Mutual Fund Introduction Mutual fund (MF) is a very useful investment mechanism in a capital market. A developed capital market consists of varieties of investment instruments and mutual fund is one of them. But the share of mutual funds in Bangladesh's capital market is very low. The market is fully euity!"ased and there is little scope to introduce any new financial instrument. That's why a rapid development has not happened in the mutual fund sector all. But mutual fund can "e a good investment alternative in this undiversified und iversified market. A mutual fund is a type of professionally managed investment fund that pools money from many investors to purchase securities. #hile there is no legal definition of the term mutual fund$ it is most commonly applied only to those collective investment vehicles that are regulated and sold to the general pu"lic. They are sometimes referred to as %nit Fund$ &ollective Fund. Most mutual funds of Bangladesh are close!ended meaning a collective investment scheme that has a fied num"er of shares which are not redeema"le from the fund and the shares can "e purchased and sold only in the market.
What is mutual Fund? t is 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$ "onds$ money market instruments and similar assets. Mutual funds are operated "y 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 o"*ectives stated in its prospectus. According to "asic financial theory an investor can reduce his risk "y holding a portfolio of assets instead of only one asset. This is "ecause "y holding all your money in *ust one asset$ the entire fortunes of your portfolio depends on this one asset. By creating a portfolio of a variety of assets$ this risk is su"stantially reduced. +o Mutual fund investments are totally risk free. n fact$ investing in mutual funds "ears the same risk as investing in the euities$ the only difference is that due to professional management of funds the controlla"le risks are su"stantially reduced.
Brief history of mutual fund market in Bangladesh n ,-/$ the nvestment &orporation of Bangladesh (&B) "ecame the pioneer in launching mutual funds in the capital market in the country. t was a milestone step for investors in our capital market. The then first private organi0ation$ AM1$ evolved its professional mechanism in ,--- for organi0ing organi0ing mutual funds in Bangladesh. Bangladesh. Mutual funds grew slowly over the period of time and had only "een close!ended since "eginning of its operation in the capital market. n 2/,/$ also the first!ever open!end mutual fund was floated in the capital market "y the 3rime Finance Asset Management &ompany and after that$ various mutual funds came to the market and and main mainly ly oper operat ated ed unde underr the the B14& B14& (Mut (Mutua uall Fund) Fund) 5ule 5ules! s!2// 2//,$ ,$ Trus Trustt Act$ ct$ ,2 ,2 and and 5egistration Act$ ,-/. Mutual funds pool money of "oth individual and institutional investors allo allowi wing ng the the fund fundss to achie achieve ve the the econo economi mies es of scal scalee "y reduc reducin ing g cost costss and incr increas easin ing g investment returns$ divisi"ility and diversification$ prudent management for stock picking and timing$ reinvestment of dividends$ interest and capital gains$ ta efficiency and flei"ility of trading system with a view to fulfilling the o"*ectives of diversifying the risks and to earn maimum returns.
At which stage Bangladesh’s mutual fund industry is today?
The sector is still at a nascent stage as it is very small compared to the capital market. Though there are a"out ,6 asset management companies licensed "y B14& (the securities regulator)$ only seven have money under management. management. The asset management management companies manage roughly Tk6$/// crore crore which is less than than 78 of the total total market market capitali capitalisatio sation. n. n many countri countries es mutual fund assets are close to 6/8 of market capitalisation.
Conceptual Framework of Mutual Funds:
Ta"le , shows that total 9, num"ers of mutual funds are there in our capital market. &B AM&: was issued the highest ,, num"ers of mutual funds followed "y other issue managers.
According to prevailing participation of asset managers in our capital market$ we see from the Figure 2 that 5A&4 Asset Management &ompany possessed a"out 96 per cent highest market share of mutual funds compared to other issue managers "ased on their asset under management. The finding also shows ,2.26 per cent market share of manager to the issue goes to &B AM&: compared to &B alone 6.6 per cent. f we consider "oth &B and &B AM&: then a"out , per cent market share will "e in their hands compared to other asset managers$ which indicates third position in our capital market for managing mutual funds "ased on asset portfolio. 1o$ &B should should eercise eercise its epertise epertise role in organising organising the mutual fund for the greater greater improvement improvement of our capital market.
Capital market and their rank order position: The Ta"le 2 represents 2/ sectors of capital market and their rank order position "ased on the market capitali0ation at ;14. Ta"le 2 discloses that out of 2/ sectors at ;14$ position of mutual funds (MFs) was the ,7th according to rank order. t also recognises that out of total market
capitalisation of ;14$ mutual funds cascade only ,.-2 per cent of its total market capitalisation$ which is very low. t implies that promoters of mutual fund are very much reluctant for access to the capital market. This may "e due to the deficit of right kind of sponsors and decision makers in our country at the right time for accelerating the mutual funds. 1o$ it is time to float the MFs in our capital market in the days ahead.
The Figure 7 shows the price earnings ratios of mutual fund over various periods of time in 2// and 2//- were very high at 2/.7< and 2-./= respectively compared to other years. n 2/,,$ 3>4 was very low i.e it was found at =.29 compared to other years. The significant change of 3>4 was not found. This indicates the mutual funds were also affected "y market volatility. !" #atio: ;ata of last two years till now show that the 3>4 is "eing decreased compared to other years
showin showing g the signif significa icant nt positi positive ve signal signal for investm investment ent in mutual mutual funds. funds. 1o$ it can also also "e concluded that higher the 3>4 is$ the higher is the risk for investment and lower 3>4 will minimi0e the risks.
(Annual Mean Return of Mutual Funds)
Mutual funds are a professionally managed type of collective investment. t is managed "y portfolio manager or investment "anker and institutions popularly known as portfolio management. 1ponsors are playing the vital role for arranging and appointing the manager to the issues in launching MFs. ;ata reveals that only 9, num"ers of mutual funds are operating in our capi capita tall mark market et foll follow owed ed "y 99.99.-7 7 per per cent cent of the the highe highest st mark market et shar sharee of 5A&4 5A&4 Asset sset Management &ompany "ased on its asset under management of mutual funds and only ,.-2 per cent market capitali0ation of all mutual funds out of entire market capitalisation of our capital market. The present study also shows that 3>4 ratio of mutual funds is in decreasing trend. t can therefore "e recommended to float more and more mutual funds in our capital market to raise the market capitali0ation for creation of sound and sustaina"le market and to ensure the rules of mutu mutual al fund fundss as well well as to achi achieve eve mai maimu mum m retu return rn in mini minimi misi sing ng all all kinds kinds of risk riskss "y effectively maintaining well!diversified portfolios.
Functions of mutual fund! $ypes $ypes of mutual fund in Bangladesh Bangladesh has a very small market for mutual funds. As of 2/,6$ there were 9, mutual funds in the country's capital market. For them$ mutual fund rules were framed "y the 1ecurities and 4change &ommission (14&). %nder the rules$ a fund consists of one sponsor>entrepreneur$ one trustee and o"viously a fund manager. t is reuired for every such company to get permission of the 14& "efore proceeding with its fund allocation process. &urrently there are two types of mutual fund in Bangladesh a% &pen'"nded Mutual Fund()*+ of Funds%:
?pen!end mutual funds must "e willing to "uy "ack their shares from their investors at the end of every "usiness day at the net asset value computed that day. Most open!end funds also sell shares to the pu"lic every "usiness day these shares are also priced at net asset value. A professional investment manager oversees the portfolio$ "uying and selling securities as appr approp opri riat ate. e. The The tota totall inve invest stme ment nt in the the fund fund will will vary vary "ased "ased on shar sharee purc purcha hase ses$ s$ shar sharee redemptions and fluctuation in market valuation. There is no legal limit on the num"er of shares that can "e issued in Bangladesh.
,% Close'"nded Mutual Fund (* + of Funds%:
A closed!end fund has a stipulated maturity period which generally ranging from 6 to ,/ years. &losed!end funds generally issue shares to the pu"lic only once$ when they are created through an niti nitial al 3u"lic 3u"lic ?ffer ?ffering ing (3?). (3?). Their Their shares shares are then then listed listed for trading trading on ;haka ;haka stock stock echange. nvestors who no longer wish to invest in the fund cannot sell their shares "ack to the fund (as they can with an open!end fund). nstead$ they must sell their shares to another investor in the market the price they receive may "e significantly different from net asset value. t may "e 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$ "uying and selling securities as appropriate.
Formation of mutual fund: As per the security echange commission "idhimala$ 2//, a mutual fund is formed as a Trust under Trust Act$ Act$ ,2 and the Trust ;eed is to "e registered under 5egistration Act$ ,-/. Before registration of the Trust ;eed it has to "e approved "y the 1ecurities and 4change &ommission.
Why do we need it?
Beat Inflation
Mutual Funds help investors generate "etter inflation!ad*usted returns$ without spending a lot of time and energy on it.#hile most people consider letting their savings 'grow' in a "ank$ they don't consider that inflation may "e ni""ling away its value. 1uppose you have tk.,// as savings in your "ank today. These can "uy a"out ,/ "ottles of water. our our "ank offers 68 interest per annum$ so "y net year you will have tk. ,/6 in your "ank. owever$ inflation that year rose "y ,/8. Therefore$ one "ottle of water costs tk. ,,. By the end of the year$ with tk.,/6$ you will not "e a"le to afford ,/ "ottles of water anymore. Mutual Funds provide an ideal investment option to place your savings for a long!term inflation ad*usted growth$ so that the purchasing power of your hard earned money does not plummet over the years.
"-pert Managers
Backed "y a dedicated research team$ investors are provided with the services of an eperienced fund manager who handles the financial decisions "ased on the performance and prospects availa"le in the market to achieve the o"*ectives of the mutual fund scheme.
Con.enience
Mutu Mutual al funds funds are are an idea ideall inves investm tmen entt optio option n when when you you are are looki looking ng at conve conveni nienc encee and timesaving opportunity. #ith low investment amount alternatives$ the a"ility to "uy or sell them on any "usiness day and a multitude of choices "ased on an individual's goal and investment need$ investors are free to pursue their course o f life while their investments earn for them.
/ow Cost
3ro"a"ly the "iggest advantage for any investor is the low cost of investment that mutual funds offer$ as compared to investing directly in capital markets. Most stock options reuire significant capital$ which may not "e possi"le p ossi"le for young investors who are *ust starting out. Mutual funds$ on the other hand$ are relatively less epensive. The "enefit of scale in "rokerage and fees translates to lower costs for investors. ?ne can start with as low as 5s. 6// and get the advantage of long term euity investment.
0i.ersification
Coing "y the adage$ ';o not put all your eggs in one "asket'$ mutual funds help mitigate risks to a large etent "y distri"uting your investment across a diverse range of assets. Mutual funds offer a great investment opportunity to investors who have a limited investment capital.
/i1uidity
nvestors have the advantage of getting their money "ack promptly$ in case of open!ended schemes "ased on the +et Asset Dalue (+AD) at that time. n case your investment is close! ended$ it can "e traded in the stock echange$ as offered "y some schemes.
2igher #eturn otential
Based on medium or long!term investment$ mutual funds have the potential to generate a higher return$ as you can invest on a diverse range of sectors and industries.
3afety 4$ransparency 4$ransparency
Fund managers provide regular information a"out the current value of the investment$ along with their strategy and outlook$ to give a clear picture of how your investments are doing. 4very form of investment involves risk. owever$ skilful management$ selection of fundamentally sound securities and diversification can help reduce the risk$ while increasing the chances of higher returns over time
Minimum si5e of mutual fund According to the security echange commission "idhimala $ 2//, the minimum si0e of any mutual mutual fund ! for open!end mutual fund is Tk =/ million million while for close end mutual mutual fund is Tk 7/ million. n "oth cases the 1ponsor 1po nsor has to su"scri"e minimum ,/8 of the total fund. owever$ the 14& pu"lished an amendment to the said "idhimala for pu"lic opinion mentioning minimum si0e of a mutual fund is Tk 6// million.
Fees and e-penditure e-pendituress /imitation /imitation of e-penses:
4penses relating to formation of the 1cheme shall not eceed 68 of the proposed Fund.
Total epenses (other than formation epenses) of the 1cheme shall not eceed 98 of the net asset value "ased on weekly averages.
$he fees and e-penditure related to a mutual fund to ,e incurred are gi.en ,elow:
"-penses "-penses relating to formation ! ncludes formation fee E ,./8$ "anker to issue fee E /.,/8 of amount collected "y the "anks$ post!issue ependiture (negotia"le)$ epenses relating to conduct lottery (at actual)
3cheme registration and annual fee 5egistration fee paya"le to 14& E /.2/8 of the fund si0e and annual fee is E /.,/8 of the fund si0e or Tk 6/$/// whichever is higher.
Manageme Management nt fee The 1cheme will pay annual management fee to 3rime Finance Asset Management &ompany :imited on the "asis of weekly average +AD +AD of the 1cheme as followsG
year. $rustee $r ustee fee f ee 3resently market practice is "etween Tk. 6!,/ :ac per year.
security. Custodial fee 3resently market practice is E /.,/8 of the value of security.
dep osit ranging from Tk ,//$/// to Tk 6//$/// 3? fee E /./268 on C0B/ fee 1ecurity deposit issue amount annual fee ranging from Tk 26$/// to Tk ,//$///.
/isting fee initial listing fee upto Tk ,// million is E /.268 and a"ove Tk ,// million is E /.,68 annual listing fee ranging from Tk ,/$/// to Tk ,//$///.
Audit fee +egotia"le.
In.estment policy (su,6ect to appro.al of 3hariah Board% : ,. The Fund can invest in "oth listed and non!listed securities. 2. The Fund can invest in the shares of the companies whose "asic "usinesses are in consistence with the 1hariah :aw. Although no universal consensus eists among contemporary 1hariah scholars on the prohi"ition of companies$ most 1hariah "oards have advised against investment in companies involved in the activities ofG &onventional "anks$ insurance and leasing companies$
Alcohol$
3ork related products$
To"acco$
#eapons #e apons and defense$ and
4ntertainment (otels$ casinos>gam"ling$ cinema$ pornography$ music etc.).
7. After screening out companies with unaccepta"le primary "usiness activities as mentioned a"ove the Fund may invest in shares of other companies if the total de"t of the investee company is eual to or less than 778 of the trailing ,2 month average market capitali0ation of the company the sum of cash or interest "earing securities of the investee companies is less than or eual to 778 of the trailing ,2 month average market capitali0ation of the company
the account receiva"le is less than or eual to 968 of the total assets of the company. 9. The Fund may also invest in other 1hariah compliant instruments as and when they are availa"le for investment$ specificallyG in participati participation on term certificates$ certificates$ mudara"a mudara"a certificat certificates$ es$ musharika$ musharika$ mura"aha$ mura"aha$ term finance certificates and all other asset "acked securities
in contracts$ securities or instruments of companies$ organi0ations$ and esta"lishments issued on the principles of BaiH MuHa**al$ BaiH 1alam$ stisnaHa$ Mudara"a$ Mura"aha and Musharika
in the form of 5i"a!free cash deposits with slamic "anks or financial institutions with the o"*ect of maintaining sufficient liuidity to meet the day to day reuirement and to take advantage of suita"le investment opportunities as and when they arise The Fund will not involve in option trading or short selling or carry forward transactions.
in other instruments that may "e allowed "y the wewagv*v and the 1hariah 1 hariah :aw.
In.est In.estme ment nt restr restrict iction ion as per 3ec 3ecuri uritie ties4 s4 "-chan "-change ge commi commissi ssion on (Mutua (Mutuall Fund% Bidhimala7 899 ,. Money to "e collected under the Fund will "e invested in encasha"le>transfera"le securities whether in capital market or money market$ privately placed de"entures$ preferential shares or securiti0ed de"ts and assets. 2. +ot less that <68 of the total assets of the fund will "e invested in capital market. 7. +ot more than 268 of the total assets of the fund will "e invested in Fied ncome 1ecurities (F1). 9. +ot more than ,68 of the total assets of the Fund will "e invested in 3re!3?s at one time. 6. All investment will "e made in the name of the Fund. =. The Fund will not "uy its own unit. <. The Fund will not invest more than ,/8 of its total assets in any one particular companyHs shares>de"entures. . The Fund will not invest more than ,68 of any companyHs paid!up capital. -. The Fund will not invest more than 2/8 of the fund in shares$ de"entures or other securities of a single company or group.
,/. The Fund will not invest more than 268 of its total assets in shares$ de"entures or other securities in any one industry. industry.
Who participates in the market? There are four parties involved in floatation of a mutual fund namelyG ; 3ponsor Any "ank or financial institution or any other limited company who initiates the fund "y su"scri"ing minimum ,/8 of total fund si0e. Iey role The 1ponsor constitutes the fund "y virtue of Trust ;eed. 1ponsor will appoint trustee$ custodian and asset manager.
8; $r $ruste usteee Any "ank or financial institution or any other limited company registered "y the 14& to act as Trustee. Iey role The Trustee is the guardian of the fund and holds all capital assets of schemes of the Fund in trust on "ehalf of the unit holders.
The following are five registered trustees in our capital marketG ,. nvestment nvestment &orporation &orporation of Bangladesh (&B)
2) Bangladesh Bangladesh Ceneral Ceneral nsurance nsurance &ompany &ompany
:td. (BC&)$ 7) 1andhani :ife nsurance &o. :td.
9) Brac Bank :td. and
6) 4astern Bank
:td.
*; Asse Assett Manag Manageme ement nt Comp Compan any y any "ank or financial institution or any other limited company registered "y the 14& to act as an Asset Management &ompany. Iey role The Asset Management &ompany structures$ operates and manages the schemes of the Fund approved "y the Trustee and the &ommission and in accordance with the provisions of the Trust ;eed and the 5ules.
At present there are ,, registered asset management companies in the market. ,) &B Asset Asset Management &ompany &ompany :td. 2) Bangladesh ;evelopment ;evelopment Bank :td 7) Assets J nvestment Management 1ervices 1ervices of Bangladesh :td. 9) 5A&4 Management 3rivate &ompany &ompany :td. 6) :5 C:?BA: Bangladesh Asset Management Management &ompany :td. =) 3rime Finance Assets Management &ompany :td. <) D3B Asset Management &ompany :td. . Alif Asset Management :td. -) +ational Asset Management :td. ,/) nvest Asia &apital and Asset Management :imited. ,,) Alliance Alliance &apital Asset Management :td.
<; Custo Custodia dian n any "ank or financial institution or depository or any other limited company registered "y the 14& to act as &ustodian with special permission "y the 14& the Trustee and the &ustodian can "e the same institution. Iey role = The &ustodian keeps the securities of the Fund in safe custody.
There are four registered custodians in our capital market. These are as followsG ,) nvestment &orporation of Bangladesh (&B)$ 2) 1tandard &hartered Bank (1&B) 7) B5A& Bank :td. and 9) &iti"ank +.A
>oal of the market The goal of mutual funds, like any for-prot for-prot enterprise, is to provide a produ product ct or servic service e people people need, need, for a fee. fee. Mutual Mutual funds funds provi provide de sever several al impo import rtan antt bene benet ts s to smal smalll inve invest stor ors: s: dive divers rsi ica cati tion on,, prof profes essi sion onal al manage manageme ment, nt, strate strategy, gy, low cost, cost, access access to speci specic c marke markets ts and ease ease of invest investing ing.. Most Most impor importan tantly tly,, they they help help invest investors ors achiev achieve e their their nanci nancial al objectives by making them money.
Diversication The benets of diversication diversication are well known: to protect against individual security risk. Mutual funds pool investors money and invest in a diversied portfolio of stocks and!or bonds to minimi"e risk.
Professional Management
#ew people know how to select securities, or have the time to do it. Mutual funds are managed by professional money managers$individuals, teams or investment management companies$who are trained in security selection and portfolio management.
Dened Strategy %very fund has a stated investment objective: growth& growth and income& value& aggressive growth& growth& small caps& and so on. 'nvestors can choose a fund that meets their investment objective, goal and risk-tolerance level.
Low Cost (ecause of the economies of scale, mutual funds can transact business at a much lower cost than individual investors, passing the savings on to the shareholders.
Prot 'n reviewing the advantages, investors should not overlook the benet to the other side: sponsors and sellers. Mutual funds are very protable to their sponsors$brokerages and mutual fund companies. )elling them is a great way to make make a comfor comfortab table le living living for an army army of stockb stockbro roke kers, rs, nanci nancial al planners, investment advisers and other professional peddlers. #ierce competition forces mutual fund families to o*er a fund of every +avor to keep investors from leaving. There is just not enough talent to manage all thes these e vast vast pool pools s of mone money y. The The end end resul esult: t: Medi Medioc ocrre perf perfor orma manc nce, e, inappropriate recommendations recommendations and freuent switching inducing an investor to sell a fund in one family to buy another fund in another family to generate a commission are common investor complaints.
#isk in.ol.ed in that market The level of risk in a mutual fund depends on what it invests in. %sually$ the higher the potential returns$ the higher the risk will "e. For eample$ stocks are stocks are generally riskier than "onds than "onds$$ so an euity fund tends to "e riskier than a fied income fund. 1ome specialty mutual funds focus on certain kinds of investments$ such as emerging markets$ to try to earn a higher return. These kinds of funds also tend to have a greater risk of a larger drop in value.
$ype of risk risk ; Market risk 8; /i1u /i1uidi idity ty risk *; Credit risk <; Intere erest rate risk ; Country try risk
$ype of in.e in.est stme ment nt affe affect cted ed All types
2ow 2ow the the fund fund coul could d los losee mon money ey The value of its investments decline "ecause of unavoida"le risks that affect the entire market All types The fund canHt sell an investment thatHs declining in value "ecause there are no "uyers. Fied income ome securities f a "o "ond is issuer ca canHt re repay a "o "ond$ nd$ it it ma may end end up "eing a worthless investment. Fied income ome securities The value of of fi fied inc income ome secu ecurities gen generally falls when interest rates rise. Foreign investments The value of a foreign investment declines "ecause of political changes or insta"ility in the country where the investment was issued. @; Curre Currency ncy nvestments denominated in a f the the othe otherr curr curren ency cy decl declin ines es agai agains nstt the the currency other than the &anadian dollar$ the investment will lose value. risk &anadian dollar
Mutual funds invest in different securities like stocks or fied income securities$ depending upon the fundH fundHss o"*ect o"*ective ives. s. As a result result$$ differ different ent scheme schemess have differ different ent risks risks dependi depending ng on the underlying portfolio. The value of an investment may decline over a period of time "ecause of economic alterations or other events that affect the overall market.Also$ the government may come up with new regulations$ which may affect a particular industry or class of industries. All these factors influence the performance of Mutual Funds. #isk and #eward: The diversification that mutual funds provide can help ease risk "y offsetting losses from some securities with gains in other securities. ?n the other hand$ this could limit the upside potential that is provided "y holding a single security. /ack of Control: nvestors cannot determine the eact composition of a fundHs portfolio at any given time$ nor can they directly influence which securities the fund manager "u ys.
2ow in.estors’ trust on the funds can ,e ,uilt? Firstly$ Firstly$ immediate redemptions of the funds that have already missed their original deadlines will help gain investors trust. trust. personally think all close!ended mutual funds should "e redeemed on the date of its maturity mentioned on the prospectus and trust documents. 1econdly$ funds should make the information of their portfolio holdings pu"lic. :astly$ B14& (Bangladesh 1ecurities and 4change &ommission) should "e sending teams of inspectors to have a look into the funds' portfolio$ operation and investment decision process. Mutual funds "ooks should "e inspected "y B14& inspectors in the same way "ank "ooks are
inspected "y Bangladesh Bank inspectors. Banks take deposits from the pu"lic and invest it in loan loan product productss wherea whereass the asset asset managem management ent compani companies es raise raise money money from from the pu"lic pu"lic for investing mainly in the capital market. As investing investing in capital market is riskier than investing in loans$ monitoring of the mutual fund industry is at least as important as monitoring "anks.
ro,lems and prospect in Bangladesh Cenerally people who participate in market they have a lack of knowledge of mutual fund. Many donHt understand what mutual fund is. And those who understand mutual funds have a general lack of trust for managers in in the country. Also most of our active investors are inclined towards short term$ speculative trades. Mutual funds at deep discounts fail to attract them. Also Also lack of disclosures "y the mutual fund managers discourage investors from investing in mutual funds. ?ther than Bangladesh in most countries mutual fund portfolios are made pu"lic. The lacks of tran transp spar arenc ency y$ good good corp corpor orat atee gover governan nance ce in the the list listed ed compa compani nies es$$ acco accoun unta ta"i "ili lity ty of the the accounting and audit profession and professionalism and integrity of fund managers are ma*or challenges of mutual fund. The sector is still at a "asic stage as it is very small compared to the capital market. Though there are a"out ,6 asset management companies licensed "y B14& (the securities regulator)$ only seven have money under management. The asset management companies manage roughly Tk6/ "illion which is less than 78 of the total market capitali0ation. n many countries mutual fund assets are close to 6/8 of market capitali0ation. The success and failure of MFs completely depend on the portfolio managers. But$ the portfolio managers proved to "e unrelia"le and the corrupt placement "usiness destroyed the sector while the profits went into the companies' pockets.
erformance of Mutual Fund Managers Bangladesh:
A simple 1uestion for the last ' do we think mutual funds create .alue for its in.estors? Mutual funds definitely create value for investors and$ therefore$ they manage trillions of dollars glo"ally glo"ally.. %nfortunat %nfortunately ely$$ due to the challenges challenges we mentioned$ mentioned$ you can always argue that the mutual mutual fund industry in Bangladesh Bangladesh is not creating creating value for investors. investors. But the solution solution is to address the issues$ not to shut down the industry. The issue of Bangladesh FundG 3reviously the government had decided to form an eclusive mutual fund to conduct key trading in the market. n this regard$ an open!ended mutual fund titled 'Bangladesh Fund' was formed under the sponsorship of the nvestment &orporation of Bangladesh (&B) and seven other state!owned "anks. This fund formally started its operation on May May /6$ /6$ 2/,, 2/,,.. ts ts tar target get was was to dive divest st shar shares es wort worth h Tk 6/ "ill "illio ion n (6$/ (6$/// // cror crore) e).. But there arose a uestion as to how transparently and efficiently the mutual fund would "e managed$ when the eisting fund management was not that encouraging$ particularly$ when most of the shares were overvalued. n the graph of the ;haka 1tock 4change transactions moved in a month in 2/,, after announcement of the Bangladesh Fund package. 1o$ the fund could not help sta"ili0e the market$ rather it created an artificial demand in the market. Finally$ if you are a less risk!taker and long!term investor$ you can consider investing in MFs. 1killed managers are supposed to "e involved in mutual fund management and they are supposed to run the MFs "ased on etensive research work to minimi0e investors' risks "y investing their money in different shares. To conclude$ the main reason of the MF market lagging "ehind is that most of the funds are close!ended. That means the MF shares mature in a specific period of time. Buying and selling of
open!ended MFs are different from those of close!ended MFs. The num"er of open!ended MFs in the market is very small. There should "e more open!ended MFs alongside the close!ended ones. More MFs in the market can reduce the capital market's too much dependence on the "anking sector.
Conclusion Mutual funds have emerged as the "est " est in terms of variety$ variety$ flei"ility$ flei"ility$ diversification$ liuidity as well as ta "enefits. Besides$ through mutual funds investors can gain access to investment opport opportuni unitie tiess that that would would otherw otherwise ise "e unavai unavaila" la"le le to them them due to limit limited ed knowled knowledge ge and resour resources ces.. Mutual Mutual funds funds have the capa"i capa"ilit lity y to provid providee soluti solutions ons to most most invest investors orsHH needs$ needs$ however$ the key is to do proper selection and have a process for monitoring and controlling. n Bangladesh$ the mutual fund industry is at a growing stage and it is incorporating a higher num"er of new funds each year. But sadly in respect of mutual fund management$ Bangladesh stands nowhere close to the rest of the world. tHs not all a"out the relative relative smallness of the industry in Bangladesh. tHs a"out the regulatory environment$ professionalism of the asset management companies and awareness of the investors. ?nly a few years ago we saw an insane phenomenon in Bangladesh ! mutual mutual funds trading at 2//!7//8 premium to their +ADs. +ADs. +ow things have somewhat reversed. Many closed!ended funds are trading now at 7/!9/8 discounts to +ADs +ADs.. n Bangladesh the investors do not understand the funds or they do not trust fund managers. 1o the investorsH lack of trust in the fund manager perhaps is the main reason "ehind the current predicament of the industry. industry.
