KARACHI, Dec 20: A "capital guaranteed fund", which would be the first of its kind in Pakistan, would hit the market in the first quarter of 2005.

Two other innovative products, an "Aggressive Asset Allocation Fund" and a "Fund of Funds" are also set to enter the market at about the same time. All three open-ended funds would be under the umbrella of Unit Trust of Pakistan (UTP) and would be managed by ABAMCO Limited.

At a press briefing on Monday, chairman ABAMCO Limited, Air Commodore (Retd) Munawar Siddiqui - who was flanked by Najam Ali, CEO of ABAMCO and Nadia Munawar Siddiqui, JS Group Head Corporate Communications - said that the new products had been quickly planned and developed in response to the advice of Prime Minister Shaukat Aziz, who had asked the country's mutual fund industry to go for specialized, sophisticated funds, rather than the usual 'plain vanilla products' currently offered by most mutual funds in the country.

The occasion of PM's disclosure of his vision for the mutual fund industry, was the commemoration ceremony for IFC's investment in ABAMCO Composite Fund held in Islamabad on December 9.

The ABAMCO chairman said that the Prime Minister had called upon all asset management companies to go the extra mile for developing, innovative and specialised products so as to attract investment in mutual fund industry which was currently 'embarrassingly' low at 4 per cent of bank deposits; compared to 110 per cent in the US and 20 per cent in the neighbouring country.

Najam Ali, CEO ABAMCO Limited explained the salient features of all three new funds that the asset management company planned to launch. The first of those was the "UTP capital guaranteed fund" (UCGF), which would be an open-ended fund, to be raised from seed capital of Rs100 million.

The unusual charm of the fund was that it would guarantee protection of investor capital (principal), while investing funds using the portfolio management expertise. Najam said that the reason that no other mutual fund had accepted the risk of launching such a fund was that they were not sufficiently capitalised.

He claimed that ABAMCO Limited, though a public company, but not listed, held the highest Rs 640 million in equity and it had Rs 14.5 billion under its management. The UCGF would open up for public subscription for six to eight weeks, though an investor would have the right to seek exit anytime during the life of the fund, which initially is planned to be minimum of five years.

Najam explained that UCGF planned to begin by investing all of the funds in Government Securities - the 5-year PIBs. He explained the modalities by saying that the asset management company would borrow amount against 5-year coupons and invest the sum in stock market.

The SECP would also be requested to relax the rule to allow leverage of the funds up to some extent. The leveraged funds would also be invested in stocks and the returns earned from investments would be distributed among unit holders.

The company would also discuss the issue of tax exemption with the CBR, regarding distribution of 90 per cent of the profit to investors. The ABAMCO CEO observed that since there was no other mutual fund of this kind in the market there was no benchmark for returns, but that National Savings Certificates (NSCs) might be thought to come closest to competition.

He said that the fund's target would be to offer returns at least equal to NSC or more and he added that the asset management company was considering if it should also guarantee a certain sum of return.

Najam contended that the time was ripe for a principal protected product, since there was a tremendous demand for such a fund by both the retail investors, who were wary of investing directly or indirectly in the stock market and the institutional investors who carried heavy responsibility of investing their company's and employees' funds, but lacked the necessary portfolio management expertise."

These and others in the market, such as pensioners, widowers and conservative investors now for the first time have an opportunity to invest in the upside offered by the stock market without taking on any capital risk," said the ABAMCO CEO.

The second of the three funds, i.e "UTP-Aggressive Asset Allocation Fund" (UAAAF) was a step in the direction of specialized services, Najam said and added that the fund would have the advantage to allocate its assets aggressively within any asset class.

"Unlike a balance fund, which is proportionately invested in fixed income, money market and the equity asset classes, a fund of this pedigree can strategically adopt and change the entire portfolio of held investments", said the ABAMCO CEO.

He stated that during a bullish run, the fund would be fully invested in the equity market and during bearish time, in fixed income or money market and hence the Fund would have the ability to realize far better returns while potentially preserving its risk exposure.

The Fund would have the ingredient of flexibility to change from equity to fixed income and vice versa, which would allow UAAAF to reap benefits of market conditions to the fullest.

The third in the series would be "UTP-Fund of Funds", which would be the first open-end fund in this category of mutual funds. It would invest in other open and closed-end mutual funds and it would fully utilize the potential benefits that were available from investing in undervalued funds in the market.

"ABAMCO's fund management expertise allows it to pin-point and identify funds that have robust portfolios and to invest in them accordingly," said Najam. He identified one such discounted fund as ABAMCO growth fund which was currently trading at about 45 per cent discount to its Net Asset Value (NAV).

"ABAMCO Limited - as part of Jahangir Siddiqui Group - feels that mutual funds are a growing industry and the potential returns in discounted funds are enormous," concluded Najam Ali.