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Transcript of Islamic Funds for Financial Planning – Giving best of both worlds Al Huda - International...
Islamic Funds for Financial Planning – Giving best of both worlds
Al Huda - International Conference on Islamic Fund and Investment
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….
Today 5 years 10 years 15 years 20 years0
50000
100000
150000
200000
250000
300000
Growth of expenses
Growth of expenses
Period
Pak
Rupe
es
Inflation: 11.4% - CPI 2001-10 averageSource: Pakistan Statistical Yearbook 2011, Federal Bureau of Statistics
What costs PKR 30,000 today will cost over PKR 250,000 in 20 years
How to hedge against these growing expenses?
The importance of Financial Planning
Inflation: 11.4% - CPI 2001-10 averageSource: Pakistan Statistical Yearbook 2011, Federal Bureau of StatisticsSavings account returns assumed at 6% per annumEquity Return is the CAGR of KSE 100 for 1991-2011
Investments via Financial Planning can help you fight these growing expenses
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
Maintenance of standard of living
Daughters’ Wedding
Savin
g &
In
vestm
en
t N
eed
s
Savings for retirement
Savings for Hajj for self & parents
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 to meet Growing Expenses
Low Risk Income Funds
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 Islamic Funds
Conventional Funds
1 year rolling
Equity: 4.0% -5.5%
Debt: 10.1% 12.1%
Money Market
9.6% 11.2%
2 year rolling
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
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
Islamic Funds constitute 16% of the Total Assets Under Management and the share has grown significantly over the last 3 years
2009 2010 20110.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
9%
14%
16%
5.90%7.20%
8.40%
Market Share of Islamic Funds vs. Islamic Deposits
Islamic Funds as a % of Asset Management IndustryIslamic Deposits as % of Banking Deposits
Overall Growth in Islamic Funds
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!!