ISLAMABAD -  The Securities and Exchange Commission of Pakistan (SECP) has allowed asset management companies (AMCs), intending to increase their outreach beyond big cities, to charge marketing and selling expenses.

The objective of this initiative is to increase the retail penetration of mutual funds and distribution network of the AMCs. he SECP's move is based on the longstanding demand of the mutual funds industry and primarily aims to support the AMCs to open new branches in smaller cities and to ensure payment of salaries and commissions to sales teams, posted at new branches. Furthermore, the expenses can be utilised for payment of commissions to distributors and on the advertising and publicity of mutual funds.

The AMCs opening new branches in cities other than Karachi, Lahore, Islamabad and Rawalpindi have been allowed to charge marketing, selling and distribution expenses, initially for a period of three years, ie from January 1, 2017 to December 31, 2019. Such expenses have been capped at 0.4 percent of the net asset of the fund and can only be charged on open end equity, asset allocation and index funds.

The AMCs that intend to utilise such expenses are required to submit an annual plan approved by the board of directors (BOD) for concurrence of the SECP. The BoD of the AMC has been given the oversight responsibility and it shall ensure the proper utility and application of the aforementioned expenses. These expenses will be reimbursed to AMCs at the end of each quarter subject to verification of documentary evidence by the trustee and ensuring that expenses are used for the purposes allowed.

The SECP is of the view that the long-term growth of the mutual fund industry and development of capital market is directly linked with increasing the level of participation in the mutual fund sector by the retail investors. Therefore, it is essential to increase physical and geographical presence of AMCs to provide access to large investor base.