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


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??


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?


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


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


• Meeting Short-term & Emergency needs

Cash Funds

• Regular Income to meet Growing Expenses

Low Risk Income Funds


• 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


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%



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


Conventional Funds

1 year rolling 11.6% 12%



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


Conventional Funds

1 year rolling 6.7% -4.6%



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


Conventional Funds


2 year rolling 6.7% 4%


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


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%


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!!

islamic funds for financial planning – giving best of both worlds al huda - international...

Documents

financial needs

islamic financial products

financial objectives

sukuk funds planning

longterm equity funds

population growth rate

pakistan statistical

gdp growth rate