A mutual fund is a
professionally managed type of collective investment that pools money from many
investors.
Mutual
fund means an investment vehicle that is made
up of a pool of funds collected from many investors for the purpose of
investing in securities such as stocks, bonds, money market instruments
and similar assets. Mutual funds are operated by money managers, who invest the
fund's capital and attempt to produce capital gains and income for the fund's
investors. A mutual fund's portfolio is structured and maintained to match
the investment objectives stated in its prospectuses to buy stocks, bonds,
short-term money market instruments, and/or other securities.
One of the main advantages
of mutual funds is that they give small investors access
to professionally managed, diversified portfolios of equities, bonds and
other securities, which would be quite difficult (if not impossible) to create
with a small amount of capital. Each shareholder participates proportionally in
the gain or loss of the fund. Mutual fund units, or shares, are issued and can
typically be purchased or redeemed as needed at the fund's current net asset
value (NAV) per share, which is sometimes expressed as NAVPS.
 |
 |
Types of Mutual Fund
There are three basic types of registered investment companies
defined in the Investment Company Act of 1940: open-end funds, unit investment
trusts (UITs); and closed-end funds. Exchange-traded funds (ETFs)are open-end
funds or unit investment trusts that trade on an exchange.
Open-end funds
Open-end mutual funds must be willing to buy back their shares
from their investors at the end of every business day at the net asset value
computed that day. Most open-end funds also sell shares to the public every business
day; these shares are also priced at net asset value. A professional investment
manager oversees the portfolio, buying and selling securities as appropriate.
The total investment in the fund will vary based on share purchases,
redemptions and fluctuation in market valuation.
Closed-end funds
Closed-end funds generally issue shares to the public only once,
when they are created through an initial public offering. Their shares are then
listed for trading on a stock exchange. Investors who no longer wish to invest
in the fund cannot sell their shares back to the fund (as they can with an
open-end fund). Instead, they must sell their shares to another investor in the
market; the price they receive may be significantly different from net asset
value. It may be at a "premium" to net asset value (meaning that it
is higher than net asset value) or, more commonly, at a "discount" to
net asset value (meaning that it is lower than net asset value). A professional
investment manager oversees the portfolio, buying and selling securities as
appropriate.
Unit investment trusts
Unit investment trusts or UITs issue shares to the public only
once, when they are created. Investors can redeem shares directly with the fund
(as with an open-end fund) or they may also be able to sell their shares in the
market. Unit investment trusts do not have a professional investment manager.
Their portfolio of securities is established at the creation of the UIT and
does not change. UITs generally have a limited life span, established at
creation.
Exchange-traded funds
A relatively recent innovation, the exchange-traded fund or ETF is
often structured as an open-end investment company, though ETFs may also be
structured as unit investment trusts, partnerships, investments trust, grantor
trusts or bonds (as an exchange-traded note). ETFs combine characteristics of
both closed-end funds and open-end funds. Like closed-end funds, ETFs are
traded throughout the day on a stock exchange at a price determined by the
market. However, as with open-end funds, investors normally receive a price
that is close to net asset value. To keep the market price close to net asset
value, ETFs issue and redeem large blocks of their shares with institutional investors.
Most ETFs are index funds.
Why should we invest in Mutual Funds?
People
those who are less risk taker and a long-term investor they consider investing
on Mutual funds.
1) Reduce risks:
Mutual Funds diversifythe portfolio by investing in various securities &
minimize the risk because Mutual funds are not like volatile as other secondary
market shares.
2) Maximize the
security and expectation on investment opportunities:
- The fund managers with the strong research take explore new investment
options make available opportunities for investments to flourish. Investments
will be secured with a less risk and moderate returns.
3) Liquidity:
Quick access to investor’s money and Mutual Funds can be bought and sold on any
business day.
4) Affordability:
- Of course, an investor doesn’t need a lot of money to invest in mutual fund
as the minimum investment in mutual fund starts from 1,000 taka. A Mutual Fund
because of its large corpus allows even a small investor to take the benefit of
its investment strategy.
5) Low Costs
- Mutual Funds are a relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale in
brokerage, custodial and other fees translate into lower costs for investors.
6) Tax Benefits
- The tax benefits that Mutual Funds investors enjoy at the moment is the
treatment of long-term capital gains. Double taxation can be avoided by
investing in Mutual funds for long-term.
7) Transparency
- The investor gets regular information on the value of his investment in
addition to disclosure on the specific investments made by the fund, the
proportion invested in each class of assets and the fund manager's investment
strategy and outlook.
Mutual Funds in Bangladesh
Bangladesh has a very small
market for mutual funds. As reported earlier in a contemporary, currently 35
mutual funds trade at an average of 2.75 times their net asset value (NAV) and
75 times their earnings. It also said that a sample of 21 mutual funds in the
Asia Pacific region is traded at 0.91 times or below their NAV on average. Till
now, 35 mutual funds together account for less than 9% of our total market capitalization
with combined assets of less than Tk60 billion.
In Bangladesh, all 35 mutual
funds are closed end in nature. But the recent mutual fund namely ‘Bangladesh
Fund ‘ is the only open ended mutual fund in our country.
Legislative aspects of
mutual fund
Mutual Funds in Bangladesh are issued
in accordance with the Securities and Exchange Commission Rule 2001 and also
keeping compliance with the provisions of Securities and Exchange Commission
Act 1993.
The
legislative provisions define legal and organizational principles of creation,
activity and responsibility of subjects of joint investment, peculiarities of
management of their assets, sets requirements to structure and storage of
assets, peculiarities of distribution and circulation of securities of mutual
funds, the procedure for and volume of disclosure of information to mutual
funds for attraction and efficient distribution of investors' financial
resources.
Pursuant
to the Law, corporate investment fund is the Mutual Fund which is created in
the form of public join-stock company and performs exclusively joint investment
activity. The Law sets the peculiarities of establishment of corporate
investment fund, its documents, requirements to the statutory fund (capital),
the procedure for activity and limitation of activity of corporate investment
fund and management bodies.
The Law sets the procedure for establishment
of share investment fund and its management, requirements to regulations of
share investment fund and participation in it, the concept of investment
certificates, as well as the procedure for replacement of asset management
company, liquidation of share investment fund and distribution of assets of
share investment fund in case of its liquidation. It shall be prohibited to combine
activity related to asset management with other types of professional activity at
the security market. Activity related to management of MF assets shall be
performed by the asset management company on the basis of license.
Mutual Fund Prospectus
Before the commencement of investment
activities it is required for a mutual fund to develop a prospectus. A prospectus is a legal document that
institutions and businesses use to describe the securities they are offering for participants
and buyers.
The SEC specifies the kinds of
information that must be included in fund prospectuses and requires funds to
present key data, such as fees and past performance, in a standard format so
that investors can readily compare different funds.
Contents Required by Regulation
 |
The general information orients public with
the mutual fund and attach an offer document that provides basic information
like volume of the fund and other specifications like the followings:
Subscription Specifications
Subscription opening date
Subscription closing date.
FUND DIRECTORY
Registered Office
|
Sponsor
|
Trustee
|
Custodian
|
Auditor
|
Banker
|
Fund Manager
|
FUND HIGHLIGHTS
1. Name: Identifying
domain for the Mutual Fund.
|
2. Size of the Fund: The
quantitative specifications of the fund.
|
3. Face Value & Market lot.
|
4. Nature: Closed-end or
open-end.
|
5. Objective: Primary
objectives that would be persued.
|
6. Target Group: Individuals,
institutions, non-resident Bangladeshis (NRB), mutual funds and
Collective investment schemes those
are eligible to apply for investment in the Fund.
|
7. Dividend: Minimum
amount of dividend.
|
8. Mode of Distribution:
The period of time the dividend will be distributed from the date of
declaration.
|
9. Transferability: Whether Units
are transferable or not.
|
10. Encashment: Whether The
investment would be easily encashable.
|
11. Tax Benefit
|
12. Report & Accounts:
Whether every unit holder is entitled to receive annual report together with
the yearly and half-yearly statements of accounts as and when published
|
A
short statement of the fund's investment objectives. Some funds intend to
achieve short-term growth while others might focus on long-term stability.
Under this point the following facts are accumulated:
Exactly
how the fund plans to accomplish the objectives. This section describes the
types of assets that the fund purchases. And postulates
Investment philosophy.
Risk management.
Valuation process.
Composition of investment team.
Although mutual funds aim to make
money for their investors, their ultimate goal, just like any other business,
is to make money for them. In order to do so, funds charge their shareholders a
variety of fees and expenses, all of which must be documented in the
prospectus. A table at the front of every prospectus contains a breakdown of
the different fees and expenses, along with a hypothetical projection of how
the fees would impact a $10,000 investment over a 10-year period. This enables
you to compare fees and expenses across mutual funds. The prospectus must
provide clear indication of expenditure under the following account:
Issue and formation expenses.
Management fee.
Trustee fee.
Custodian fee.
CDBL fee.
Fund registration and annual fee.
Listing.
Audit fee. |
This
section contains very basic information about how to buy and sell shares and
other account-related information. In addition to telling you how to get your
money into the fund, the prospectus will also tell how to take it out of the
fund. The prospectus will inform you which redemption methods are available.
The
level of risk that the fund takes and the risks that are associated with the
specific investments made by the fund are one of the most important sections in
the prospectus.
Key Risk
factors
1. General:
There is no assurance that the Fund will be able to meet its investment
objective and investors could potentially incur losses, including loss of
principal when investing in the Fund. Investment in the Fund is not guaranteed
by any government agency, the Sponsor. Mutual funds and securities investments
are subject to market risks and there can be no assurance or guarantee that the
Fund’s objectives will be achieved.
2. External Risk Factor: Performance of the Fund is substantially
dependent on the macroeconomic situation and in the capital market of
Bangladesh. Political and social instability may have an adverse effect on the
securities can fluctuate significantly. The Fund may lose its value or incur a
sizable loss on its investments due to such market volatility. Stock market
trends indicate that prices of majority of all the listed securities move in
unpredictable direction which may affect the value of the Fund. Furthermore,
there is no guarantee that the market prices of the units of the Fund will
fully reflect their underlying Net Asset Values.
3. Concentration Risk: Due to a limited number of listed securities
in both the DSE and CSE, it may be difficult to invest the Fund’s assets in a
widely diversified portfolio as and when required to do so. Due to a very thin
secondary fixed income/debt market in Bangladesh, it would be difficult for the
Fund Manager to swap between asset classes, if and when required. Limited
options in the money market instruments will narrow the opportunity of short
term or temporary investments of the Fund which may adversely impact the
returns.
4. Market Risk: The Bangladesh capital market is highly
volatile and mutual fund prices and prices of securities can fluctuate
significantly. The Fund may lose its value or incur a sizable loss on its
investments due to such market volatility. Stock market trends indicate that
prices of majority of all the listed securities move in unpredictable direction
which may affect the value of the Fund.
5. Dividend Risk: Despite careful investment selection of
companies in the Fund, if the companies fail to provide the expected dividend
or fail to disburse the dividends declared in a timely manner, this will impact
the income of the Fund and the overall return of the Fund.
6. Underlying Liquidity
Risk: For investing in Pre-Public Offer
Placement securities i.e. in unlisted equity securities by the Fund, may
involve liquidity risk. In addition, market conditions and investment
allocation may have an impact on the ability to sell securities during periods
of market volatility. Debt securities, while somewhat less liquid, lack a
well-developed secondary market, which may restrict the selling ability of the
Fund and may lead to the Fund incurring losses till the security is finally
sold. While securities that are listed on the stock exchange carry lower
liquidity risk, the ability to sell these investments is limited by the overall
trading volume on the stock exchanges and may lead to the Fund incurring losses
till the security is finally sold.
7. Investment Strategy
Risk: Since the Fund will be an actively
managed investment portfolio, the Fund is subject to management strategy risk.
The Fund value can be volatile and no assurance can be given that investors
will receive the amount originally invested. When investing in the Fund,
investors should carefully consider the risk factors outlined below, which are
not necessarily exhaustive or mutually exclusive:
8. Credit Risk: Since the Fund will seek to also invest as
per the Mutual Fund Regulations (2001) in both equity and fixed income
securities, the credit risk of the fixed income issuers is also associated with
the Fund. Investment in fixed income securities are subject to the risk of an
issuer’s inability to meet interest and principal payments on its obligations
and market perception of the creditworthiness of the issuer.
9. Interest Rate Risk: The Net Asset Value (NAV) of the Fund, to
the extent invested in Debt and Money Market securities, will be affected by
changes in the general level of interest rates. The NAV of the Fund is expected
to increase from a fall in interest rates while it would be adversely affected
by an increase in the level of interest rates. In addition, zero coupon
securities do not provide periodic interest payments to the holder of the security;
these securities are more sensitive to changes in interest rates. Therefore,
the interest rate risk of zero coupon securities is higher. The AMC may choose
to invest in zero coupon securities that offer attractive yields. This may
increase the risk of the portfolio.
Information
about the fund's performance over the last 10 years is included. Investors
should be aware that past performance is not necessarily an indicator of future
results. As important is how well the fund has traditionally performed compared
to an index. A fund's performance is also related to the fund's volatility,
dividend payments, and turnover.
The
names the managers and some additional information about their experience and
qualifications is reported. It can be helpful to know whether or not they have
managed other funds in the past and their success or failure in order to get a
sense of their past strategies and results. Under this the following
specifications should be met
SPONSOR OF THE
FUND.
TRUSTEE &
CUSTODIAN OF THE FUND
ASSET MANAGER OF
THE FUND
Mutual funds
split their prospectuses into two parts -- the "prospectus"
(described above) and the Statement of Additional Information (SAI). Securities
and Exchange Commission required mutual funds to supply much more detailed
information about the fund. For legal purposes it is assumed that it has been read.
SAI with the prospectus provides great detail about the fund's board of
directors, any limitations on the fund's investments, and the fees and expenses
that are mentioned in the prospectus.
This section covers the segments of capital,
tax benefits facilitated by the fund and rights of unit holder. A typical
allotment could be like the following:
Subscribers
|
Number
of units
|
Face
Value
|
Sponsor
|
*****
|
*****
|
Pre-IPO
Placement
|
****
|
*****
|
Resident
Bangladeshis
|
****
|
****
|
Non-Resident
Bangladeshis (NRB’s)
|
****
|
****
|
Reserved
for Mutual Funds
|
****
|
****
|
Tax exemption
Rights of the
unit holder.
Beneficial
interest.
This
section instructs about the redemption procedures to be followed at
circumstances.
Net asset value
Definition:Total value of the mutual fund’s stocks, bonds,
cash, and other assets minus any liabilities such as accrued fees, divided by
the number of shares outstanding.
Alternatively, Value of each share of a mutual fund,
Used as a basis for valuation of mutual funds, e.g., when selling new shares or
redeeming existing shares
Market Value of Assets - Liabilities
Shares Outstanding (Example)
A mutual fund with 5 mil shares:
Portfolio of securities $120 mil
Investment advisory fees payable $ 4 mil
Other Liab. (rent, wages due, expenses) $
1 mil
NAV = (120 – 5) / 5 = $23 per share
Growth of mutual fund
There
are five principal reasons for the growth of mutual funds:
1. Diversification: investors immediately realize the benefits
of diversification even for small investments.
2. Denomination intermediation: investors can participate in equity and debt
offerings that, individually, require more capital than they possess.
3. Managerial
expertise: many
investors prefer to rely on professional money managers to select their
investments.
4. Liquidity
intermediation: investors can quickly convert investments into cash while still
allowing the fund to invest for the long term.
5. Cost
advantages: the mutual
fund can negotiate lower transaction fees than would be available to the
individual investor.
Comparison with other neighboring countries
Mutual funds in the neighboring countries of
Bangladesh account for more than 40 per cent of the total market capitalization
while in Bangladesh mutual funds is in its infancy contributing only three per
cent of the total market capitalization. Their combined issued capital of the
mutual funds is worth $ 45 million or Tk 3116 million and their market
capitalization is only 7% or $ 230 million or Tk 15841 million.
List of the existing
Mutual Funds
Company Name
|
Trading Code:
|
Listing
Year
|
Market
Category
|
Authorized
Capital in BDT* (mn)
|
Paid-up
Capital in BDT* (mn)
|
Face
Value
|
Total
no. of Securities
|
Current
Price Earning Ratio (P/E)
|
Net Profit After Tax (mn)(Continuing operation 2009)
|
FIRST JANATA BANK MUTUAL
FUND
|
1JANATAMF
|
2010
|
A
|
0.0
|
2000.0
|
10
|
200000000
|
n/a
|
|
1ST BANGLADESH SHILPA RIN
SANGSTHA M.F.
|
1STBSRS
|
1997
|
A
|
0.0
|
50.0
|
100
|
500000
|
69.53
|
9.43
|
1ST ICB M.F.
|
1STICB
|
1980
|
A
|
0.0
|
8.0
|
100
|
75000
|
18.07
|
28.89
|
PRIME FINANCE FIRST
MUTUAL FUND
|
1STPRIMFMF
|
2009
|
A
|
0.0
|
200.0
|
10
|
20000000
|
6.33
|
28.06
|
2ND ICB M.F.
|
2NDICB
|
1984
|
A
|
0.0
|
5.0
|
100
|
50000
|
29.6
|
6.78
|
3RD ICB M.F
|
3RDICB
|
1985
|
A
|
0.0
|
10.0
|
100
|
100000
|
21.05
|
12.14
|
4TH ICB M.F
|
4THICB
|
1986
|
A
|
0.0
|
10.0
|
100
|
100000
|
20.34
|
11.43
|
5TH
ICB M.F
|
5THICB
|
1989
|
A
|
0.0
|
15.0
|
100
|
150000
|
21.64
|
11.78
|
6TH ICB M.F
|
6THICB
|
1987
|
A
|
0.0
|
50.0
|
100
|
500000
|
12.88
|
25.00
|
7TH ICB M.F.
|
7THICB
|
1995
|
A
|
0.0
|
30.
|
100
|
300000
|
25.2
|
15.00
|
8TH
ICB M.F.
|
8THICB
|
1996
|
A
|
0.0
|
50.0
|
100
|
500000
|
15.87
|
21.42
|
AIBL
1ST ISLAMIC MUTUAL FUND
|
AIBL1STIMF
|
2011
|
A
|
0.0
|
1000
|
10
|
100000000
|
0
|
n/a
|
AIMS 1ST M.
|
AIMS1STMF
|
2000
|
A
|
0.0
|
415
|
1
|
414500000
|
14.64
|
55.32
|
DBH
FIRST MUTUAL FUND
|
DBH1STMF
|
2010
|
A
|
0.0
|
1200.
|
10
|
120000000
|
3.17
|
n/a
|
EBL
FIRST MUTUAL FUND
|
EBL1STMF
|
2009
|
A
|
0.0
|
1000
|
10
|
100000000
|
3.14
|
n/a
|
EBL NRB MUTUAL FUND
|
EBLNRBMF
|
2011
|
A
|
0.0
|
1500
|
10
|
150000000
|
n/a
|
n/a
|
GRAMEEN MUTUAL FUND ONE
|
GRAMEEN1
|
2005
|
A
|
0.0
|
170
|
10
|
17000000
|
6.18
|
58.66
|
GRAMEEN ONE : SCHEME TWO
|
GRAMEENS2
|
2008
|
A
|
0.0
|
1250
|
10
|
125000000
|
8.65
|
149.84
|
GREEN DELTA MUTUAL FUND
|
GREENDELMF
|
2010
|
A
|
0.0
|
1500.
|
10
|
150000000
|
12.73
|
n/a
|
ICB AMCL 1ST NRB MUTUAL
FUND
|
ICB1STNRB
|
2007
|
A
|
0.0
|
100
|
100
|
1000000
|
7.57
|
25.44
|
ICB AMCL 2ND NRB MUTUAL
FUND
|
ICB2NDNRB
|
2008
|
A
|
0.0
|
1000
|
100
|
10000000
|
6
|
141.50
|
ICB AMCL THIRD NRB MUTUAL
FUND
|
ICB3RDNRB
|
2010
|
A
|
0.0
|
1000
|
10
|
100000000
|
6.35
|
n/a
|
ICB AMCL 1ST M.F.
|
ICBAMCL1ST
|
2003
|
A
|
0.0
|
100.
|
100
|
1000000
|
8.4
|
37.98
|
ICB AMCL SECOND MUTUAL
FUND
|
ICBAMCL2ND
|
2009
|
A
|
0.0
|
500.
|
100
|
5000000
|
7.28
|
n/a
|
ICB
EMPLOYEES PROVIDENT MF 1: SCHEME 1
|
ICBEPMF1S1
|
2009
|
A
|
0.0
|
750
|
10
|
75000000
|
8.9
|
n/a
|
SCHEME 1 ICB AMCL
ISLAMIC MUTUAL FUND
|
ICBISLAMIC
|
2005
|
A
|
0.0
|
100
|
100
|
1000000
|
7.24
|
26.60
|
IFIC
BANK 1ST MUTUAL FUND
|
IFIC1STMF
|
2010
|
A
|
0.0
|
1200
|
10
|
120000000
|
3.05
|
n/a
|
IFIL ISLAMIC MUTUAL FUND-1
|
IFILISLMF1
|
2010
|
A
|
0.0
|
1000
|
10
|
100000000
|
19.55
|
n/a
|
MBL 1ST MUTUAL FUND
|
MBL1STMF
|
2011
|
A
|
0.0
|
1000
|
10
|
100000000
|
n/a
|
n/a
|
PHOENIX FINANCE 1ST
MUTUAL FUND
|
PF1STMF
|
2010
|
A
|
0.0
|
600
|
10
|
60000000
|
8.91
|
n/a
|
PHP FIRST MUTUAL FUND
|
PHPMF1
|
2010
|
A
|
0.0
|
2000
|
10
|
200000000
|
n/a
|
n/a
|
POPULAR LIFE FIRST MUTUAL
FUND
|
POPULAR1MF
|
2010
|
A
|
0.0
|
2000
|
10
|
200000000
|
n/a
|
n/a
|
PRIME BANK 1ST ICB AMCL
MUTUAL FUND
|
PRIME1ICBA
|
2010
|
A
|
0.0
|
1000
|
10
|
100000000
|
7.5
|
7.5
|
SOUTHEAST
BANK 1ST MUTUAL FUND
|
SEBL1STMF
|
2011
|
A
|
0.0
|
907
|
10
|
90713000
|
n/a
|
n/a
|
TRUST
BANK 1ST MUTUAL FUND
|
TRUSTB1MF
|
2010
|
A
|
0.0
|
2000
|
10.
|
200000000
|
3.87
|
n/a
|
Bangladesh fund
The
Finance Minister declared that a special fund to be managed by the state-owned Investment
Corporation of Bangladesh (ICB) would be created. Called the Bangladesh Fund
(BF), it would aim to raise some Taka 50 billion for injection into the capital
market. Its aim is to achieve an invigoration of the sagging market with
massive pumping in of money.
On its part, the ICB is reportedly prepared to provide Taka 5.0 billion for the fund. The rest were to be provided by the state-owned banks, the state-owned SadhranBima Corporation (SBC) and JibanBima Corporation (JBC) and some other financial institutions. It is yet not clearly know how much they have agreed to provide for this fund, finally. The pension fund for government employees was also expected to contribute to the fund. But some banks have already been reported to be lukewarm about making any substantial contribution to it. It will be foolhardy to ignore the reasons for that. No bank should risk its depositors' money to any large extent in the currently risky share market. This should equally apply to the insurance companies, though they may be state-owned, because it will be no wisdom on their part to be too generous about making 'investment' through such fund, risking the real or potential claims of their policy-holders. It is not yet known how the pension funds will go for making any such investment without having an appropriate legal framework. This leaves the ICB as only would-be promoter of the fund, in any real sense.
But the question that cannot help but arise is : why the government is so keen about taking extraordinary initiatives by pushing the country's banking and insurance sectors and all others concerned, towards great risks only to prop up a share market that is yet to come out of its gridlock, largely on account of foul operations and free-wheeling deals by some powerful big operators. Even common sense says that the share market should be allowed to go on its own way and tackle its own structural and other problems.
But government's attitude and activities so far seem to be one of taking responsibility for even many 'unfair' activities in the market that have led to its present state of things. It (the government) has nothing to do about making up for the loss of the investors there, with people's money. Surely, this is anything but good economic governance. Rather, good governance demands that the government should strengthen the regulatory authority in the capital market and facilitate it to function properly and efficiently, without showing any favor to any group of manipulators, on real or perceived grounds. The government should be all too serious about bringing to book the wrong-doers, if there are any, in the market who have been trying to have a joy-ride at the cost of the ordinary investors.
Present Situation of Mutual funds
in Bangladesh
Unlike the other developed and developing stock markets where
investors prefer to invest in the open ended mutual funds, the concept of open
ended mutual funds has started catching pace in Bangladesh only over the past
three years, ever since the SEC, the stock market regulatory authority, has
allowed floating of open ended mutual funds, apart from the existing format of
closed ended mutual funds, which tend to mature in 10 to 20 years from
incorporation and listing. However, while the open ended mutual funds are still
in a nascent stage since they were permitted to launched in the country, the
entire mutual funds sector continues to be heavily dominated by closed ended
mutual funds, floated mostly by banks and institutions.
Just an aggregate of 32 mutual funds were listed on the Dhaka
Stock Exchange till last month, unlike the other neighboring countries like
India and Hong Kong, where the mutual fund culture has really picked up over
the past three decades, ever since the permission provided by local stock
market regulatory authorities to allow private sector to come out with new
schemes.
The SEC policy of allowing these funds in phases in Bangladesh
seems to be rational. But impediments should not be created in their normal
growth and development of mutual fund should be encouraged. More institutional
and professional investment is likely to stabilise the market and help reduce
rumour based investment.
Under the open-ended criteria, the fund size may be increased from
time to time by the asset management company with due approval of the trustee
and notification of the SEC on requisition from the investors.
The investors are also allowed to redeem their holdings directly
to the asset management company. The funds are invested in listed and
non-listed companies incorporated in Bangladesh both in equity and money market
instruments as approved by the SEC and Bangladesh Bank.
In Bangladesh, the number of mutual funds is small having low
issued capital. At present, there are only 19 mutual funds of which nine are
managed by the Investment Corporation of Bangladesh (ICB), six by ICB Asset
Management Co. Ltd. (a subsidiary of ICB), one by Bangladesh ShilpoRinShangstha
(BSRS) and the remaining three are managed by the private sector (AIMS and
Grameen-One and Grameen-One: Scheme Two). Among these, two are open ended of
which one is managed by ICB and the other by ICB Asset Management Co. Ltd.
It may be noted that the market capitalization of all listed
mutual funds declined between July and December 2008. The ICB is the major
institutional player in the mutual fund market and its activities are crucial
to bringing transparency and stability in the market. Apart from ICB, the newly
entered privately managed mutual funds are performing relatively well in the
capital market mainly due to the provision for reserve of 10 percent quota of
each IPO for mutual funds. The market price of all mutual funds remains much
higher than their face values reflecting the investors’ confidence and their
expectations of future price hikes.
The market price of all listed mutual funds declined substantially
during July-December 2008 mainly due to two factors: first, measures taken by
the Securities and Exchange Commission (SEC) to dampen the excessive price hike
of mutual funds especially during January-June 2008; and second, increase in
the supply of mutual funds through listing of two mutual funds (ICB AMCL 2nd
NRB MF Grameen One: Scheme Two) with issued capital of Tk. 1.2 billion. The
price-earning ratios show some moderation compared with January-June 2008 for all
listed mutual funds ranging from 14.9 to 63.1 mainly due to price fall of
mutual funds. However, since then, as the stock markets have shown a
considerable growth following the recovery of Bangladesh economy after 2009,
the NAV and market prices of mutual funds schemes have also rallied
substantially over the past two and a half years. Although still small in size,
mutual funds have contributed toward broadening the base of the country’s
capital market and helped the investors to gain high and relatively secure
returns.
A
pioneering initiative was undertaken by some enthusiastic local and expatriate
Bangladeshis to organize and float the first Mutual Fund in independent
Bangladesh under private initiative. A company for this purpose was registered
as Asset & Investment Management Services of Bangladesh Limited (popularly
known as AIMS of Bangladesh) in December 1998, which emerged as the first
purpose - built private asset Management Company of the country. The company
was formally inaugurated on August 29, 1999 by the Finance Minister and
remained as the only one of its kind for the next decade in Bangladesh.
Conclusion
Even as the stock markets have started maturing of age over the
past one decade, the growth of mutual fund in Bangladesh has been slow. Only
recently there has been a rush for new funds. Many banks and financial
institutions continue to in the queue with proposals for their funds. Mutual
fund is a fund under a trust. Investment in mutual fund is ideal for investors
who do not want to take risk because the fund is managed professionally and the
collective investment is diversified. The price of a closed-end fund share is
normally determined by the value of the investment in the fund. Therefore, the
market price of a fund share is often close to per share NAV. However, the
maturity of mutual funds is taking its sweet time and NAV’s of mutual funds are
still not close to their market value of such funds. It is seen that market
price of a mutual fund share can at times be much higher than their NAV
justify.Bangladesh mutual funds are expected to grow
from nascent stage to a more stage over the next one decade as the investors
continue to show more interest towards investment in stock market through
mutual funds and directly to overcome the inflation problems.
0 comments:
Post a Comment