Pakistan’s mutual fund industry has witnessed exponential growth over the past six years, with assets under management (AUMs) rising from Rs578 billion in 2019 to Rs3.93 trillion by June 2025. The expansion highlights a significant shift in investment trends, driven by both conventional and Shariah-compliant funds.
Conventional vs. Shariah-Compliant Growth
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Conventional mutual funds grew 5.2 times during the period, reaching Rs2.206 trillion.
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Shariah-compliant mutual funds expanded at an even faster pace, rising 6.7 times to Rs1.726 trillion.
As a result, the share of Islamic finance in the mutual fund industry rose from 39% in 2019 to 44% in 2025, reflecting growing investor confidence in Shariah-compliant investment options.
Peak and Decline: 2024–2025 Trends
The sector saw a major surge between mid-2024 and the end of the year. Mutual fund deposits jumped from Rs2.70 trillion in June 2024 to a record Rs4.43 trillion in December 2024. However, by June 2025, the figure had dropped back to Rs3.93 trillion, a decline of more than half a trillion rupees.
This dip was attributed to temporary shifts of funds from banks to mutual funds, triggered by new tax regulations.
Government Tax Policy and Banking Sector Impact
A senior regulatory official explained that the federal government imposed an incremental tax of up to 16% on banks with advance-to-deposit ratios (ADR) below 50% as of December 31, 2024. To meet this requirement, banks encouraged large clients to shift funds into mutual funds.
Once the ratio was adjusted, much of this capital returned to the banking system in early 2025, leading to a 10% decline in mutual fund AUMs over six months. Despite this short-term correction, year-on-year growth remained strong.
SECP’s Reform Agenda for Mutual Funds
To ensure long-term sustainability, the regulator has outlined key reforms for the industry:
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Digital transformation of mutual fund platforms to increase accessibility.
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Introduction of exchange-traded funds (ETFs) to diversify investment options.
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Launch of infrastructure and ESG-based funds targeting sustainable finance.
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Promotion of systematic investment plans (SIPs) for retail savers.
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Expansion of financial inclusion, with a focus on women investors.
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Strengthening governance, transparency, and prudential limits to protect investor interests.
These reforms are designed to deepen Pakistan’s capital markets, increase financial literacy, and channel more domestic savings into productive sectors.
Changing Investor Profile
The data reflects a steady rise in retail participation:
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Retail investors accounted for 39.2% of total AUMs in 2025, up from 38% in 2019.
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Corporate investors’ share slipped slightly to 61% from 62% over the same period.
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The industry now includes 768,769 individual investors and 6,361 corporate investors, showing a broadening investment base.
Currently, 56% of AUMs are conventional, while 44% are Shariah-compliant, narrowing the gap between the two categories.
Analysts’ Perspective
Market experts point out that this rapid growth has been fuelled by:
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Low returns on traditional bank deposits, pushing savers toward higher-yield investments.
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Rising financial literacy, especially among young investors.
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Regulatory support encouraging product innovation and investor protection.
However, sustaining momentum will require continuous innovation, efficient distribution channels, and strong oversight to build investor confidence. Compared to regional peers, Pakistan’s mutual fund penetration remains relatively low, but the current reform agenda signals a turning point in deepening capital markets.
Pakistan’s mutual fund industry has emerged as a powerful channel for mobilizing savings, with assets surging nearly sevenfold in just six years. While short-term fluctuations due to tax-driven fund shifts highlight the sector’s sensitivity to policy changes, the long-term trajectory remains positive.
With growing retail participation, stronger Shariah-compliant options, and a reform-driven roadmap, mutual funds are set to play an increasingly critical role in supporting Pakistan’s financial inclusion and economic development goals.
