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Mutual Funds declare poor dividends as earnings fall in FY 22

Niaz Mahmud with Shakhawat Hossain Sumon:
16 Aug 2022 00:00:00 | Update: 16 Aug 2022 11:47:16
Mutual Funds declare poor dividends as earnings fall in FY 22

Asset managers of publicly traded Mutual Funds declared poor dividends for the FY 22 as the earnings declined due to sluggish trend in the stock market and the ongoing economic crisis.

Of the 36 listed mutual funds (MFs) that maintain the July-June accounting year, among them, 20 MFs disclose their financial statements. Of them, 16 MFs declared lower dividends, two announced higher dividends, and another two declared dividends at the same rates they had given in the previous year.

Meanwhile, out of the 20 MFs, 19 funds’ earnings per unit (EPU) fell in FY22 compared to the previous year.

Market insiders said that the volatility in the market from the very beginning of the fiscal year 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. 

In fiscal years 2020-21, the DSEX index returned 54.18 per cent, while the market returned only 3.68 per cent. The market’s return affects our dividend payment capacity.

The market’s return affects our 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.

Md Moniruzzaman, Managing Director of IDLC Investments, thought their earnings per unit were low.

The market has been in a downtrend since October. There could be lower IPO earnings. Smaller funds benefit from it, he said.

The Commissioner of the Bangladesh Securities and Exchange Commission (BSEC) said that mutual funds play pivotal role in the stock market. But in the last 10 years, mutual funds failed to meet investors’ expectations.

He said if the market falls, mutual funds underperform and cannot provide a steady return to investors.

Rajesh Saha, Chief Executive Officer of CAL Bangladesh, a newly established foreign brokerage firm, told The Business Post, the capital market correction started in October 2021 and continued till June 2022 (down by 14.5 per cent). As a result, mutual funds have reported significantly lower NAVPU as well as lower capital gains leading to lower earnings per unit.

The number of IPOs listed on the main board decreased to only 9 in FY2022 compared to 15 in the previous year, translating to lower capital gains. He said interest income was also lower due to lower interest rates. 

Due to the bullishness in the country’s stock market, all mutual funds made hefty profits and declared hefty dividends in FY21. Of the 30 closed-end mutual funds, 20 mutual funds returned to profits in the past financial year from significant losses incurred in the previous fiscal year.

A total of 27 closed-end mutual funds out of 36 have long been traded below their face value and net asset value (NAV) on the country’s premier exchange, the Dhaka Stock Exchange (DSE), frustrating both local and portfolio investors.

According to asset management companies’ data, 19 MF’s earnings per unit fell in FY22 compared to the previous year. Besides, 16 MFs declared lower dividends.

Among them, the highest earnings of EBL First Mutual Fund fell by 92.72 per cent. The MF announced a dividend for its unitholders of 6.5 per cent for the year, which was down from 13 per cent for the previous year.

First Janata Bank Mutual Fund’ EPU fell by 90.55 per cent to Tk 0.24. The fund announced a dividend for its unitholders of 7 per cent for the year, which was down from 13 per cent for the previous year.

Popular Life First Mutual Fund’s EPU declined 88 per cent, which declared dividend 7 per cent for FY22 down from 8.5 per cent.

Also EPU fell of CAPM IBBL Islamic Mutual Fund, DBH First Mutual Fund, CAPM BDBL Mutual Fund 01, Green Delta Mutual Fund, SEML Lecture Equity Management Fund, MBL 1st Mutual Fund, AIBL 1st Islamic Mutual Fund, Asian Tiger Sandhani Life Growth Fund, SEML FBLSL Growth Fund, EBL NRB Mutual Fund, Trust Bank 1st Mutual Fund, PHP First Mutual Fund, AB Bank 1st Mutual fund, IFIC Bank 1st Mutual Fund, EXIM Bank 1st Mutual Fund and First Bangladesh Fixed Income Fund.

Besides, Phoenix Finance 1st Mutual Fund’ EPU jumped by 56.25 per cent in the FY22 compared to the previous year. For the unitholders, the fund manager declared a 5 per cent dividend, which was 6 per cent for the FY21.

Stock market experts 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.

MF’s asset to gross domestic product (GDP) in Bangladesh, which is only 0.53 per cent, is the lowest among emerging economies. The ratio is 11 per cent for India, followed by 32 per cent for Malaysia, 1.51 per cent in Pakistan, 73 per cent in the UK and 118 per cent in the USA. The global average is 62 per cent.

However, there are about 50 Asset Management Companies (AMCs) in Bangladesh, in contrast to 49 AMCs in India.

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