BSEC hikes investment limit of mutual funds

The stock market regulator, Bangladesh Securities and Exchange Commission (BSEC), has increased the mutual fund investment limit to 80 per cent to boost the secondary market.

The decision came during a commission meeting held at the BSEC headquarters in the capital on Thursday.

As per the securities rules, close-ended mutual funds were allowed to invest up to 60 per cent of their fund size in listed securities, including initial public offerings and pre-IPO placement shares.

Close-ended mutual funds were allowed to invest the remaining 40 per cent of their fund size in entities other than capital market instruments.

As per the decision of Thursday, increase in the investment limit of mutual funds in the stock market from 60 per cent to 80 per cent will result in the funds’ capacity to now invest Tk 80 in the stock market as against Tk 60 out of the total Tk 100.

Executive Director and Spokesperson of BSEC Mohammad Rezaul Karim said, “The investment limit of mutual funds in the capital market has been re-determined in the meeting. It has been decided to increase the current limit from 60 per cent to 80 per cent.”

This move is expected to provide a boost to Bangladesh’s capital market by allowing mutual funds to invest more. The decision has been made with the aim to improve the liquidity of the market and attract more investors.

Market insiders said with this increase in investment limit, mutual funds will have more flexibility to invest in the capital market and create opportunities for better returns for their investors.

BSEC Commissioner Dr Mizanur Rahman explained that after mutual funds were listed in the capital market, one third of their total capital decreased.

“This was due to the improper investment of various asset management companies, resulting in a gap between the net asset value (NAV) and purchase price for open-ended mutual funds and close-ended mutual funds being traded at a lower price of 10-30 per cent of the NAV,” he said.

“Our investigation has found 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,” the commissioner added.

Earlier this week, the BSEC undertook several steps against Universal Financial Solutions Ltd (UFSL) following an investigation over the alleged embezzlement of Tk 235 crore by the asset manager from four mutual funds, through fake investment documents and unnamed fixed deposits in banks.

Of the total amount, UFSL laundered Tk 170.69 crore, according to a report of the BSEC inquiry committee submitted on January 30.

Recently the regulatory body requested the Bangladesh Police to slap a foreign travel ban on KH Asadul Islam, managing director of Alliance Capital Asset Management, as he has allegedly embezzled Tk 45 crore.

Currently, 355 companies and 36 mutual funds remain listed on the Dhaka Stock Exchange. Among those, 34 those mutual funds were still trading below their face values yesterday, according to DSE data.

Also, the net assets of the country’s close-ended mutual funds dropped by 8.27 per cent in 2022, compared to a surge of 5.65 per cent in 2021.

Such shaky performance of mutual funds was outlined in the ‘Bangladesh Capital Market Review 2022’, a study conducted by LankaBangla Securities Ltd, a leading brokerage house.

According to the study, the close-ended funds registered a portfolio loss of 8.27 per cent in 2022, whereas the broad market declined by 8.14 per cent.

The ratio of Bangladesh’s mutual fund assets to its gross domestic product (GDP) is only 0.4 per cent, the lowest among the neighbouring countries, representing the sector’s untapped exponential growth potential.

IDLC, an investment bank, stated that as of July 2022, the assets under management (AUM) of Bangladesh’s MF (Mutual Fund) industry, operated by 54 asset management companies (AMCs), stood at $1.6 billion.

The AUM of the Indian MF industry operated by 43 AMCs was $472 billion during the same period, according to IDLC.

AUM refers to the total market value of investments that fund managers make on behalf of their clients.