Open-end funds grow by 45% in five years

Dealing outside the listed securities in the capital market, the country’s open-end mutual funds grew by 45.06 per cent in the last five years (2017 to 2022), while the growth of the listed closed-end fund industry was only 3.32 per cent.

Open-end mutual funds are those funds where subscription and redemption of units are allowed on a continuous basis. These schemes do not have a fixed maturity period, and investors can buy units at net unit value (NUV) any time based on prices declared by the fund manager on daily or weekly basis.

As per a report of EBL securities, a leading stockbroker, the total assets under management (AUM) stood at TK 11,807 crore at the end of the last fiscal year (2022-23).

Of the amount, the AUM of closed-end funds was approximately TK 6,199.6 crore, while the AUM for open-end mutual funds was Tk 5607.4 crore.

RACE Management PCL leads the industry managing 10 funds with a combined AUM of  Tk 32,29 crore which accounts for around 52 per cent of the total closed-end AUM, followed by LR Global Bangladesh AMCL which has a market share of 16 per cent  to Tk 10,05.4 crore, the EBL Securities study said.

And in terms of open-end funds, the market is dominated by ICB AMCL, which is currently managing 15 funds with a combined AUM of Tk 34,83.8 crore, which is around 62.13 per cent of the total industry AUM.

Besides, Shanta Asset Management Company represents a 3.13 per cent of the total industry AUM which is Tk 175.4 crore in value.

Close-end mutual funds are listed on the capital market but are not able to pay good dividends to shareholders at the yearend. These mutual funds have a provision for retirement after a certain period, but due to the intervention of the regulatory body, the interest of investors in them decreased due to the extension of the second period, the EBL Securities report states.

But since open-end mutual funds do not have a specific maturity date, investors can invest in and sell them at any time per unit price. As a result, the demand for these funds has constantly been increasing, market people believe.

Commenting on the issue, Brac EPL Investment Limited’s former chief research officer, Debbrata Kumar Sarkar told The Business Post that closed-end mutual funds are listed in the capital market, so these units have to be bought and sold at market rates. Recently, a survey has found that majority of closed-end fund units is trading below the face value.

But open-end mutual funds have a unit price close to the asset value. As a result, investors who get good dividends from them become more interested in investing further.

Investing in mutual fund is also related to tax rebate in Bangladesh. As per the Income Tax Act 2023, an investor can avail of 15 per cent (Maximum TK 10 lakh) tax rebate by investing up to 20 per cent (maximum Tk 66.7 lakh) of their taxable income in closed end mutual funds. On the other hands, for open end mutual funds, investors can avail 15 per cent tax rebate up to a total investment of Tk 5 lakh.

The country’s mutual fund industry failed to keep up with the pace of country’s economic growth. The AUM to GDP ratio of the country stood at only 0.24% in FY22, the lowest in the region which indicates exponential growth potentials in the sector.

Among the peer economies, India tops the list with an AUM to GDP ratio of 16.2 per cent, while it is 6.3 per cent and 1.7 per cent for Vietnam and Pakistan, respectively.