Assets under management at Pakistan’s mutual funds have tripled over the past three years, reflecting a growing shift by investors toward equities and helping the country’s stock market absorb foreign selling, according to industry data.
Total mutual fund assets rose 11% year-on-year in December 2025, driven by fresh inflows, capital market gains and a gradual move away from fixed-income products, per figures compiled from the Mutual Funds Association of Pakistan.
Rising domestic investment has helped underpin gains in the Karachi Stock Exchange’s benchmark KSE-100 index, which delivered a cumulative return of about 331% between 2022 and 2025, amid improving macroeconomic conditions.
Equity investments within mutual fund portfolios increased 56% in 2025, while allocations to debt-based products, such as income, fixed-income and money market funds, rose by about 5%, the data shows. The shift has been fueled by an easing of monetary policy and changes to taxation. Since December 2023, the central bank has cut its policy rate by 1,150 basis points, while yields on three-year Pakistan Investment Bonds have declined by about 630 basis points. Higher taxes on fixed-income investments introduced in the latest federal budget have also reduced the appeal of debt instruments.
Equities now account for roughly 15% of total mutual fund assets, up from about 10% in December 2023, though still below the 40% to 50% levels seen between 2016 and 2018.
Strong domestic liquidity has helped offset foreign selling in the equity market. In 2025, mutual funds and individual investors were net buyers of about $561 million worth of shares, including $298 million by mutual funds, countering net foreign portfolio outflows of roughly $370 million. The trend has continued into early 2026, with foreign outflows of $53 million outweighed by mutual fund inflows of about $92.5 million.
Market valuations have risen alongside improved liquidity, with the KSE-100’s price-to-earnings ratio increasing from around 3.5 times in December 2023 to about 8 times by December 2025.
Analysts say domestic liquidity has become a key stabilizing force for Pakistan’s equity market as foreign investors remain cautious. “The sustained shift toward equities reflects improving confidence in macroeconomic management and declining interest rates,” said one market analyst. “While valuations have recovered sharply, they remain supported by strong local participation. Further gains will depend on continued economic stability and policy consistency.”