Pakistan’s mutual fund industry has grown rapidly, crossing Rs4 trillion in assets under management (AUM) by late 2025. However, this impressive expansion has largely bypassed the Pakistan Stock Exchange (PSX), raising concerns about the depth and long-term growth of the country’s capital markets.
According to data shared by the Overseas Investors Chamber of Commerce and Industry, only 14% of mutual fund assets are currently invested in equities. Nearly half of the total AUM is concentrated in money market funds, reflecting a strong investor preference for low-risk instruments.
This heavy allocation toward fixed-income products highlights the risk-averse mindset of Pakistani investors. Many continue to favor safer options such as Treasury Bills (T-bills), Pakistan Investment Bonds (PIBs), and Sukuk instead of taking exposure to the volatility of the stock market.
Sana Tawfiq, Research Head at Arif Habib Limited, noted that out of nearly Rs4 trillion in industry assets, only a small portion actually supports the equity market, while the majority remains parked in highly liquid and secure instruments.
The industry also experienced significant pressure between December 2024 and June 2025, when mutual funds witnessed outflows of approximately Rs384 billion. Investors rushed to withdraw funds amid economic uncertainty and geopolitical tensions.
HBL Asset Management alone lost around 23% of its AUM within six months. Such large-scale withdrawals force fund managers to quickly liquidate holdings, creating additional pressure on the market.
Muhammad Shahroz of Insight Securities explained that panic redemptions are common during market corrections. These redemptions compel fund managers to sell assets rapidly, resulting in higher transaction costs that ultimately affect all unit holders.
To address this issue, the Securities and Exchange Commission of Pakistan (SECP) has proposed introducing swing pricing.
Swing pricing is designed to ensure that investors exiting a fund bear the transaction costs associated with their withdrawals, instead of passing those costs on to long-term investors. Experts believe this mechanism, already widely used in developed markets, can discourage short-term panic selling and provide greater protection to committed investors during periods of volatility.
The Overseas Investors Chamber of Commerce and Industry has recommended careful implementation of the mechanism. Suggestions include category-specific thresholds and exemptions for retail Systematic Investment Plan (SIP) investors.
Industry experts also emphasize that fund managers should disclose swing factors immediately at the time of transactions. Greater transparency, they argue, could help improve investor confidence and trust in the mutual fund sector.
Despite the strong growth of Pakistan’s mutual fund industry since 2019, the low 14% allocation to equities underscores deeper structural challenges. The country’s capital market remains relatively shallow and highly sensitive to investor outflows.
Encouraging greater participation in equities could improve PSX liquidity, strengthen market depth, and support broader economic growth. However, shifting investor behavior from a safety-first approach toward a more balanced risk strategy is likely to take time.