Mutual Funds Industry

Mutual fund industry is a leading player in the world economy and is a significant constituent of the financial sector. Over the past few decades, mutual fund industry, in the United States, European countries and other parts of the world has exploded Khorana (2005). In 1940, when the modern mutual fund industry began, mutual funds had assets of only $450 million Matthew (2008). Currently the U.S. mutual fund industry has $9.6 trillion in assets and is the largest in the world.

According to ICI fact book (2009) World mutual funds have $19.0 trillion asset under management and total number of mutual funds exceeds 69032 as of year-end 2008. Because mutual funds were cost efficient, easy to invest and provide diversification therefore investors considered mutual funds as the best investment options. Mutual funds have two categories i.e. open and close end. Those funds which can issue the shares without any restriction and can provide the facility of buying back from the investors are open-ended. Since these funds are useful and convenient investing vehicle therefore majority of the funds are open ended.

On the other hand closed-end funds issue limited number of shares to raise money through initial public offerings. The shares can be traded on the stock exchange and the price of these shares depends upon the demand and supply situation. New shareholders must go to the open market to purchase them from existing shareholders since no new shares issued by the manager Mark (2007).

Mutual funds are in developing phase in most of the underdeveloped countries including Pakistan Afza and Ali (2009). In case of Pakistan mutual funds industry was still in the developing phase because investors are reluctant to spend heavily in the mutual funds. Therefore mutual funds form a relatively small segment of the securities markets. The origin of mutual funds in Pakistan dates back to 1962 with the public offering of NIT (National Investment Trust). In 1966 another fund that is Investment Corporation of Pakistan (ICP) was introduced. The ICP offered a series of close-ended mutual funds which was afterwards divided into two lots in June 2000 and was then privatized. With in few years industry has witnessed amazing growth such as increased number of  products and services. 

The growth in the Pakistan mutual fund industry is evident from the fact that the Total Net Assets has grown to $1985 million and total number of mutual funds reached to 83 by the end of 2008 ICI Fact Book (2009). This growth is occurred due to the advent of private sector, government support and the development of innovative and specialized products. But on the other hand if we compare the mutual fund industry of Pakistan with developed countries it is lagging behind. For example total number of mutual funds in U.S.A is 8,022 having total net assets of $9,601,090 million ICI Fact Book (2009). Due to lack of awareness, illiteracy, political unrest, poverty etc the mutual fund industry in Pakistan is in initial stages but it has gain the momentum and is expanding miraculously.