Most Islamic mutual funds’ returns fall

The majority of Islamic mutual funds could not give good returns to investors last year as most of the stocks were stuck at their floor prices for a long time, weakening the investors’ sentiment, and remained clung to an uncertain market outlook. 

At present, 12 open-end Islamic mutual funds and four closed-end Islamic mutual funds are operating in the country.

Returns from 11 out of 14 mutual funds have declined in 2023. Of them, returns from seven mutual funds were negative, according to a review of Islamic mutual funds in Bangladesh conducted by EBL Securities, a leading stock brokerage.  

The total assets under management (AuM) of Islamic mutual funds stood at Tk 770 crore. Out of this, AuM of closed-end Islamic funds was Tk 369 crore while AuM of open-end Islamic mutual funds during the same period was Tk 401 crore.

ATC Shariah Unit Fund, an open-end Islamic mutual fund, gave over a 13 per cent return in 2022, but last year the mutual fund return was negative 1.39 per cent.

Another top Islamic mutual fund is Capitec Padma P.F. Shariah Unit Fund’s negative return was 15.18 per cent last year, compared to 23.87 per cent in the previous year.

The Islamic mutual fund industry in Bangladesh started its journey with the launch of the country's first Islamic mutual fund, named 'IFIL Islamic Mutual Fund-1', a closed-end fund floated by ICB Asset Management Company Limited in 2010.

Subsequently, in 2016, Asian Tiger Capital Partners Investments Limited launched Bangladesh’s first open-end Islamic mutual fund named "ATC Shariah Unit Fund," according to the EBL Securities data.

In the open-end segment, ICB Asset Management Company Ltd leads the industry with a total AuM of Tk 69 crore, which accounts for around 17.35 per cent of the total Islamic open-end AuM, followed by Capitec Asset Management Limited, which has a market share of 15.96 per cent with Tk 64 crore under management.

And in terms of the closed-end segment, the market is dominated by Strategic Equity Management Limited (SEML), with a total AuM of Tk 101 crore, around 27.55 per cent of the total Islamic closed-end AuM, followed by LR Global AMC, which has a market share of 27.3 per cent with a total AUM of Tk 101 crore.

Thirty out of 37 mutual funds were trading at a discount. The market capitalisation of 37 funds stood at Tk 35.7 billion, while asset under management (AUM) of the sector stood at Tk 54.2 billion.

RACE holds the highest market share of 49.2 per cent with 10 funds and an AUM of Tk 26.7 billion.

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

The assets under management of Bangladesh’s MF industry, operated by 65 asset management companies (AMCs), stood at $1.6 billion as of last year.

In this context, the AUM of the Indian mutual fund industry operated by 43 AMCs was $472 billion during the same period. AUM refers to the total market value of investments that fund managers make on behalf of their clients.

Analysts and stock market insiders have attributed a lack of investable funds and less confidence to unpopularity of mutual funds in Bangladesh.

“Mutual funds in developed countries are one of the most popular investment tools. In the USA, the size of the industry is larger than its economy,” said a stock market analyst.

The current ratio of mutual fund assets to Bangladesh’s GDP is only 0.4 per cent, which 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.

The year of 2023 was a complete mess for the stock business and a year of disappointment for the stock market as the average turnover and foreign investment reached rock bottom, which was never encountered by investors at such a bad time after the collapse in 2010.

The capital market also felt the heat as the core index of the country’s premier bourse plunged below the psychological threshold of 6,000-mark, forcing the stock market regulator to reinstate the floor price at the end of July 2022, which was lifted in January.

DSEX, the key index of the Dhaka bourse, closed at 6,246.49 points on the last trading day of 2023, which was 6,206.81 points on the first trading day of the year. The index rose only by 0.64 per cent in the year.

Market analysts attributed investors’ worries over the country’s weak macro economy and the global economic outlook due to Russia-Ukraine war to the recent stock market’s sharp downturn.

The capital market of Bangladesh had a tough ride due to economic challenges resulting from global adversities such as the escalating Russia-Ukraine war and worldwide recessionary forecasts, the market insider said.

The capital market of Bangladesh navigated through a gloomy landscape in 2023, owing to internal constraints and challenging external factors, said EBL Securities.

Exporters in the country gained from those devaluations, but importers and consumers were at a loss. Moreover, small and medium businesses faced difficulties in importing goods or raw materials due to the USD shortage.