A total of 30 closed-end mutual funds out of 37 have long been traded below their face value and Net Asset Value (NAV) on the country's premier bourse Dhaka Stock Exchange (DSE), frustrating both local and portfolio investors
Mutual Fund (MF) assets to gross domestic product (GDP) in Bangladesh, which is only 0.53%, is the lowest among emerging economies.
The ratio is 11% for India, followed by 32% for Malaysia, 1.51% in Pakistan, 73% in the UK and 118% in the USA. The global average is 62%.
However, there are 47 Asset Management Companies (AMCs) in Bangladesh, in contrast to 49 AMCs in India.
A total of 30 closed-end mutual funds out of 37 have long been traded below their face value and Net Asset Value (NAV) on the country's premier bourse Dhaka Stock Exchange (DSE), frustrating both local and portfolio investors.
The overall price of Mutual Fund (MF) is currently trading at a 21.5% discount than its Net Asset Value at market price.
Analysts and stock market insiders have attributed a lack of investable funds in the market and confidence crisis as major reasons behind the low popularity of MFs in the country.
Factors behind hurting MF investors
Stock market insiders say that mutual funds play an important role in keeping the market stable. But the roles and performances of fund managers have recently come under question.
Speaking to Dhaka Tribune, stock market analysts said investors were unwilling to invest in mutual funds due to their lower returns.
A top official of an asset management company said that typically prices of mutual fund units remained very close to their net asset values (NAVs) in a global context. However, they were unusually lower in Bangladesh, making investors dissatisfied with the returns of investment.
Moreover, investors lost confidence in mutual funds as fund managers had not liquidated funds within deadlines, as they lacked transparency, he added.
He suggested enacting sound policies for mutual funds so that investor confidence was restored.
Talking to Dhaka Tribune, Abu Ahmed, stock market analyst and honorary professor at Dhaka University's economics department, said a fund manager had to restore investor confidence by ensuring transparency in managing a fund professionally through offering good returns.
Earlier in September 2018, the stock market regulator had given a go-ahead to the extension of the tenures of all closed-end mutual funds and handed over the authority of extension to asset managers.
In this regard, the BSEC had issued a directive scrapping its previous directive on conversion or liquidation of closed-end MFs on completion of 10-year period.
Why low popularity of mutual funds?
Market capitalization of the Dhaka Stock Exchange stood at Tk3,97,143 crore on Thursday, while Assets Under Management (AUM) were about Tk13,000 crore or above 3% of total market cap.
Managing Director and CEO of Asian Tiger Capital Partners Asset Management Limited Md. Nafeez-Al-Tarik identified six reasons behind the low popularity of mutual funds in Bangladesh compared to other countries.
The reasons are: low financial literacy, no easy way to buy/sell mutual fund units, lack of fixed income focused funds, rigid investment constraints for asset and sectoral allocation, lack of promotion and investable companies.
President of the Association of Asset Management Companies and Mutual Funds (AAMCMF) Hasan Imam said the sector ended up disbursing low dividends, as the stock market has remained bearish for long.
He also said that local investors determined the performance of a mutual fund based on its unit price whereas its net asset value should be the key criterion.
Some people believe that mutual funds are risk- free instruments, but in reality there remain some risks since the funds are invested into the stock market, he added.
Nafeez-Al-Tarik said Mutual Funds diversified their assets across different asset classes, sectors and individual securities. By diversifying portfolio assets, fund managers lowered the risk of the portfolio while providing similar returns. This lowered risk could give investors greater confidence to invest in the capital market through mutual funds.
How to boost Mutual Fund Units
Talking to Dhaka Tribune, sectoral people said that Mutual Fund Law should be enforced properly and a clear guideline had to be developed to encourage investment in Mutual funds. Investors should feel confident about the disclosures of mutual funds and proper monitoring mechanisms on the mutual fund industry by the regulator.
Managing Director of Vanguard Asset Management Limited Waqar Ahmad Choudhury told Dhaka Tribune that fiscal benefits were necessary to encourage investment in mutual funds. Tax exemption on the dividend of a mutual fund could help in this regard.
“A proper mutual fund ecosystem can be developed by engaging banks, NBFIs, brokerage houses and insurance companies. These institutions can work as selling agents of mutual funds of different fund managers," he said.
Abu Ahmed noted that the stock market regulator should ensure investors' rights by implementing regulatory reforms if needed. Strong monitoring and looking into fund investment were a must, since anomalies had been observed earlier.
BSEC Commissioner Dr. Mizanur Rahman said that the MF sector must be strong to help the stock market gain strength and also meet higher demands of private investment in the coming years.
The stock market regulator decided to increase transparency in mutual funds by making it mandatory to make every portfolio-related statement public to bring about accountability and revive investor confidence, he said.