Home ›› 17 Mar 2023 ›› Stock
Improper investments by various asset management companies are causing volatility in the mutual funds by creating a gap between the net asset value (NAV) and the market price of the funds, a recent investigation by the Bangladesh Securities and Exchange Commission (BSEC) has found.
Mutual funds listed in the capital market have lost one third of their capital, BSEC Commissioner Dr Mizanur Rahman disclosed on Thursday while addressing a workshop at DSE Tower as the chief guest in the capital on Thursday.
Citing findings from a recent probe by the stock market regulator, he said open-ended mutual funds were trading at a 10-30 per cent lower than the NAV.
“Our investigation has found that the reason behind this is a lack of investment on the asset management company’s end. The prime reason being that we do not provide incentives to good asset managers and zero punishment for the bad ones,” said the commissioner while speaking at the workshop on the operational procedures of exchange-traded funds (ETF).
Dhaka Stock Exchange (DSE) and LankaBangla Asset Management Limited jointly organised the workshop.
Currently, there are 355 companies and 36 mutual funds remain listed on the Dhaka Stock Exchange’s main trading board. Of the listed mutual funds, all except three were still trading below their face values yesterday, according to DSE data.
Prime Finance First Mutual Fund, CAPM IBBL Islamic Mutual Fund, and Grameen One: Scheme Two – traded above or up to their face values.
Meanwhile, the net assets of the country’s closed-end mutual funds dropped by 8.27 per cent in 2022, compared to a surge of 5.65 per cent in 2021.
A few months ago, the securities regulator had formed three separate probe committees to look into the exact amounts of the NAV of three asset management companies (AMCs)-- LR Global Bangladesh, Race Asset Management, and ICB Asset Management.
A three-member probe body was tasked with investigating ICB Asset Management’s funds, while two other five-member committees were tasked with inquiring into the funds of LR Global Bangladesh and Race Asset Management, according to sources at the BSEC.
The BSEC launched the probe in the face of growing criticism regarding fraud allegations against UFS Asset Management, which allegedly embezzled Tk 158 crore from investors’ funds.
Meanwhile, a recent study conducted by LankaBangla Securities Ltd, a leading stockbroker, outlined poor performances of mutual funds.
The closed-end funds registered a portfolio loss of 8.27 per cent in 2022, whereas the broad market declined by 8.14 per cent, according to the study titled ‘Bangladesh Capital Market Review 2022’.
The ratio of Bangladesh’s mutual fund assets to its gross domestic product (GDP) is only 0.4 per cent, the lowest among its peer countries.
As of July 2022, the assets under management (AUM) of Bangladesh’s mutual fund industry, comprising 54 AMCs, stood at $1.6 billion, according to investment bank IDLC.
In the meantime, the AUM of the Indian mutual funds industry operated by 43 AMCs was $472 billion during the same period, it said.
AUM refers to the total market value of investments that fund managers make on behalf of their clients.
Market insiders identified six reasons behind the lower penetration of mutual funds in the country. The reasons include lower financial literacy, difficulties in buying and selling mutual fund units, lack of fixed income-focused funds, rigid investment conditions for asset and sectoral allocation, and a lack of promotion and investable companies.
According to industry insiders, a volatile capital market from the very beginning of FY22 also hampered the profit-making ability of the mutual funds.
Speaking on the issue on condition of anonymity, a BSEC official said, “Mutual funds play a pivotal role in the stock market. But the sector has failed to meet investor expectations in the last 10 years.”
Professor Abu Ahmed, a capital market analyst, said, “Fund managers need to restore investor confidence by ensuring transparency in managing funds professionally and offering healthy returns.
“The industry should be regulated strictly, as anomalies related to fund management have already been detected. The country’s mutual fund AUM to GDP ratio remains significantly low at 0.4 per cent. It has enough room to grow.”
At Thursday’s workshop, BSEC Commissioner Dr Mizanur also discussed the potential of the ETF investment sector, which has yet to be explored despite the enactment of a legislation in this regard. Although there are some issues with the exchange-traded fund rules, the sector is promising and can increase liquidity in this asset class, he said.
DSE Chairman Professor Dr Hafiz Md Hasan Babu chaired the event while DSE’s acting Managing Airector M Saifur Rahman Majumdar, LanakaBangla Securities Managing Director Mohammed Nasir Uddin Chowdhury, representatives of asset management companies were also present on the occasion among others.
