .- A broker should have adequately trained staff and arrangements to render fair, prompt and competent services to his clients 65
IVR
CDC SMS [e access] Email alerts
Web Access
NCCPL UIS
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Mutual fund is a pool of money invested according to a common investment objective by an asset management company (AMC) on behalf of the fund investors.
The pension fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they reach the superannuation. 68 69
Management Fee
Investment Return Passed to Investment Investors Returns Redemption Disinvestment
Trustee Fee 70
• Investor • Asset Management Company
Companies Ordinance NBFC Rules/ Regulations 1984
Listing Income Tax / Regulations/ Sales Tax/ Code Of other Corporate Circulars Governance • SECP • Trustee 71
Open Ended / Closed Ended
Money Fixed Fund Principal Equity Index Commodity Market Income Balanced of Protected Funds Funds Funds Funds Funds Funds Funds Funds
Sharia Complaint / Conventional 72
Conventional /Sharia Complaint Pension Schemes
Equity Money Debt Sub Commodity Sub Market Fund Sub Fund Fund Fund 73
Rs in billion Period Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Nov-14 Aggregate Compounded Growth Annual Total Assets 238 291 410 402 452 463 (Jun-10 to Growth Rate Nov-14) Growth since - 22% 41% -2% 12% 2% 94.54% 16.24% last June Total No. of Mutual 127 136 147 147 160 161 26.77% ----- Funds
As of January 20, 2015 total assets of mutual funds amounted to Rs. 500 billion
Presentation on Mutual / Pension Funds in Pakistan 74
1 National Investment Trust Ltd. 5 95,371 -
2 Al Meezan Investment Management Ltd. 10 59,382 1 3,413 3 UBL Fund Managers 19 51,263 2 2,149
4 MCB -Arif Habib Saving & investments Ltd. 12 42,059 2 1,033 5 NBP Fullerton AMC 15 46,314 2 671 6 HBL AMC 6 19,588 2 598 7 ABL- AMC 8 29,642 2 204 8 PICIC AMC 8 26,995 0 0.00 9 Alfalah GHP 12 16,016 0 0.00 10 Atlas AMC 6 14,868 2 1,192 75
Government Equity Securities Rs171.60 billion Rs182.86 billion 37.07% 39.50%
Debt Securities Rs14.26 3.08%
Bank Balances / Placements / Others Deposits with FIs Rs30.02 billion Rs64.23 billion 6.48% 13.87% 76
Rs in million Description Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Nov-14 Aggregate Annualized Growth Compounded (Jun10- Total Assets 1,301 1,575 2,776 4,854 8,310 9,913 Growth Rate Nov14)
Growth since - 21% 76% 75% 71% 19% 662% 58.29% last June
Presentation on Mutual / Pension Funds in Pakistan 77
Mutual Funds provide the opportunity for long term growth without the requirement of any long term commitment, as mutual funds provide the option to redeem your investment on a daily basis. Mutual funds in Pakistan are exempted from tax as Mutual Funds have to distribute 90% of their income to Unit Holders. Additionally, bonus units may be redeemed without any tax liability. Dedicated research team, specialized portfolio management, and risk management oversight and controls.
Mutual Funds provide the opportunity to establish a well diversified portfolio without the large investment typically required to achieve this diversification.
Investments with mutual funds attempt to weather all storms as AMC’s, who specialize in managing your investments, take advantage of ups & downs in the market. A Mutual Fund allows you to invest without requiring a large investment - in fact you can invest for as little as PKR 100. This means that small amounts may be invested over a period of time. Net Assets of a Mutual Fund are completely under the custody the Trustee which ensures that the fund is operating within the investment policy as detailed in the Trust Deed.
Mutual Funds are fully regulated by SECP, ensuring investor’s rights to be afforded protection. 78
} Investment Horizon of the investor } Risk Appetite of the investor } Past Performance of Funds } Reputation of Asset Management Company } Fee and Expenses 79 Investors can get information pertaining to their value of investment in Mutual Funds from the following sources.
} Announcement of Daily NAVs } Account Statements / Transaction Statements } Monthly Fund Manager Reports (FMR) } Quarterly Accounts of the Mutual Funds } Annual Audited Accounts of the Mutual Funds 80 81
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