KARACHI, PAKISTAN: Pakistan Stock Exchange (PSX) is all set to launch two new products including Exchange Traded Fund (ETF) and Dividend Index within a month, hoping to attract new investors to the saturating market.

GM Product Development PSX Hasan Raza said a 20-shares index comprising high and consistently dividend paying stocks had been developed, “which would be launched within two months.”

A dividend index fund is an index fund built around stocks selected for their rate of dividend payments, and are a strong form of portfolio diversification.

Raza said country’s first ever ETF would also be launched within a month or two as the market had attained operational readiness in this regard.

An exchange-traded fund (ETF) is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies. ETFs are in many ways similar to mutual funds; however, they are listed on exchanges and ETF shares trade throughout the day just like ordinary stock.

Two asset management companies (AMCs) namely National Investment Trust (NIT) and UBL Fund Managers would simultaneously launch two separate funds. JS Global Capital is the market maker for both the funds. “JS Global Capital is the only brokerage house meeting the criteria to become market maker for the ETFs,” Raza informed.

With the launch of ETFs, PSX would also form two separate ETF indices comprising constituents stocks of these two ETFs. “Initially each ETF would include around 10 underlying stocks, which could be recomposed during the course of time,” Raza added.

There are various types of ETFs available to investors that can be used for income generation, speculation, price increases, and to hedge or partly offset risk in an investor’s portfolio. Hasan Raza said in addition to these two ETFs, more funds including Government Papers ETF and Commodities ETF were also being planned.

He said the overall global ETF market stood at $46 trillion as these are more transparent and cost efficient than the mutual funds. “ETFs provide lower average costs since it would be expensive for an investor to buy all the stocks held in an ETF portfolio individually. Investors only need to execute one transaction to buy and one transaction to sell, which leads to fewer broker commissions since there are only a few trades being done by investors. Brokers typically charge a commission for each trade”.

“Launching of two ETFs would not make much difference in the market performance. However, once the concept is accepted by the investors, and more funds come in, market would flourish,” Raza said.

It may be mentioned that PSX has signed an agreement with Shenzhen Stock Exchange (SZSE) to acquire a $2.85 million Trading and Surveillance System, which would enable cross border trades, cross border listings and robust surveillance capabilities.

Raza said the new system had many options and would enable diversified products portfolio offering investors with multiple investment options.