UBL Liquidity Plus Fund

UBL Liquidity Plus Fund;
A step towards prosperity

Farooq Ahmed, Head of UBL Retail Sales, discusses options to get rid of crisis
Says NPLs of banking system to stabilize soon

Azhar Bukhari

United Bank Ltd (UBL) has launched UBL Liquidity Plus Fund (UBLPF) as a money market fund to provide investors with tailored and need based investment solutions. The fund has a unique feature where a same day redemption can be honoured, subject to the fulfillment of certain conditions.
This was the upshot of the dialogue took place with UBL Head of Retail Sales, Farooq Ahmed here at its office.
“In continuation of our vision we are committed to provide our investors innovative, low cost investment solutions with safety of principal and liquidity as primary ingredients. Therefore the tradition continues and we are launching our new product UBLPF it’s a true money market fund”, Farooq maintained.
As far as the target audience goes, this product caters to the needs of individuals, SME’s and a large scale of corporate’s who are looking for low risk, liquidity, capital preservation and competitive but better market returns, he said.
Farooq revealed that minimum investment amount in UBLPF is as low as Rs 5,000 and there is no holding period which means an investor can liquidate his investment at any time and can completely take advantage of the Same Day Redemption Facility that the fund provides.
UBLPF is ideal for investors looking for placement of their savings or idol cash for less those 90 days (short-term) while they decide on their long-term financial decision, he added.
“UBLPF will try to provide its investors with competitive tax free returns which vary with money market but would generally be higher than bank deposits” Farooq said.
He maintained that UBL aim to be the first choice investment solution provider, renowned for quality, added value and innovative service at an affordable cost to its investors.
Therefore there are no charges in UBLPF, which means no charges are applied at the time of investment or withdrawal, he said.
Faroqq elaborated that the fund would be investing mostly in a combination of Government Securities and Tenor/PLS Placements with a minimum AA rated banks. The weighted average time for the maturity of fund assets will not exceed 90 days and the maximum time for the maturity of any single asset at the time of placement will not exceed six months.
Farooq said that the fund would mostly target investors looking at liquidity management solutions and who wanted to earn competitive after-tax returns on their surplus funds.
The portfolio would comprise mostly of an exposure to short-dated Treasury Bills which are also very liquid instruments from the entry / exit perspective. A certain part of the portfolio will be placed in other avenues such as reverse repos (against eligible Government Securities), tenor placements with high rated commercial banks and DFIs, he said adding that it would also be active in short tenor (overnight) placements with banks and DFIs, as and when opportunities of earning a spread over traditional bank account rates arise.
However, he maintained that the fund would be a low risk fund and would be providing quick liquidity to clients. Since the minimum credit rating of the underlying asset classes is quite high and weighted average time to maturity of the assets cannot exceed 90 days, the interest rate risk is somewhat mitigated, he added. He said that other risks such as the Re-investment Rate Risk, Credit Risk, Price Risk and Government Regulation Risk exist that are there in all investment avenues.
UBL Head of Retail Sales, Farooq Ahmed said that the allowable asset classes for this fund are relatively limited as compared to an income fund, which is for investors with a long-term holding period in mind. Investment in CFS and spread transactions would be prohibited in such a money market scheme (by regulation). The fund strategy would therefore be very different as investments would be made in shorter tenor assets as opposed to an income scheme, where the fund manager can invest in longer tenor assets, he added.
This is also evident from the allowable maximum weighted average maturity of four years permitted under the SECP categorisation for income schemes. The minimum rating criterion for income schemes is also more relaxed when compared to money market schemes where a minimum AA rating is required for entities with whom funds are being placed (generally, as placements are made with higher rated entities, the rate of return declines), said Farooq .
Responding to a question regarding current financial crisis, Farooq said that Non Performing Loans (NPLs) of country’s banking system are expected to stabilize with the improvement in macroeconomic fundamentals as the recent macroeconomic pressures, which eventually led to a slowdown in economic growth in FY09, indicate that the increase in NPLs of the banking system is as largely of a cyclical nature.
“The sensitivity analysis undertaken at SBP suggests that the banking sector is well placed to withstand credit risk shocks of a modest nature,” he said and added that the provisioning coverage ratio of around 70 percent at end March 2009 also showed a prudent and proactive approach towards credit risk management.
He said that in response to the emerging dynamics in the macro-financial environment, SBP had rationalized the Minimum Capital Requirement (MCR) and the time period in which it was to be implemented, thus providing the much required breathing space to the banking industry in this difficult macroeconomic environment.
“Pakistan is currently standing at a juncture where long-term investment in infrastructure is crucially needed to facilitate the process of economic growth,” he said.
Referring to sustainability of the banking sector, he observed that banks in Pakistan had been able to withstand the headwinds from the weakening macroeconomic fundamentals since FY07. “Now that the economy is poised for a remarkable turnaround, the banking sector has an even greater role to play in supporting the real sector by meeting its financing needs,” Farooq said.