SECP launches framework for infrastructure mutual funds

The Securities and Exchange Commission of Pakistan has created a new category of mutual funds to channel long-term savings into infrastructure, aiming to reduce the country’s \$15 billion annual financing gap.

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) on August 22 introduced a dedicated framework for “Infrastructure Schemes” under the existing rules governing open-end collective investment schemes. The move is intended to mobilize domestic capital into critical infrastructure projects, aligning capital market growth with Pakistan’s development needs.

The initiative was first proposed during the Mutual Fund Focus Group Session 2025 as part of the SECP Fund Management Department’s Roadmap 2025–26. Following detailed consultations with the Mutual Funds Association of Pakistan (MUFAP) and other stakeholders, SECP finalized the regulatory structure to ensure clarity, investor protection, and alignment with national priorities.

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Pakistan’s infrastructure financing needs are estimated at nearly \$15 billion annually, but current spending is less than 2.1% of GDP—far below the global benchmark of 8–10%. By creating a distinct fund category, SECP aims to provide stronger visibility for infrastructure-focused mutual funds and attract both retail and institutional investors to long-term, development-oriented ventures.

Under the framework, Asset Management Companies (AMCs) will be allowed to launch infrastructure schemes in equity, debt, or hybrid formats depending on investment objectives. Eligible sectors include traditional infrastructure such as energy, transport, logistics, water, sanitation, and communications, alongside social and commercial infrastructure like hospitals, educational institutions, affordable housing, industrial parks, and tourism facilities.

To promote investor confidence, the rules mandate that perpetual schemes maintain a minimum size of Rs100 million, while closed-end schemes must also meet this threshold at the close of their subscription period. AMCs are required to contribute a minimum seed capital of Rs25 million in closed-end schemes with maturities exceeding three years, ensuring fund managers share financial exposure with investors. Closed-end funds may additionally offer periodic subscription and redemption opportunities after one year, subject to offering document conditions.

NAV (Net Asset Value) disclosure rules have also been tailored for long-term infrastructure projects. Closed-end funds will be required to disclose NAV at intervals not exceeding one month, allowing investors transparency while providing operational flexibility to managers. Moreover, schemes must maintain at least 70% of net assets invested in infrastructure securities on a quarterly basis, with any shortfall to be rectified within three months.

The framework introduces a transparent fee structure designed to protect investors. Management fees are capped at 3% per annum for equity-based infrastructure funds and 1.5% for debt funds. Hybrid funds will apply a weighted average of the two. Importantly, no sales load is permitted, although contingent loads may apply in cases of early redemption under closed-end structures.

Market observers note that SECP’s move mirrors international practices where specialized infrastructure funds are used to attract long-term domestic and foreign investment into development projects. By lowering barriers for fund launches while ensuring investor safeguards, the framework is expected to create a new asset class in Pakistan’s capital markets.

The timing of the policy is significant. Pakistan has struggled to secure sufficient external financing for infrastructure and remains heavily dependent on concessional loans from multilateral lenders. Mobilizing local savings through regulated mutual funds is seen as a sustainable solution that could reduce reliance on foreign debt while boosting private-sector participation in development.

Industry experts say infrastructure funds could also open new opportunities for pension funds, insurance companies, and retail investors seeking stable, long-term returns. With projects spanning energy, transport, and urban development, the schemes are expected to provide diversification benefits while contributing directly to national growth.

SECP emphasized that the creation of this category represents its broader vision of deepening Pakistan’s capital markets and bridging the financing gap for projects of national importance. By offering a regulated, transparent platform for infrastructure investment, the regulator aims to strengthen financial intermediation while ensuring adequate investor safeguards.

The introduction of infrastructure mutual funds marks a milestone in Pakistan’s financial sector reforms. If implemented effectively, the framework could help shift a portion of domestic savings—traditionally parked in bank deposits or real estate—toward productive investment in infrastructure. In doing so, it would not only enhance capital market depth but also support Pakistan’s long-term economic development agenda.

By bridging financial innovation with national priorities, SECP’s infrastructure fund framework underscores the role of domestic markets in financing Pakistan’s future growth.