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Pakistan’s mutual fund industry has expanded rapidly over the past three years, with assets under management (AUM) tripling amid strong domestic inflows, rising equity markets and a gradual shift away from fixed-income investments.
Figures compiled from the Mutual Funds Association of Pakistan (MUFAP) show that total AUM recorded 11% year-on-year growth in December 2025, highlighting the growing role of domestic institutional investors in supporting Pakistan’s capital markets.
The expansion has coincided with a sustained rally in equities and relative macroeconomic stability, allowing local investors to increasingly offset volatility caused by foreign portfolio flows.
Equities Lead
Data shows that equity-oriented mutual fund investments grew significantly faster than debt in 2025. During the year, equity portfolios expanded by 56%, while investments in debt-focused funds, including income, fixed-income and money market funds- rose by only 5%.
As a result, equities accounted for 15% of total mutual fund AUM in December 2025, up from around 10% in December 2023. The shift reflects changing return dynamics as interest rates declined and equity markets delivered strong gains.
Impact of Monetary Easing
The declining appeal of fixed-income instruments has been driven by sharp monetary easing. Since December 2023, the policy rate has been cut by 1,150 basis points, while three-year Pakistan Investment Bond (PIB) yields have fallen by about 630 basis points.
At the same time, higher taxes on fixed-income investments introduced in the latest federal budget have further encouraged investors to move toward equities.
Equity Share Still Below Historical Levels
Despite the recent increase, analysts point out that equity exposure within mutual funds remains well below historical peaks. During the 2016–18 market cycle, equities accounted for 40% to 50% of total AUM, compared with the current 15%.
This suggests there is still potential for further reallocation toward equities, provided macroeconomic stability continues and corporate earnings remain supportive.
Local Support
The growing pool of domestic liquidity has played a key role in stabilizing the equity market. In calendar year 2025, foreign portfolio investors recorded net outflows of around $370 million.
These outflows were more than offset by net buying of approximately $561 million by mutual funds and individual investors. Mutual funds alone accounted for net equity purchases of about $298 million during the year.
The trend has continued into early 2026. Year-to-date figures show foreign investors as net sellers with outflows of roughly $53 million, while mutual funds recorded net inflows of about $92.5 million.
Valuations Re-Rate as Liquidity Improves
Strong domestic participation has also supported a re-rating of market valuations. The price-to-earnings (P/E) multiple of the JS Research universe increased from around 3.5 times in December 2023 to approximately 8 times by December 2025.
While valuations have already improved significantly, analysts believe there may still be upside potential if earnings growth remains intact and macroeconomic risks continue to ease.
The tripling of mutual fund assets marks a structural shift in Pakistan’s investment landscape. A stronger domestic investor base has reduced reliance on volatile foreign capital and improved market depth. Sustaining this momentum, however, will depend on policy consistency, financial sector reforms and broader retail participation in capital markets.
