A slew of new funds offering special features and giving investors multiple investment avenues hit the capital market.
Analysts say operation of such funds will increase the variety of products in the market that is still limited in the range of vehicles it offers to investors.
The Bangladesh Securities and Exchange Commission (BSEC) has already come out with a detail regulatory framework for governing such funds. Last month, it made guidelines on conversion of closed-end fund to open-end fund because of growing popularity in the new-look funds.
Open-end fund can issue and redeem units any time during the life of the scheme while close-ended fund cannot issue new units except in case of bonus or rights issue.
New investors could join the scheme by directly applying to the mutual fund at applicable net asset value related prices in case of open-ended schemes while that is not the case in case of close-ended schemes, where new investors can buy the units from secondary market only.
Funds like Prime Financial First Unit Fund, Sandhani Life Unit Fund and MTBL Unit Fund are already in operation.
A dozen of such types of funds, including Alif Islamic Income Fund, Alliance S&P Shariah Index Fund, VIPB Accelerated Income Fund, IDIC-50 Unit Fund, IFIC Infrastructure Fund, Prime Bank Infrastructure Fund and UCBL Infrastructure Fund are in the offing.
Alliance Capital Asset Management Limited is going to start “Alliance S&P Shariah Index Fund” – the first of its kind in Bangladesh to bring diversification in the stock market.
The Investment Corporation of Bangladesh (ICB) has already received regulatory approval to convert its eight closed-end mutual funds into open-end ones after the expiry of their tenure on December 31 this year. At present, it manages three open-end unit funds sponsored by the government.
The eight mutual funds are: First ICB Mutual Fund, Second ICB Mutual Fund, Third ICB Mutual Fund, Forth ICB Mutual Fund, Fifth ICB Mutual Fund, Sixth ICB Mutual Fund, Seventh ICB Mutual Fund and Eighth ICB Mutual Fund.
More companies are preparing to join the bandwagon to sponsor new variety of funds, after getting positive response from the investors, industry insiders said.
The structure of the fund would be like mutual funds but its exposure, by nature, will be broader than the stock market. Such fund, which is open-ended fund, is a professionally managed collective investment scheme.
The fund manager pulls money from investors through its sales agents and invests it in stocks, infrastructure projects, real estate, bonds and short-term money market instruments, and pays out dividends to the unit holders annually.
“Such funds will provide alternative investment options that lacks in the market,” said analyst Mahmood Osman Imam, a market analyst. “Most investors are not
sophisticated. They do not know how to invest. Through investment in these funds, managed by professionals, they will hedge their risk”.
Moin Al Kashem, CEO of Prime Finance Asset Management, said: “The fund is a less risky investment tool for the people and institutions who want to avoid a highly volatile market.”
The first privately sponsored open-ended unit fund titled “Prime Financial First Unit Fund” was managed by his company that got overwhelming response from the investors.
“Variety of funds will open up new investment avenues for the investors. It will provide investors an effective hedging tool against volatility. Launching of such funds should be backed with adequate awareness programme to make it popular among retail investors,” he said.
Wali-ul-Maroof Matin, managing director of Alliance Capital, said: “There are too many retail investors who do not really know how to invest. Retail investors make up almost lion’s share of the daily trading volumes. This type of fund will be one way to absorb them.”
He said one major setback in Bangladesh capital market is lack of good products. “We want to offer to the real investors of home and abroad a trustworthy product in the share market.”
At present, a total of 48 mutual funds are in operation in the country managed by nine asset managers. Out of these funds, 41 are closed-end and 7 are open-end funds.
The market capitalisation of the closed-end funds is more than Tk34.5bn, which is 1.32% of the total market capitalisation of Dhaka Stock Exchange. The total asset under management of the closed-end funds is over Tk44.7bn.
