Meezan Sovereign Fund vs. Bank Fixed Deposits: Which Offers Better Net Yields?
If you have rupees you do not need for a year or more, two common choices are a bank term deposit and an income mutual fund such as Meezan Sovereign Fund (MSF). The headline rates are not directly comparable: one is a rate the bank promises, the other is a past return from a fund whose value moves. This guide lines them up on a net basis, after fees and tax, and explains where the comparison breaks down.
This is general information, not financial or tax advice. Rates change often and the sources we used disagree in places. All figures are flagged with their dates. Confirm current rates and your tax position with the bank, the fund house, or a tax adviser.
What Each Product Is
| Bank fixed deposit / term deposit | Meezan Sovereign Fund (MSF) | |
|---|---|---|
| Type | Deposit with a bank | Open-end Shariah-compliant income mutual fund |
| Return | Fixed or indicative rate for the chosen tenor | Varies: NAV rises or falls with its holdings |
| Principal | Bank deposit, repaid at maturity | Not guaranteed |
| Risk profile | Bank credit risk only | Moderate (per the fund house) |
| Management fee | None charged | Up to 1.5% a year (actual rate 1.5%) |
| Sales load | None | 1% front-end, no back-end load |
| Exit | Early encashment usually reduces the profit rate | Redeem units at NAV, typically within a few working days |
Details on MSF’s mandate: the benchmark is 90% six-month PKRV rates plus 10% of the six-month average of the highest savings account rates offered by three AA-rated Islamic banks or Islamic windows, as selected by MUFAP. The investment strategy caps weighted average maturity at four years, excluding Federal Government securities. Fund size was Rs 9.72 billion as of 31 July 2026.
MSF Returns by Fiscal Year
| Fiscal year | MSF return | Benchmark |
|---|---|---|
| FY17 | 6.57% | 4.65% |
| FY18 | 2.57% | 4.96% |
| FY19 | 7.02% | 7.15% |
| FY20 | 11.17% | 7.93% |
| FY21 | 7.65% | 3.71% |
| FY22 | 8.27% | 3.34% |
| FY23 | 15.37% | 6.06% |
| FY24 | 21.89% | 18.95% |
| FY25 | 12.00% | 13.16% |
| FY26 | 8.40% | 9.93% |
MSF has beaten its benchmark in most years since FY20 but trailed it in FY25 and FY26. The FY24 figure coincided with very high interest rates and should not be treated as normal. An older fund-house document showed 13.58% for one year to 31 May 2025, against a benchmark of 13.79%, consistent with the FY25 trend.
We could not confirm the fund’s current expense ratio. One document showed an unlabelled 1.34%, which may be the expense ratio, but we cannot confirm it. Check the latest Fund Manager’s Report.
Current Fixed Deposit Rates
Indicative annual rates published by banks. Dates vary by bank, so check each bank’s current rate sheet before depositing.
| Bank and product | 1-year rate | Notes |
|---|---|---|
| HBL Advantage (profit at maturity) | 10.60% | Conventional |
| Bank Alfalah Term Deposit Tier 2 (at maturity) | 9.95% | Conventional |
| Meezan Certificate of Islamic Investment (at maturity) | 9.56% | Islamic. Another section of the same source gave 9.45%, so verify |
| UBL Profit COD (at maturity) | 8.84% | Conventional |
| NBP PLS TDR | 8.50% | From NBP’s rate sheet effective 1 August 2026. An aggregator listed 5.80%, so the two sources conflict |
| NBP Itmenan TDR (monthly profit) | 11.70% | Islamic. Source effective annual rate 12.35% |
Rates in the first four rows come from a comparison article that says it verified rates against bank sheets on 11 July 2026 but also cites later Meezan data. The NBP rows come from NBP’s own sheet effective 1 August 2026. The State Bank policy rate was reported at 11.5% in mid-June 2026, after a rise from 10.5% in April. Rates may have moved since, so use this table as a guide and not as a quote. Always check current rates and any minimum deposit.
Tax on Each
| Bank profit | Mutual fund (MSF) | |
|---|---|---|
| Filer | 15% withholding at source, final for individuals (one source) | See below |
| Non-filer | 35% withholding | Higher |
| Zakat | 2.5% deducted from eligible bank balances, with an exemption declaration available | Check Zakat rules for fund units |
For mutual funds, sources conflict. One summary says individuals pay 15% on redemption gains. Other sources describe different treatment for money market and income funds, including 25% on certain dividends. Because we could not confirm which applies to MSF’s income, the tables below show a 15% case and note the sensitivity. Read your fund’s tax statement. For more, see our guides on filer vs non-filer withholding tax and how to check your ATL status.
Net Yield Comparison
Net yield here means the quoted annual rate after tax. For fixed deposits it is the rate times (1 minus the tax rate). For MSF it uses the FY26 return of 8.40% (already after the fund’s management fee and expenses, but before any front-end load and tax).
| Product | Gross rate | Net, filer at 15% | Net, non-filer at 35% |
|---|---|---|---|
| HBL Advantage 1-year | 10.60% | 9.01% | 6.89% |
| Bank Alfalah Tier 2 1-year | 9.95% | 8.46% | 6.47% |
| Meezan CoII 1-year | 9.56% | 8.13% | 6.21% |
| UBL Profit COD 1-year | 8.84% | 7.51% | 5.75% |
| NBP PLS TDR 1-year (NBP sheet) | 8.50% | 7.23% | 5.53% |
| MSF, FY26 return | 8.40% | 7.14% at 15% | Not assessed |
The MSF row applies a 15% tax to a trailing return. If MSF’s income were instead taxed at 25%, the net would be 6.30%. On a 1% front-end load paid once and spread over a one-year hold, subtract about one more percentage point: roughly 6.1% (at 15% tax) for a one-year holder. The load matters less the longer you hold.
On this snapshot, a one-year deposit at a larger bank beats MSF’s FY26 result after tax. That does not mean the fund will lag next year.
Why the Comparison Is Not Clean
- Trailing vs. quoted. MSF’s 8.40% is what it earned in FY26. Fixed deposit rates are what you can lock in now. The fund’s yield going forward depends on what its holdings earn and how their prices move.
- Rate direction matters. When policy rates rise, the prices of existing bonds and sukuk held by an income fund tend to fall, which can reduce short-term returns. When rates fall, they tend to rise, which is how funds posted higher-than-deposit returns in FY23 and FY24. If you expect rates to fall, a fund can come out ahead. If you expect them to keep rising, a fixed deposit locks in today’s rate.
- Liquidity differs. Breaking a fixed deposit early usually costs you part of the profit. A fund can be redeemed at NAV, which could be up or down.
- Safety differs. A deposit’s risk is the bank’s. A fund’s risk is the market value of its holdings, though sovereign Sukuk carry government credit risk. Check the current asset allocation in the monthly report.
- Shariah. MSF is Shariah-compliant. Conventional deposits earn interest. Islamic term deposits and certificates, such as Meezan’s and NBP’s Itmenan, are the like-for-like alternatives.
Who Might Pick Which
- A fixed deposit suits someone who needs to know the exact amount at a known date, such as a planned payment, and who accepts a lower early-exit value.
- MSF may suit someone with a one to three year horizon who wants Shariah compliance, wants to keep access to cash, and can tolerate a year where returns trail deposits.
- A split is reasonable: a deposit for money with a fixed date, a fund for money with a flexible date.
- Non-filers should fix their status first. The gap between 15% and 35% tax can be larger than the gap between the two products.
Final Thoughts
On current numbers, major bank term deposits offer a higher net yield than MSF’s FY26 return, and MSF has trailed its benchmark for two years. But a fund’s strength is flexibility and its upside when rates fall, and a deposit’s strength is certainty. Compare after-tax figures, include the 1% load, and check the latest rates the day you invest. If you want to look at other funds, see our guides to money market funds and the Meezan Islamic Fund review.
Related Guides on PakGains
- Explore the banking hub, the stock market hub and the start-here page
- Top Money Market Funds in Pakistan
- Al Meezan vs UBL Funds vs MCB Islamic Mutual Funds
- How to Start Investing in Mutual Funds in Pakistan
- Meezan Islamic Fund (MIF) Review
- Banking System in Pakistan: Overview
- Compare on the PakGains tools page
Sources: Meezan Sovereign Fund, Al Meezan Investments, Meezan Sovereign Fund factsheet, May 2025, Bank Profit Rates Pakistan 2026 Compared, ToolsFluent, [NBP Indicative Profit Rates w.e.f. 1 August 2026](https://www.nbp.com.pk/IndicativeProfitRates/files\Indicative-Profit-Rates-W.e.f 01-08-2026.pdf)
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About Aisha Sherjeel
Aisha Sherjeel is a personal finance writer specializing in retail banking, international account setups, and overseas remittance solutions. She breaks down complex banking regulations, Roshan Digital Accounts, and newcomer financial programs into clear, step-by-step guides. Aisha’s work focuses on empowering Pakistani expatriates and local savers with actionable insights to navigate modern banking options safely and efficiently.
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