Introduction

Mutual funds have become the investment vehicle of choice for many investors. At the
beginning of 2004 nearly 16% of all assets in intermediaries were held by mutual funds. Twenty-
two percent of the entire retirement market was invested in mutual funds by the beginning of
2004, and almost 50% of all U.S. households held stock in them. Mutual funds pool the
resources of many small investors by selling those shares in the fund and use the proceeds to buy
securities. Through the asset transformation process of issuing shares in small denominations and
buying large blocks of securities, mutual funds can take advantage of volume discounts on
brokerage commissions and can purchase diversified portfolios of securities. Mutual funds allow
small investors to obtain the benefits of lower transaction costs in purchasing securities and to
take advantage of a reduction in risk by diversifying their portfolios.

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History of mutual fund

The origin of mutual funds can be traced back to the mid to late 1800s in England and Scotland.
Investment companies were formed that pooled the funds of investors with modest resources and
used the money to invest in a number of different securities. These investment companies
become more popular when they began investing in the economic growth of the United States,
mostly by purchasing American railroad bonds. The first fund in which new shares were issued
as new money was invested the dominant structure seen today was introduced in Boston in 1824.

The first modern day mutual fund was opened in America in 1924. The growth of the mutual
fund industry stalled due to great depression of 1930s like many other economic activities.
Mutual Funds became mainstream investments in the USA and the world in 1990s. The number
of mutual fund in the world stood at over 53500 at the end of June, 2003 of which maximum of
59% were in America followed by 32% in Europe and 9% in Africa and Asia Pacific. By type of
fund, 42% were equity funds, 31% were debt fund and 21% were balanced/mixed fund, the rest
6% were unclassified fund.

Types of mutual funds:

 Open-ended mutual fund

Open-ended 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. Investors
can buy or repurchase the units at any time at NAV /NAV based prices declared by the fund
manager on daily or weekly basis.

 Closed-end mutual fund

Closed-end mutual funds are those Funds where the shares are initially offered to the public
and are then traded in the secondary market.

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Mutual fund by investment style:
Over a period of time, the fund managers have developed a variety of products to cater to the
needs of the investors. They are:

 Growth funds

This fund offers potential for appreciation in share value, rather than the dividend. Such
funds invest in stocks and have tendency to outperform other funds and other modes of
savings over a period of time.

 Income funds

This funds, offers lucrative dividend but very little potential for growth. These funds mainly
invest in government paper, bonds issued by municipal or local bodies, corporate debts and
in stocks which offer regular dividend.

 Balanced funds

The balanced funds offer prospects of both moderate appreciation in share value as well as
current income. The fluctuation in share price may be low. Such funds invest in stocks,
corporate debts and Government paper.

 Money market mutual funds

Such funds have an objective of taking advantage of the volatility in interest rates in the
money market instruments. The funds are invested in certificate of deposits, inter-bank call
money market, commercial papers, T-bills and Short-term securities with a maturity period
of less than one year.

 Index funds

The objectives of these Funds are to increase the value of the portfolio in line with the
benchmark index. The funds are invested in the shares of companies as included in the
benchmark index in the same proportion.

 Leveraged funds

These funds have an objective of increasing the value of the portfolio and benefit the
shareholders by gains exceeding the cost of funds. The funds are invested in speculative and
risky investments like short sales to take advantage of declining market.

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Advantages of mutual funds:
 Diversification of risk

Diversification is an important advantage to invest in mutual funds. Risks can be lowered by

holding a portfolio of diversified securities rather than a limited number. Mutual Funds
substantially lower the investment risk of small investors through diversification of
investments in different sectors. The objectives of the funds are to maximize the return for a
given level of risk.

 Liquidity

Mutual Funds mobilize the saving of small investors and channel them into lucrative
investment opportunities. As a result, mutual funds add liquidity to the market. Moreover, as
the funds are long term investment vehicles, they reduce market volatility by offering
support to scrip prices.

 Accessible

Mutual Funds provide the small investor access to the whole market which would be
difficult to achieve individually.

 Reduction of transaction cost

The investors can save the transaction cost by purchasing a single share of mutual fund.

 Flexibility

The investors can pick and choose a mutual fund to match his particular needs. They have
the option of transacting their holdings from one scheme to another; get updated information
and so on.

Disadvantage of mutual funds:

 Economic scenario

As the business and economic conditions do not remain constant, the mutual fund may face
some difficulties in future. Especially if the manager does not shuffle the investment
portfolio with the passage of time, or some other major unforeseen disaster/event changes
the investment scenario.

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  Management

As the portfolio of a mutual fund is managed by the fund managers, the investors have no
say in the affairs of a mutual fund although they are the owner of the fund.

 Over diversification

There exists the danger of over-diversification which would inevitably lead to a reduced
return on the portfolio.

Future Prospect of Mutual Fund in Bangladesh:

Mutual Fund is one of the fastest growing industries throughout the world. In Bangladesh this
industry is beginning to receive the status of preferred savings mode. With the wide range of
products, the industry is well positioned to meet the investor’s needs even with different risk
profiles. SEC’s recent decisions to allow pre-emptive right to mutual funds for preferential
allotment in public issue will help in designing strong and sound portfolio of the funds. Since
mutual funds for industry offers long-term value with maximization of return and minimization
of risk, this industry has enormous prospects in Bangladesh. Mutual fund is clearly the only
investment avenue that is expected to offer returns that will continue to outpace inflation. We
expect investor’s sentiment to respond positively given the backdrop of markedly improved
fiscal management and continued earnings growth.

Performance & Analysis of Mutual Funds in Bangladesh:

Information about the fund's performance over the last 10 years is included. Investors should be
aware that past performance is not necessarily an indicator of future results. As important is how

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well the fund has traditionally performed compared to an index, such as the S&P 500. A fund's
performance is also related to the fund's volatility, dividend payments, and turnover.

Table 1: Launching Date & Paid-up Capital

Name of the Fund Date of Launching Paid-up capital

(Tk.in lac)
First ICB Mutual Fund 25 April 1980 75.00
Second ICB Mutual Fund 17 June 1984 50.00
Third ICB Mutual Fund 19 May 1985 100.00
Forth ICB Mutual Fund 06 June 1986 150.00
Fifth ICB Mutual Fund 08 June 1987 150.00
Sixth ICB Mutual Fund 16 May 1988 500.00
Seventh ICB Mutual Fund 30 June 1995 300.00
Eighth ICB Mutual Fund 23 July 1996 500.00
Total = 1750.00
Source: ICB Mutual Fund Annual Report 2007--08

Table 2: Portfolio Position, Market Price per Certificate and Number of Certificate Holders

(As on 30 June 2008)

Name of the Fund Total Cost Market Value Market Price No. of
Price of the of the per Certificate
portfolio Portfolio Certificate Holders
(Tk. In lac) (Tk. In lac) (Taka)
First ICB Mutual Fund 580.29 3364.52 7970.25 975
Second ICB Mutual Fund 437.19 733.55 3371.00 971
Third ICB Mutual Fund 510.31 993.27 1629.00 2740
Forth ICB Mutual Fund 599.55 1252.69 1733.00 1940
Fifth ICB Mutual Fund 762.50 1944.17 2157.00 3602
Sixth ICB Mutual Fund 982.89 1896.05 889.75 8817
Seventh ICB Mutual Fund 1054.31 2051.71 1421.50 2739
Eighth ICB Mutual Fund 1202.26 2416.14 873.50 7422
6129.30 14656.10 29261
Source: ICB Mutual Fund Annual Report 2007--08

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 Table 3: Operational Result (2007-08)

Name of the Fund Net Income for Distributable Ex-dividend

the year 2007-08 income per Net Asset Value
(Tk. In lac) Certificate as on per Certificate
30 June 2008 (Taka)
(Taka)
First ICB Mutual Fund 248.27 631.86 4196.15
Second ICB Mutual Fund 53.57 299.38 930.52
Third ICB Mutual Fund 92.86 221.12 742.44
Forth ICB Mutual Fund 85.73 216.20 918.45
Fifth ICB Mutual Fund 96.36 100.80 953.05
Sixth ICB Mutual Fund 213.20 61.34 315.51
Seventh ICB Mutual Fund 128.57 70.90 473.42
Eighth ICB Mutual Fund 178.51 58.60 376.37
Source: ICB Mutual Fund Annual Report 2007--08

Table 4: Dividend Performance

(Tk. Per certificate)

Name of the Fund Financial Year

2003-04 2004-05 2005-06 2006-07 2007-08

First ICB Mutual Fund 200.00 210.00 210.00 190.00 265.00
Second ICB Mutual Fund 50.00 55.00 55.00 62.00 75.00
Third ICB Mutual Fund 50.00 52.00 52.00 56.00 65.00
Forth ICB Mutual Fund 45.00 48.00 48.00 52.00 60.00
Fifth ICB Mutual Fund 24.00 27.00 27.00 33.00 45.00
Sixth ICB Mutual Fund 17.50 18.50 18.50 23.00 30.00
Seventh ICB Mutual Fund 15.00 16.00 16.00 22.50 30.00
Eighth ICB Mutual Fund 14.00 15.00 18.00 18.00 25.00

Source: ICB Mutual Fund Annual Report 2007--08

Net Asset Value (NAV):

The Net Asset Value (NAV) of a fund is the asset minus the liabilities on the day of valuation.
The per unit NAV is determined by dividing the net asset value of the fund by the total number

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of units outstanding on the valuation date. The performance of the fund is denoted by its Net
Asset Value. Net Asset Value of a unit is affected by Purchase and sale of securities, changes in
the value of investment, liabilities changes and units sold or redeemed.

ICB AMCL First Mutual Fund

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The ICB AMCL First Mutual Fund being listed on the stock exchange, the management is
committed to observe prescribed code of corporate governance. The financial statements present
fairly the state of affairs of the Fund and results of its operation.

Units in issue

The ICB AMCL fund is a close-end fund of ten years tenure. The size of the fund is tk. 10.00
core dividend into 10, 00 000 units of tk. 100.00 each. Out of the total 10, 00,000 units, 990,000
units are in circulation and the balance 10,000 units held by the sponsor are under “lock in” for
the life of the fund.

Income of the Fund

Figure 1: Net Income of ICB AMCL First Mutual Fund

450
400
The fund 350
earned a total 300
income of Tk. 250
200 Net Income
717.29 lacs by
150
way of
100
dividend,
50
interest and
0
capital gains
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
during FY
2008-2009,
which was Tk. 622.24 lacs in FY 2007-2008 showing an increase of Tk. 95.05 lacs i.e. 15%. On
the other hand, the expenditure of the fund was Tk. 337.46 lacs in FY. 2008-2009, which were
Tk. 309.87 lacs in FY 2007-08 showing an increase of TK. 27.59 lacs i.e. 9%. The expenditure
increased mainly due to maintaining higher provision of TK. 20.00 lacs against marketable
investment.

Figure 2: Classification of Income of ICB AMCL First Mutual Fund FY 2008-09

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Investment Activities

Figure 3: Investment Pattern of ICB AMCL First Mutual Fund.

As on June 30, 2009, the fund had a total investment of Tk.2300.16 lacs at cost of which 2250.16
lacs were in ordinary shares, Tk. 50.00 lacs in preference shares. The market value of the
investment was Tk. 3569.97 lacs as on June 30, 2009 showing appreciation of 55.20%.

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 Figure 4: Sector wise Investment of ICB AMCL First Mutual Funds.

Price Determination

The prices of the units are determined by supply and demand on the bourses. The highest and
lowest prices of units were TK. 584 and Tk. 336 respectively during FY 2008-2009.

Figure 5: Market Price of ICB AMCL First Mutual Fund.

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Income Distribution

The company declared 35% dividend for the year FY 2008-09 to the unit holders which was 255
for the year FY 2007-08 of the total income 96.66% of the fund has been realized in cash. The
fund distributes dividend out of its realized income.

Figure 6: Dividend Performance of ICB AMCL First Mutual Fund

Net Asset Value

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The net asset value of the fund as on June 30, 2009 was Tk. 229.52 at cost price and Tk. 356.50
at market price. After setting aside the dividend amount, the NAV of the units worked out to Tk.
194.52 per unit at cost and Tk. 321.50 at market price.

Figure 7: Year wise Net Asset Value per Unit of ICB AMCL First Mutual Fund.

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 DBH first mutual fund:

A typical mutual fund is an investment fund that pools money from unit holders and invests in a
diversified portfolio of securities. The mutual fund industry has a long history tracing as far back
as the early 1800’s with its humble beginnings generally considered to be in Europe. Today,
mutual funds are widely considered to offer investors attractive risk adjusted returns by pooling
assets for various investment purposes. The mutual fund industry came into wide public
prominence in the mid 1980’s and during the 1990’s technology boom with fund managers when
the likes of Michael Price and Peter Lynch, were considered the new investment gurus with their
impressive mutual fund returns. Since then the industry has gone through peaks and troughs but
have largely managed to flourish and grow both in the developing market and developed markets
of the world. The mutual fund industry in Bangladesh is at its early or nascent stages, offering
room for greater growth and product innovation. Investing in a mutual fund especially for retail
investors should be an attractive proposition mainly due to:

• Professional Management – mutual funds are actively managed by qualified investment

professionals with an objective to limit downside risk and improve the upside potential with
active management.

• Diversification Benefit – mutual funds are generally diversified pooled investment which
is expected to reduce the risk per adjusted return for the small and retail investors.

• Efficiency and Economies of Scale – mutual funds by pooling together a large portfolio
can negotiate competitive commissions and fees, which results in lower costs to the
investors.

• Transparency – mutual funds are highly regulated investment vehicles and operate under
strict rules and regulations by the Securities and Exchange Commission.

Delta Brac Housing Corporation (DBH) has decided to be one of the first non-banking financial
institutions in Bangladesh to sponsor and launch a mutual fund. The Board of Directors and
senior management of DBH strongly believe sponsoring a mutual fund is an efficient and
effective means of expanding its capital market investment alternatives that will result in an
attractive and stable income source for DBH and lead to greater development of the capital
markets in Bangladesh.

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Advantages of investing in DBH first mutual fund:

Generally investment in mutual funds provides certain incremental advantages when compared
to investment made directly in individual securities in the capital market. Highlighted below are
some of the advantages that investors may benefit from when investing in a mutual fund:

1. Mutual funds generally lower investment risk for small and retail investors through
diversification into multiple sectors, companies, and securities and via investing in various
asset classes. The fund manager will attempt to maximize return for a given level of risk and
always conduct a balance in his risk-return tradeoff.

2. Mutual funds through its diversified pool of investments will provide small investors
access to returns of the wider market, which will be if not impossible very costly for retail
investors to achieve.

3. Greater participation of mutual funds will add to enhanced liquidity to the overall market
and, since most mutual funds are long term investment vehicles, this will create price
stability and better price discovery and reduce short term volatility in market.

4. The Fund’s performance will benefit from the LR Global Bangladesh (AMC) proprietary
investment process and research tools for both fundamental and technical analysis; AMC
has a highly skilled in house research team who are experienced investment professionals
dedicated to analyzing in depth the Bangladesh stock market, its scripts and the impact of
the broader macro factors that impact the markets.

5. As the Fund will be professionally managed, investors will be relieved from the emotional
stress associated with day-to-day management of individual investment portfolio.

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 6. The investors will be able to save significantly in transaction costs as he/she will have
access to a large number of securities by purchasing a single unit of the mutual fund.

7. Income will be tax free up to a certain level, as permitted under the Finance Act.

8. Investment in the Fund would qualify for investment tax credit under section 44(2) of the
Income Tax Ordinance 1984.

9. Management and operations of mutual funds are subject to strict regulations from the SEC
and the
Sponsor appointed Trustee, both of whom closely monitor the performance of the Fund. The
laws governing mutual funds require exhaustive disclosure to the regulator and general
public.

10. In Bangladesh, mutual funds enjoy a 10% (ten percent) reserved quota for all Initial
Public Offerings (IPOs). IPOs in Bangladesh have historically performed very well relative
to the market index and have positively contributed to mutual fund performance.

Size, face value and market lot of the fund

• Total Fund fixed at 12, 00, 00,000 (twelve crore) units of Tk. 10 each in totaling Tk. 120,
00, 00,000 (Taka one hundred and twenty crore)

• The Sponsor’s portion of the Fund is 2, 00, 00,000 (two crore) units of Tk. 10 each in
totaling Tk. 20, 00, 00,000 (Taka twenty crore)

• Size of the Pre-IPO Private Placement is 6, 00, 00,000 (six crore) units of Tk. 10 each in
totaling Tk. 60, 00, 00,000 (Taka sixty crore)

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 • Size of the Initial Public Offering (IPO) is 4,00,00,000 (four crore) units of Tk. 10 each in
totaling Tk. 40,00,00,000 (Taka forty crore) available as public offering to NRBs, mutual
funds and collective investment schemes.

• The market lot will be constituted of 500 (five hundred) units.

Expected market performance of the fund:

1) Mutual fund industry is still at its infancy in Bangladesh and represents less than 3% of
market capitalization and currently a significant demand for the product exists. Therefore it
is possible that demand for the DBH First Mutual Fund units will be substantially over the
supply of units.

2) Brand name of Delta Brac Housing Finance Corporation Limited as a Sponsor,

Bangladesh General Insurance Company Limited as a Trustee and Standard Chartered Bank
as a Custodian, and their respective track record in the past may motivate investors to invest
in this Fund.

3) Bangladesh Asset Management Company Limited, the most experienced and highly
qualified investment management team in Bangladesh as a new-generation Asset
Management Company (AMC) would attract investors to invest in this Fund.

Investor’s Attitude towards DBH Mutual Fund:

1) Reduce risks: Mutual Funds diversify your portfolio by investing in various securities &
minimize the risk because Mutual funds are not like volatile as other secondary market
shares.

2) Maximize the security and expectation on investment opportunities: The fund managers
with the strong research take explore new investment options make available opportunities

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 for your investments to flourish. Investments will be secured with a less risk and moderate
returns.

3) Liquidity: Quick access to your money and Mutual Funds can be bought and sold on any
business day.

4) Affordability: To invest on DBH need not a lots of money to invest in mutual fund as the
minimum investment in mutual fund starts from 1,000 taka . A Mutual Fund because of its
large corpus allows even a small investor to take the benefit of its investment strategy.

5) Low Costs: Mutual Funds are a relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale in brokerage, custodial
and other fees translate into lower costs for investors.

6) Tax Benefits: The tax benefits that Mutual Funds investors enjoy at the moment are the
treatment of long-term capital gains. Double taxation can be avoided by investing in Mutual
funds for long-term.

7) Transparency: The investor gets regular information on the value of his investment in
addition to disclosure on the specific investments made by the fund, the proportion invested
in each class of assets and the fund manager's investment strategy and outlook.

Limitations of the Mutual Funds:

 There would not be any third party guarantee, the performance risk of the Asset Manager
would be compounded and some investors may not be comfortable with such an
arrangement.
 Some investors may perceive a larger size as unmanageable and consequently a risky
proposition, from their point of view.
 The lower degree of guarantee might otherwise hurt some investors’ confidence.

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 Performance of the Fund is significantly dependent on the macroeconomic situation and
the capital market in particular and since the capital market of Bangladesh is extremely
fluctuating, there is no firm assurance that the Fund with its increased size will achieve all
its stated objectives.

 Stock market activity in Bangladesh focuses on a small number of companies

representing a limited number of industries, resulting in a potential lack of liquidity and
price volatility.
 The recent stock market trends portray that price of almost all listed securities move in
tandem with the market in the similar direction, causing difficulty to the Manager to
diversify the assets.
 Money market instruments are also not readily available now, which may narrow the
opportunity of short term or temporary investments.
 The value of the units of the Fund may fluctuate in direct correlation with other listed
securities.
 The value of the fund’s assets may be affected by uncertainties such as political or social
instability, or changes in any law or regulations of the territory.

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Page 20 of 22
 Conclusion
A mutual fund is a managed group of owned securities of several corporations. These
corporations receive dividends on the shares that they hold and realize capital gains or losses on
their securities traded. Investors purchase shares in the mutual fund as if it was an individual
security. After paying operating costs, the earnings (dividends, capital gains or losses) of the
mutual fund are distributed to the investors, in proportion to the amount of money invested.
Despite the 2003 mutual fund scandals and the global financial crisis of 2008-2009, the story of
the mutual fund is far from over. In fact, the industry is still growing. In the U.S. alone there are
more than 10,000 mutual funds, and if one accounts for all share classes of similar funds, fund
holdings are measured in the trillions of dollars.

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References:

• Frederic S. Mishkin & Stanley G. Eakins, Financial Market & Institutions. 6th Edition.
• Annual Report 2007-08, ICB Mutual Funds
• Annual Report 2008-09, Asset Management Company Limited.
• http://www.icbamcl.com.bd
• http://www.oppapers.com/essays/Role-Of-Icb-In-The-Development/305154?read_essay
• http://actrav.itcilo.org/actrav-english/telearn/global/ilo/equity/equity.htm

• http://www.mutualfundsresource.com/

• http://www.mutualfundsresource.com/mutualfunds/prospectus.html

• http://www.secbd.org/DBH%201st%20Mutual%20Fund%20-%20Prospectus%20_Full
%20Version.pdf

• http://www.itrust.in/mutual-funds.action

• http://www.aims-bangladesh.com

• http://www.bdstock.com/mutualfunds.htm

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