The recent ups and downs in the stock market following JIT investigation and report has hit the investment sector hard enough to lower the market by whopping 2,153 points. This sharp decline in the market was a result of panic selling from investors in order to mitigate their losses in case of any unforeseen political instability in the country.
However, in times when every investor was on a selling spree, it were the mutual funds that countered the sell-off with net buying.
Speculations were made that perhaps mutual funds were dictating the terms at the stock market. Previously, it was believed that the brokers set the tone of the market by moving the market according to their own requirements. Such brokers would control the market according to their own interests and eventually ended up causing severe damages to small investors.
Small investors and traders would look up at the trading board and followed what the big broker had been buying. On the other hand, the big broker would be buying under his own name and would end up selling under the name of another broker, causing everyone to follow the lead. This is where the big broker would make huge profits while the small brokers were left to cover their losses only in the market.
This stopped happening after the introduction of undisclosed trading in the market. Even leverage trading increased the losses for small investors who would take speculative positions in the market with the help of borrowed money. Previously, the influence of big brokers on small traders was about 70% which has now been reduced to only 15%.
While the dominance of brokers on the stock market has reduced, mutual funds are now coming up with their own dominion scheme in the market. Mutual funds have grown at a lightning pace with assets of Rs. 625 billion under 219 funds.
Zeeshan Muhammad Qudoos, Chief Business Development Officer at UBL Fund Managers, said that the growth in mutual funds shows that people are putting more confidence in mutual funds and are investing their savings in it.
The difference between stock brokers and mutual funds is that the latter is unable to form a cartel. A cartel is formed with 4-5 top brokers coming together to work in partnership in order to gain from the market. But in case of mutual funds, every fund manager has to compete with other fund managers in order to strive and get the confidence of the investors.
Mutual funds provide an advantage to small investors who don’t have the financial power to establish a powerful portfolio for themselves. Such funds take all the pressure of the investors as they don’t have to worry about the research that needs to be done at the time of investment, nor have they to follow the market every day. Consequently, individuals are the ones who are benefitting the most as they get to invest their savings in a diversified portfolio.
Not only individuals are shifting towards mutual funds, corporates are also switching towards equity market now, from money and income funds to low interest rates. Mutual funds owned by banks are the chief architect in the growth of mutual funds as they get a major vote of confidence from investors due to solid backing and easily accessible network of branches.
Banks like UBL, Meezan Bank, HBL, MCB, and others are all in the mutual funds industry now and are running their respective mutual funds with increased investor confidence. Investing with such funds is a safe house for investors as funds have to payout 90% of earnings or else they will be subjected to heavy taxes from the government.