Home ›› 19 Sep 2022 ›› Front
Bangladesh’s Mutual Fund (MF) Assets to gross domestic product (GDP) are only 0.4 per cent, which is the lowest among the neighbouring countries, indicating that the sector has the potential for exponential growth.
As of July 2022, the assets under management (AUM) of Bangladesh’s MF industry operated by 54 Asset Management Companies (AMCs) stood at $1.6 billion, according to IDLC, an investment bank.
In contrast, the AUM of the Indian MF Industry operated by 43 AMCs was $472 billion during the period, it said. AUM is the total market value of the investments that fund managers on behalf of clients
Analysts and stock market insiders have attributed a lack of investable funds and the confidence crisis to the unpopularity of MFs in the country.
IDLC Managing Director Md Moniruzzaman told The Business Post, “In developed countries, mutual funds are one of the most popular investment vehicles. In the USA, the size of the industry is bigger than the economy itself.”
But Bangladesh is lagging well behind its neighbouring countries such as India in terms of the size of the mutual fund industry, he said.
Mutual Fund Assets to GDP ratio
Mutual Fund Assets to GDP ratio in Bangladesh is only 0.4 per cent. But this ratio is 16.2 per cent in India, followed by 54 per cent in Malaysia, 1.3 per cent in Pakistan, 28.3 per cent in Thailand, 6.6 per cent in Vietnam, 195.7 per cent in the USA, and 180.8 per cent in Canada.
Performance of Mutual Funds
Out of the 36 MFs listed on the stock exchanges, thirty-two were trading at discounts. The market capitalization of 36 MFs stood at Tk 36.9 billion, while the AUM of the MF industry stood at Tk 58.3 billion.
RACE, which manages 10 MFs, makes up the highest market share of 51.3 per cent and its AUM is Tk 29.9 billion, according to the BRAC EPL.
The average daily turnover of the sector stood at Tk 20.6 million in the past week that ended on September 15, which was 76.5 per cent lower than the previous week’s turnover value.
A total of 29 closed-end MFs out of 36 have long been traded below their face values and net asset value (NAV) on the Dhaka Stock Exchange (DSE), frustrating both local and portfolio investors.
As per the investment guide for 2022 of LankaBangla Finance, among the fund managers, ICB AMCL was the top performer, having the only positive portfolio return as the NAV of funds managed by ICB AMCL increased by 28.79 per cent in 2021.
The second performer was CAPM, achieving a portfolio return of 19.05 per cent, followed by AIMS 10.59 per cent, VANGUARD 9.62 per cent, LR GLOBAL 8.15 per cent, RACE 7.65 per cent, Strategic Equity Management Limited (SEML) 6.16 per cent, VIPB 0.84 per cent and Asian Tiger Capital Partners negative 6.44 per cent.
In 2021, among the asset managers, the top asset manager in terms of assets under management is RACE, having a 49.19 per cent market share in the industry, followed by LR GLOBAL, VANGUARD, AIMS, SEML, CAPM, VIPB, and ATCP.
Why MFs remain unpopular
Market insider 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 and sell mutual fund units, lack of fixed income-focused funds, rigid investment constraints for asset and sectoral allocation, and lack of promotion and investable companies.
Market insiders said that the volatility in the market from the very beginning of FY22 also affected the profit-making ability of the MFs, mainly by declining earnings and announcing lower dividends for unitholders in the year compared to the previous year.
“The market’s return affects dividend payment capacity. More than 80 per cent of our portfolio is invested in the secondary market. Nevertheless, our total return and alpha on a NAV basis or price basis both outperformed the market,” LR Global Bangladesh legal and compliance department head Monowar Hossain told The Business Post.
“Mutual funds play a pivotal role in the stock market. But in the last 10 years, mutual funds failed to meet investors’ expectations,” said an official at Bangladesh Securities and Exchange Commission (BSEC).
“If the market falls, mutual funds underperform and fail to provide a steady return to investors,” he said.
How to boost MFs
A fund manager needs to restore investor confidence by ensuring transparency in managing funds professionally through offering healthy returns, said stock market expert Abu Ahmed.
“The regulator should regulate the industry painstakingly as anomalies related to the fund managements have already been detected,” he said.
“As country’s mutual fund AUM to GDP ratio remains significantly low at 0.4 per cent, as compared to the peers. It has enough room to grow,” said the stock market expert.
Association of Asset Management Companies and Mutual Funds President Hasan Imam said, “We target to increase the size of the mutual fund industry by at least 25 per cent within a year. To that end, each asset manager needs to contribute separately.”
He said this year each mutual fund paid healthy cash dividends from profits gained from FDR. So, on average, the mutual funds paid a 7 per cent dividend, according to him.
DSE Brokers Association of Bangladesh President Richard D’Rozario said, “All types of people should invest in the capital market. But investors with no knowledge about the market should invest through institutional investors to keep themselves safer.”
