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.
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.
Mutual funds are usually managed by fund managers who undertake trading of the pooled money and are responsible for managing the portfolio of
holdings. Generally, mutual funds are organized under the law as companies or business trusts and managed by separate entities.
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 Shilpo Rin Shangstha (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.
The major mutual funds schemes popular in Bangladesh are as under
1st ICB MF 1980
2nd ICB MF 1984
3rd ICB MF 1985
4th ICB MF 1986
5th ICB MF 1986
6th ICB MF 1987
7th ICB MF 1995
8th ICB MF 1996
1st BSRS 1998
AIMS 1st MF 2000
ICB AMCL 1st MF 2003
ICB AMCL Islamic MF 2005
Grameen MF One 2005
ICB AMCL NRB MF 2007
ICB AMCL 2nd NRB MF 2008
Grameen One: Scheme Two 2008
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.
The major asset managers in Bangldesh are Grameen Mutual Fund - Grameen One - AIMS of Bangladesh AIMS of Bangladesh is the Asset Manager for the Grameen Mutual Fund One, the second closed-end private mutual fund in Bangladesh, the Grameen Mutual Fund One sponsored by the Grameen Bank, founded by Nobel Laureate Professor Muhammad Yunus, regarded as the innovator of micro-credit. It was in actualization of the objectives of the visionary Professor to devise an avenue to embark in the capital markets by creating a cost-effective and dependable financial instrument for the poor clients of Grameen Bank and design a product that can bridge the vast poor with the mainstream urban economy, give them ownership in the leading enterprises, and take advantage of the growth potentials. Grameen Fund, a not-for profit venture capital financing enterprise of the Grameen family is the Trustee and the Standard Chartered Bank is the Custodian of the fund. It is listed at the Dhaka & the Chittagong Stock Exchanges.
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.
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.