Al Huda - International Conference on Islamic Fund and Investment Islamic Funds for Financial Planning – Giving best of both worlds Outline • Objective of this presentation • Need for Financial Planning • How Islamic Funds in the market can help achieve your Financial Objectives • Growth in Islamic Funds and Way Forward Objective To explain the importance of Financial Planning and to illustrate that Islamic Funds are fully poised to cater to all financial needs while strictly abiding with Shariah Principles The importance of Financial Planning The importance of Financial Planning - Concerns Political instability Rapid political & economic changes Demographic changes Businessmen concerns Large number of dependents The importance of Financial Planning We have a population of almost 190 million people The population growth rate is approximately 1.5-2% p.a. The GDP growth rate has been 2-2.5% p.a. over the last 2 years The unemployment rate amongst the youth is over 7% The average monthly salary in Pakistan is PKR 7500 (with 35% of the population below the international poverty line) The average annual inflation for the last 10 years has been close to 11% Aren’t these numbers thought provoking enough?? The importance of Financial Planning We know that money tomorrow is not worth the same as money today. Consider a fixed monthly expense of PKR 30,000 p.m. today over time…. Growth of expenses 300000 Pak Rupees 250000 200000 150000 Growth of expenses 100000 50000 0 Today 5 years 10 years Period 15 years 20 years What costs PKR 30,000 today will cost over PKR 250,000 in 20 years Inflation: 11.4% - CPI 2001-10 average Source: Pakistan Statistical Yearbook 2011, Federal Bureau of Statistics How to hedge against these growing expenses? The importance of Financial Planning Investments via Financial Planning can help you fight these growing expenses Inflation: 11.4% - CPI 2001-10 average Source: Pakistan Statistical Yearbook 2011, Federal Bureau of Statistics Savings account returns assumed at 6% per annum Equity Return is the CAGR of KSE 100 for 1991-2011 The importance of Financial Planning At every stage the consumer is making a choice which is induced by his environment (e.g., friends and family) and his current lifestyle (job, family size etc) . He makes a decision hoping that it will enrich his lifestyle Inflation Children’s Education Daughters’ Wedding Maintenance of standard of living Savings for retirement Savings for Hajj for self & parents Saving & Investment Needs Seeking avenues for fulfilling these needs FINANCIAL PLANNING VIDEO Islamic Funds can help achieve your Financial Objectives Islamic Funds for your Financial Objectives According to a survey conducted by AC Neilson for UBL Fund Managers in 2011, 43% of the surveyed individuals preferred investing in Islamic Financial Products while only 23% preferred Conventional Financial Products Islamic Funds for your Financial Objectives • Meeting Short-term & Emergency needs Cash Funds • Regular Income Expenses to Low Risk Income Funds meet Growing Islamic Funds for your Financial Objectives • Growing Wealth Over the Long-term Equity Funds and Sukuk Funds • Planning for your Children’s Higher Education & Marriage Children Savings Plans • Planning for post-retirement years Voluntary Pension Schemes Islamic Funds for your Financial Objectives Cash Funds (To meet Meet Short-term & Emergency needs) There are currently two Islamic Money Market Funds in the industry comprising over PKR 7 billion of AUM Money Market Funds invest in low risk and liquid instruments that can help clients meet their short term needs and enables them to access their money immediately at a time of emergency Period Islamic Funds Conventional Funds 1 year rolling 11.5% 12.1% 2 year rolling 10.9% 11.6% Islamic Funds for your Financial Objectives Low Risk Income Funds (For Regular Income to meet Growing Expenses) There are currently ten low risk Islamic Funds in the industry comprising over PKR 25 billion of AUM Low Risk Income Funds invest in high quality instruments of a medium to long term tenure that can help clients earn a regular income at an attractive profit rate Period Islamic Funds Conventional Funds 1 year rolling 11.6% 12% 2 year rolling 10.2% 10.9% Islamic Funds for your Financial Objectives Equity Funds (Growing Wealth Over the Long-term) There are currently five Islamic Equity Funds in the industry comprising over PKR 6.5 billion of AUM Islamic Equity Funds invest in equities of Shariah Compliant businesses that earn superior returns and help clients earn their long-term goals Period Islamic Funds Conventional Funds 1 year rolling 6.7% -4.6% 2 year rolling 29.8% 12.6% Islamic Funds for your Financial Objectives Sukuk Funds (Growing Wealth Over the Long-term) There are currently four Islamic Sukuk Funds in the industry comprising over PKR 2 billion of AUM Islamic Sukuk Funds invest in Corporate and Government Debt structured in compliance with the Shariah and can help clients earn high returns in the long-term Period Islamic Funds Conventional Funds 1 year rolling 3.9% 4.2% 2 year rolling 6.7% 4% Islamic Funds for your Financial Objectives Voluntary Pension Schemes (Planning for post-retirement years) There are currently six Islamic Pension Funds in the industry comprising over PKR 1 billion of AUM Islamic Pension Funds comprise of Equity, Debt and Money Market Funds that clients invest in as per their Risk Profile and save for their retirement while also gaining attractive Tax Benefits Period 1 year rolling 2 year rolling Islamic Funds Conventional Funds Equity: 4.0% -5.5% Debt: 10.1% 12.1% Money Market 9.6% 11.2% Equity 28.5% 12.5% Debt: 9.5% 10.5% Money Market 8.8% 7.5% Islamic Funds for your Financial Objectives Children Savings Plans (Planning for your Children’s Higher Education & Marriage) This is a fundamental need that has not been specifically addressed by Islamic Funds However, this is an area that is being worked upon and solutions will be available to clients shortly Growth in Islamic Funds & Way Forward Overall Growth in Islamic Funds Assets Under Management Islamic Funds although a small percentage of overall Islamic Deposits (9%), are growing as a percentage of Islamic Deposits Overall Growth in Islamic Funds Market Share 18.0% Market Share of Islamic Funds vs. Islamic Deposits 16% 16.0% 14% 14.0% 12.0% 10.0% 8.8% 8.40% 7.20% 8.0% 6.0% Islamic Funds as a % of Asset Management Industry Islamic Deposits as % of Banking Deposits 5.90% 4.0% 2.0% 0.0% 2009 2010 2011 Islamic Funds constitute 16% of the Total Assets Under Management and the share has grown significantly over the last 3 years Way Forward for Islamic Funds Islamic Funds are fully poised to cater to all the basic financial needs and Asset Management Companies are working towards bringing solutions for more specific needs Islamic Funds have witnessed commendable growth over the last 3 years and with increasing inclination towards Shariah Compliant investments the growth will only accelerate However, the following areas demand more focus: More needs to be done for the marketing of Islamic Funds, a large segment of the population is not even aware of the options they have for Islamic Investments The Investments Solutions needs to be more clearly differentiated from their conventional counterparts The structure and mechanism of Islamic instruments needs to be explained with more clarity and detail to ensure investor comfort in the instrument’s Shariah Compliance We as Islamic Fund Managers are on the right path of growth and with more attention on the highlighted subjects we will be able to provide clients with the right Investment Solutions in the most Shariah Compliant manner Thank you!!