An outline of mutual fund sector of Bangladesh has been given here.In addition,impediments that are holding back the improvement of the sector and some suggestions to remove them are mentioned.

1. MUTUAL FUNDS OF BANGLADESH:
AN OVERVIEW

2. What is Mutual Fund (MF)?
an investment vehicle that is made up of a pool of funds collected
from many investors for the purpose of investing in securities such as
stocks, bonds, money market instruments etc.
Economic motivation for fund includes-
• risk reduction via diversification
• lower cost of contracting and processing information
• professional portfolio management
• liquidity
• payment mechanism.

3. 3 types of Mutual funds
Closed-end Fund: limited number of shares , no sales or purchase of
fund shares by the fund company after initial issue.
Open-end Fund: can issue and redeem shares at any time, share is
purchased directly from the fund itself rather than from existing
shareholders.
Unit Trust: a limited number of unit certificates are issued by the
investment company that are not tradable in the secondary market
that is held by the trustee until they are redeemed by the issuer , has
fixed termination date and investors know that the portfolio consists
of specific securities.

4. Types of Funds by Investment Objective
Stock Fund/Equity Fund
Bond Fund
Money Market Fund
Asset Allocation Fund
Exchange Traded Fund (ETF)

5. Mutual funds in Bangladesh
• The sector is still at a nascent stage as it is very small compared to the
capital market.
• As of August, 2016, there are 35 closed-end MFs listed in the
country's stock market.
• The asset management companies manage money less than 3% of
the total market capitalization.
• Mutual fund sector ranks 12th based on total market
capitalization.(Source: DSE Sector-Based Performance, May 2016)

6. DSE Sector-Based Performance, May 2016
15.76%
14.79%
14.25%
13.94%
9.31%
6% 5.99%
5.26%
3.45% 3.23% 2.80%
1.08%
0.98% 0.87% 0.81% 0.76% 0.38% 0.23% 0.06% 0.03%
Sector-based Market Capitalization, May 2016

7. Mutual funds in Bangladesh (Cont.)
Public Mutual Fund:
• Owned & managed by Investment Corporation of Bangladesh
(ICB) which is government-owned investment bank.
• The country’s first mutual fund, the First ICB Mutual Fund was
launched on 25 April, 1980.
• ICB is now managing twenty one funds: ten close-end Mutual
Fund and eleven open-end Mutual Fund known as Unit Fund.
• Bangladesh Fund is the country’s largest open-end mutual fund.

8. Private Mutual Fund:
• Managed by private asset management companies.
• AIMS First Guaranteed Mutual Fund, a closed-end balanced
fund, launched in 2000 is the first private mutual fund in
Bangladesh.
• Prime Financial First Unit Fund, launched in 2010 is the first-ever
open-end mutual fund in Bangladesh.
• Currently, 25 private mutual funds are listed in the capital
market.

9. Islamic Mutual Fund:
• Three Islamic Mutual Fund:
1. ICB AMCL Islamic Unit Fund
2. IFIL Islamic Mutual Fund 1
3. AIBL 1st Islamic Mutual Fund
• Two new Islamic mutual funds are soon going to be launched-
i. ATC Shariah Unit Fund
ii. UFS Padma Life Islamic Unit Fund

10. Exchange Traded Fund (ETF) :
• On May, 2016 Bangladesh Securities and Exchange Commission
(BSEC) has approved the draft rules of ETF.
• According to BSEC, ETF will be listed with the bourses under the
Collective Investment Scheme, despite the fund being formed as
an open-ended one.
• It will be formed through distribution of private placements to
eligible investors.
• The stockbrokers and dealers will play the role of market makers.

11. Formation of mutual fund
• A mutual fund is formed as a Trust under Trust Act, 1882
• The Trust Deed is to be registered under Registration Act, 1908.
• Before the registration, it has to be approved by the Securities
and Exchange Commission.
• MFs must comply with Securities and Exchange Ordinance, 1969
and the Securities and Exchange Commission (Mutual Fund)
Laws, 2001.

12. Key players in mutual fund operation
• As per the Securities and Exchange Commission (SEC) Mutual Fund
Laws, 2001 four parties are involved in floatation of a mutual fund:
A. Sponsor –The Sponsor constitutes the fund by virtue of Trust Deed.
B. Trustee –The Trustee is the guardian of the fund and holds all
capital assets of schemes of the Fund in trust on behalf of the unit
holders. There are five registered trustees in our capital market:
1)Investment Corporation of Bangladesh (ICB)
2) Bangladesh General Insurance Company Ltd. (BGIC),
3) Sandhani Life Insurance Co. Ltd.
4) BRAC Bank Ltd. and
5) Eastern Bank Ltd.

13. Continued..
C. Asset Management Company –It structures, operates and manages
the schemes of the Fund approved by the Trustee and the
Commission. Some top asset managers in terms of asset under
management are Race Asset Management Company, ICB AMCL, LR
Global Bangladesh Asset Management Company, AIMS of Bangladesh
etc.
D. Custodian –It keeps the securities of the Fund in safe custody.4
registered custodians are there in capital market:
1) Investment Corporation of Bangladesh (ICB)
2) Standard Chartered Bank (SCB)
3) BRAC Bank Ltd. &
4) Citibank N.A

14. Situation of Mutual Fund Sector
• In 2010,Mutual funds were traded at 500% premiums to Net
Asset Value (NAVs).
• In 2013,the sector did exceptionally well because of fund
managers’ good performance.
• Now most closed-end funds are trading at 30-40% discounts to
NAVs.
• The industry's current price to net asset value (NAV) ratio stands
at 0.76

15. YTD Return of Some Mutual Fund Stocks (Source:
LankaBangla Securities, August 2016)
Positive YTD Negative YTD
35.67
20.73
3.09
2.84
2.44
1.07
0.9
0.85
0.77
0.55
0 5 10 15 20 25 30 35 40
7THICB
8THICB
NLI1STMF
SEBL1STMF
RELIANCE1
ICBISLAMIC
NCCBLMF1
IFILISLMF1
ICB2NDNRB
FBFIF
MUTUAL FUND STOCKS WITH
POSITIVE YTD VALUE
-0.28
-0.47
-0.61
-0.63
-0.77
-0.97
-1.1
-1.38
-1.67
-1.73
-1.92
-1.99
-2.38
-2.46
-2.73
-3.05
-3.27
-3.28
-3.4
-3.5
-10.28
-12 -10 -8 -6 -4 -2 0
ICB1STNRB
PF1STMF
PRIME1ICBA
ICB3RDNRB
ICBEPMF1S1
ICBAMCL2ND
ABB1STMF
AIBL1STIMF
GRAMEENS2
MBL1STMF
LRGLOBMF1
EBLNRBMF
POPULAR1MF
1JANATAMF
EBL1STMF
TRUSTB1MF
DBH1STMF
GREENDELMF
IFIC1STMF
PHPMF1
1STPRIMFMF
Mutual Fund stocks with Negative YTD value

16. Reasons behind the Setback of the MF Sector
lack of availability
of quality shares
Volatility of capital
market
Investor’s
inclination toward
short term trade
Investors’ lack of
trust in the fund
managers
Absence of
organized
secondary
debenture market

17. Some Suggestions for Improvement
Immediate redemptions of the funds
Good corporate governance in the listed companies
Ensuring accountability of the fund managers
Regular inspection of mutual funds portfolio and operation

18. References
• DSE Sector-Based Performance May 2016 [pdf].Available at:
http://www.dse.com.bd/pdf/Mreview_May_2016.pdf [Accessed 18th
August]
• Mutual Fund Performance: Share Market Analysis of Dhaka Stock
Exchange. [Online] Available at:
http://lankabd.com/mutualfunds/fundcomparison?d1332565o=1&sit
eLanguage=en&siteLanguage=en&d-1332565-s=1 [Accessed 18th
August]
• http://archive.dhakatribune.com/stock-market/2014/feb/04/long-
way-go-mutual-funds#sthash.sYWYiy33.dpuf