Term Paper

On
Mutual Fund of Bangladesh

Course title: Investment Management

Course no: FIN4705

Submitted To:
Dr. Md. Shahidul Islam Zahid
Associate Professor

Submitted By:
Group-07
Shakil Ahamed Pasha (B18231083)
Abdullah Al Amin Mubin (B18231089)
Saif Mahmud Ishtiak (B18231077)
Ali Jehad Khan (B18231054)
A S M Fahim Morshed (B18231066)

Date of Submission: June 09, 2021

 LETTER OF TRANSMITTAL

9th June, 2021

Dr. Md. Shahidul Islam Zahid
Associate Professor
Department of Banking and Insurance
FBS, DU

Subject: Application for submitting the term paper

Dear Sir,

We have prepared our final term paper of “FIN4705” course on “Mutual Fund of Bangladesh”,
which we are submitting with this letter. It was an energizing experience working in such an
activity. We are confident that, this term paper will help you to understand the overall
knowledge of Mutual Fund. We have tried our best to follow your guidelines in preparing this
paper. We have presented what we do believe to be most important information to make this
term paper as specific & coherent as possible.
We expect that this report will fulfill your requirements. Thank you for your kind
consideration and guidance. We hope our effort would satisfy you.

Sincerely yours,

Shakil Ahamed Pasha (B18231083)

Abdullah Al Amin Mubin (B18231089)
Saif Mahmud Ishtiak (B18231077)
Ali Jehad Khan (B18231054)
A S M Fahim Morshed (B18231066)
 ACKNOWLEDGEMENT
Firstly, we would like to thank Almighty Allah who provided us knowledge, energy & skills to get
opportunities & to increase our knowledge & experience by completing this project.
Secondly, we especially thank our Investment Management “FIN4705” course Instructor Dr. Md.
Shahidul Islam Zahid, who guided us in every steps & aspects of this report so that we can
complete it successfully.
And we are thankful to our classmates and friends who always supported and helped in finding the
information.
Finally, we would like to thank our entire group who gave their time, and effort to make the project
paper finish successfully.
 Table of Contents

EXECUTIVE SUMMARY ................................................................................................................................. v

Chapter 1: Introduction ............................................................................................................................. 1
1.1 Literature Review: ........................................................................................................................ 1
1.2 Objective of the study: .................................................................................................................. 1
1.3 Methodology: ................................................................................................................................ 2
1.4 Limitations of the study ................................................................................................................ 2
Chapter 2: Overview of Mutual Funds in Bangladesh ............................................................................ 2
2.1 Private Mutual Fund ..................................................................................................................... 2
2.2 Private Mutual Fund: .................................................................................................................... 2
2.3 Islamic Mutual Fund: .................................................................................................................... 2
Chapter 3: Open end mutual funds ........................................................................................................... 3
Chapter 4: Closed-end mutual funds ........................................................................................................ 7
Chapter 5: Current situation of the mutual funds sector of Bangladesh ............................................... 9
Chapter 6: Reasons behind the setbacks of the mutual fund sector..................................................... 11
Chapter 7: Recommendations.................................................................................................................. 14
Chapter 8: Conclusions ............................................................................................................................ 15
Chapter 9: References .............................................................................................................................. 16
 EXECUTIVE SUMMARY

A mutual fund is a professionally managed investment vehicle that consists of a pool of funds
collected from a number of individuals for the purpose of investing in securities such as equities,
bonds, money market instruments, and other similar assets. The mutual fund industry in
Bangladesh is discussed in this research which includes topics like mutual fund types, situation of
mutual funds sector, and factors behind the unpleasant situation of the mutual funds of Bangladesh
etc. Finally, several recommendations are made for enhancing this sector's performance in
Bangladesh.

v
 Chapter 1: Introduction

A mutual fund is one of the different types of investment instruments which a developed capital
market consists of. But in case of Bangladesh’s capital market, the share of mutual funds is very
low. Our market is mostly equity based and a little scope is found for introducing any type of new
financial instrument. This is the reason for which a rapid development has not occurred in the
mutual fund sector in Bangladesh at all. When it’s about an undiversified market mutual fund has
the ability to be a good investment alternative. Risk averse mentality is found in the minds of the
retail investors. We know from a financial theory that if we diversify investment, it reduces risk.
General people of Bangladesh have not have the time, resources as well as expertise to decide on
this diversification. This problem can easily be solved through mutual funds. By this process
investors can gain the access to the opportunities of investment which would not be available to
them for their limited resources and knowledge. Through mutual funds savings are pooled up for
a greater number of investors and they can they can invest in a variety of securities. So it has
emerged as one of the best in terms of variety, diversification, flexibility, tax benefits and also as
liquidity.

1.1 Literature Review:

We have found a good number of researches that has been done on mutual funds. It is found that
by investing in mutual funds investors can diversify their risk (Cumby and Glen, 1990). The study
of Chen and Jang (1994) examined performance of 15 US-based international mutual funds and
observed that mutual funds are doing better in the domestic market than in the international market.
In an alike research, Kao et. al. (2005) found that international mutual fund managers are poor in
making investment decisions based on economic and other factors affecting the direction of the
market. Henrikkson and Merton (1981), and Chang and Lewellen (1984). Kon and Jen (1979)
developed a methodology to evaluate timing, selectivity, and market efficiency of mutual funds.
Henrikkson and Merton (1981) established statistical procedures to estimate forecasting skills of
managers. The study by Chang and Lewellen (1984) focused on the issue of market timing and the
investment performance of mutual funds. The study of Noulas et. al. (2005) assesses the
performance of Greek equity funds based on the analysis of risk and return using the data of 1997
to 2000. They measured the risk through the coefficient of variation and the systematic risk. The
paper of Arugaslan et. al. (2007) aims to evaluate the risk-adjusted performance of US-based
international equity funds using risk-adjusted returns of 50 large US based international equity
funds for the period of 1994 to 2003.

1.2 Objective of the study:

1. To be associated with the existing mutual fund sector of Bangladesh
2. To get acquainted with the potential that mutual funds carry in the capital market of
Bangladesh

1
 3. To lessen the gap between the theoretical and practical knowledge of it.

1.3 Methodology:
Secondary data has been used throughout the paper. All the data have been collected from
various articles, websites, journals, and published reports.

1.4 Limitations of the study

1. It was quiet difficult to get the proper data

2. There are lackings of the secondary data of the selected topic in the internet
3. We faced time constraints

Chapter 2: Overview of Mutual Funds in Bangladesh

2.1 Private Mutual Fund

Investment Corporation of Bangladesh (ICB), a government-owned investment bank, owns and
manages these funds. The First ICB, the country's first mutual fund, was launched by them. On
April 25, 1980, the Mutual Fund was established. ICB now manages twenty-one funds: ten closed-
end mutual funds and one open-end mutual fund. Unit Funds are a group of eleven open-end
mutual funds. Among the open-end funds, there are a few that stand out. Bangladesh Fund is the
country's largest open-end mutual fund among open-end funds. It was founded with the support of
ICB and seven other state-owned banks and insurance firms. This fund began operations on May
5, 2011, with the goal of selling shares worth Tk 50 billion (5,000 crore). Only Non-Resident
Bangladeshis (NRBs) and local investors are eligible to invest in this Fund, which includes
government organizations such as state-owned banks and financial institutions, authority
autonomous bodies, projects, private commercial banks, insurance companies, non-banking
financial institutions, merchant banks, asset management companies, and others.

2.2 Private Mutual Fund:

Private asset management firms are in charge of these mutual funds. The first private mutual fund
in Bangladesh was AIMS First Guaranteed Mutual Fund, a closed-end balanced fund created in
2000 by Asset & Investment Management Services (AIMS) of Bangladesh Limited. Prime
Financial First Unit Fund, Bangladesh's first open-end mutual fund, was launched in 2010 by
Prime Finance Asset Management Company. There are now 25 private mutual funds listed on the
stock exchange.

2.3 Islamic Mutual Fund:

The ICB AMCL Islamic Unit Fund was the country's first Islamic mutual fund, having been
established in 2004. During its ten-year lifespan, it was transformed from a closed-end scheme to

2
an open-end scheme. Close-end funds IFIL Islamic Mutual Fund 1 and AIBL 1st Islamic Mutual
Fund are the two names from the other Islamic MFs.

Chapter 3: Open end mutual funds

There is no predetermined maturity period for open ended funds. These are available for
subscription and can be exchanged at any time during the year. The transaction takes place at the
NAV (Net Asset Value) pricing. Because there are no constraints on the amount of shares that can
be issued, liquidity is a key aspect of these funds. Currently, there are 66 open end mutual funds
listed in the Dhaka Stock Exchange (DSE). All the funds and their respective asset management
companies are listed as follows:

SL. Name of the Company Initial Target (Tk.Crore)

1 LB Gratuity Wealth Builder Fund 10.00 Crore

2 CWT Opportunities Fund 10.00 Crore

3 ICB AMCL Shotoborsho Unit Fund 20.00 Crore

4 CandleStone Rupali Bank Growth Fund 100.00 Crore

5 UCB AML First Mutual Fund 20.00 Crore

6 SAML Income Unit Fund 10.00 Crore

7 VIPB Balanced Fund 10.00 Crore

8 LB Gratuity Opportunities Fund 20.00 Crore

9 RACE Special Opportunities Unit Fund 35.00 Crore

10 CAPITEC-IBBL Shariah Unit Fund 25.00 Crore

11 CWT- Sadharan Bima Growth Fund 10.00 Crore

12 EBL AML 1ST UNIT FUND 30.00 Crore

13 Ekush First Unit Fund 10.00 Crore

3
14 IDLC Asset Management Shariah Fund 50.00 Crore

15 Capitec Popular Life Unit Fund 25.00 Crore

16 EDGE AMC Growth Fund 10.00 Crore

17 Esquire ICL apprel fund 25.00 Crore

18 CWT Emerging Bangladesh First Growth Fund 10.00 Crore

19 Peninsula Balanced Fund 20.00 Crore

20 Constellation Unit Fund 20.00 Crore

21 Capitec Popular Life P.F. Unit Fund 10.00 Crore

22 AAML Unit Fund 10.00 Crore

23 ICB AMCL Second NRB Unit Fund 11.50 Crore

24 Shanta Amanah Shariah Fund 30.00 Crore

25 Vanguard AML Grouth Fund 10.00 Crore

26 HFAML-ACME Employees' Unit Fund 20.00 Crore

27 CAPITEC Padma P.F. Shariah Unit Fund 10.00 Crore

28 EDGE Bangladesh Mutual Fund 10.00 Crore

29 BCB ICL Growth Fund 25.00 Crore

30 UFS-Bank Asia Unit Fund 100.00 Crore

31 UFS-IBBL Shariah Unit Fund 200.00 Crore

32 VIPB Growth Fund 20 Crore

33 IDLC Growth Fund 50 Crore

34 Shanta First Income Unit Fund 20.00 Crore

35 Credence First Shariah Unit Fund 10.00Crore

36 LankaBangla Al-Arafah Shariah Unit Fund 50.00 Crore

4
37 HFAML Unit Fund 50.00 crore

38 Zenith Annual Income Fund 10.00 crore

Peninsula Sadharan Bima Corporation Unit

39 20.00 crore
Fund One

40 IDLC Balanced Fund 40 crore

41 Credence first Growth Fund 20.00 crore

42 Eighth ICB Unit Fund 40 crore

43 Prime Finance Second Mutual Fund 50 crore

44 UFS-Pragati Life Unit Fund. 10 crore

45 Seventh ICB Unit Fund 47 crore

46 LankaBangla 1st Balanced Unit Fund. 25 crore

47 ATC Shariah Unit Fund. 10 crore

48 ICL Balanced Fund. 10 crore

49 Sixth ICB Unit Fund 30 crore

50 UFS-Padma Life Islamic Unit Fund. 50 crore

51 Fifth ICB Unit Fund 46 crore

52 Fourth ICB Unit Fund 31.5 crore

53 Third ICB Unit Fund 44 crore

54 Second ICB Unit Fund 20 crore

55 VIPB Accelerated Income Unit Fund 20 crore

56 First ICB Unit Fund 142 crore

57 Peninsula AMCL BDBL Unit Fund One 10 crore

58 UFS Popular Life Unit Fund 80 crore

5
59 ICB AMCL Islamic Unit Fund 20 crore

60 Rupali Life Insurance First Mutual Fund 50 crore

61 CAPM Unit Fund 10 crore

62 ICB AMCL Converted First Unit Fund- 50 crore

63 MTB Unit Fund 100 crore

64 Bangladesh Fund 5000 crore

65 Shandhani Life Unit Fund 50 crore

66 Prime Financial First Unit fund 20 crore

6
 Chapter 4: Closed-end mutual funds

Currently, there are 37 closed end mutual funds listed in the Dhaka Stock Exchange (DSE). These
funds are managed by 9 asset management companies, RACE and ICB AMCL asset management
companies having the most number of funds (10 each). All the funds and their respective asset
management companies are listed as follows:

Name of Unit funds Fund managing company

First Bangladesh Fixed Income Fund RACE
AB Bank 1st Mutual fund RACE
IFIC Bank 1st Mutual fund RACE
Popular Life 1st Mutual fund RACE
Trust Bank 1st Mutual fund RACE
PHP 1st Mutual fund RACE
EBL NRB Mutual Fund RACE
EXIM Bank 1st Mutual fund RACE
1st Janata Bank Mutual Fund RACE
EBL 1st Mutual fund RACE
SEML IBBL Shariah Fund SEML
SEML Lecture Equity Management Fund SEML
LR Global Bangladesh Mutual Fund One LR Global
NCCBL Mutual Fund-1 LR Global
AIBL 1st Islamic Mutual Fund LR Global
MBL 1st Mutual Fund LR Global
Green Delta Mutual Fund LR Global
ICB AMCL First Agrani Bank Mutual Fund ICB AMCL
ICB AMCL Third NRB Mutual Fund ICB AMCL
Phoenix Finance 1st Mutual Fund ICB AMCL
Prime Bank 1st ICB AMCL Mutual Fund ICB AMCL
IFIL Islamic Mutual Fund-1 ICB AMCL
ICB Employees Provident MF 1: Scheme 1 ICB AMCL
ICB AMCL Second Mutual Fund ICB AMCL
ICB AMCL 2nd NRB Mutual Fund ICB AMCL
ICB AMCL Sonali Bank Limited 1st Mutual Fund ICB AMCL
Prime Finance First Mutual Fund ICB AMCL
CAPM BDBL Mutual Fund 01 CAPM
CAPM IBBL Islamic Mutual Fund CAPM
"Reliance One" the 1st scheme of Reliance Insurance MF AIMS
Grameen One : Scheme Two AIMS

7
Asian Tiger Sandhani Life Growth Fund Asian Tiger
Vanguard AML BD Finance Mutual Fund One VAML
Vanguard AML Rupali Bank Balanced Fund VAML
NLI First Mutual Fund VIPB
Southeast Bank 1st Mutual Fund VIPB
DBH First Mutual Fund LR Global

8
 Chapter 5: Current situation of the mutual funds sector of
Bangladesh

5.1. Lower Market Capitalization:

Market capitalization is determined by the number of shares outstanding multiplied by price of
shares. The Mutual Fund capitalization in total market is low and more mutual funds are needed
to gain the confidence of investors. The contribution of mutual funds stands at 1.31% unlike other
sectors. This rate is as high as 50% in many other countries but is very low in Bangladesh. So
whenever investors look at market capitalization, they are inclined to invest in mutual fund sector.
5.2. Lower market turnover:
Mutual fund market turnover indicates how frequently mutual fund exchanges had. The turnover
of this sector is lower than mos sectors and due to this it’s performance is getting worse day by
day. There is hardly any strategy to improve the situation of the mutual fund sector.
5.3. Lower dividend distribution:
Mutual funds provide generally lower dividend than other sectors in the market. Investors demand
dividend from any investment, it’s the primary factor of investing in a mutual fund. Investors will
turn away if there isn’t enough dividend in this sector.

Name of the Fund Dividend Yield

2014 2015 2016 2017

DBH1STMF 1.05% 10.53% 8.33% 5.30%

LRGLOBMF1 9.43% 18.18% 6.94% 9.40%

NCCBLMF1 5.36% 11.02% 6.16% -

EBLNRBMF - - 3%

EXIM1STMF - - 2.90%

ICBSONALI1 11.36% 15.15% 12.10% 8.90%

GRAMEENS2 9.09% 9.26% 7.10%

SEBL1STMF 14.29% 15.06% 12.04% 9.50%

9
 VAMLBDMF1 - 7.98% 10.50%

Source: Unicap annual report 2017

5.4. Lower asset under management to GDP ratio

Bangladesh has 0.48% Asset Under Management to GDP ratio. But this is very insignificant when
compared with India (10.73%) and Thailand (31.02%). Bangladesh is lagging way behind even by
global standards (32%).

10
 Chapter 6: Reasons behind the setbacks of the mutual fund sector

There are certain reasons behind the setbacks of the mutual fund sector is DSE are identified and
they are discussing below1)
6.1. Managers inefficiency
Managers are not efficient enough to facilitate better returns and there is absence of integrity. It
has been reported that managers fail to pick up the undervalued and overvalued stock at proper
time. There are 3 types of pick up style- value, growth and hybrid. Frequent changing of styles, is
a reason behind the poor performance of the mutual funds.

Asset Management Portfolio Return Over/(under

Company Performance )

SEML 6.5% -17.3%

CAPM 9.9% -14.1%

ICB AMCL 16.2% -7.5%

VANGUARD 18.4% -5.4%

LR GLOBAL 20.3% -3.5%

RACE 25.2% 1.2%

ATC 25.9% 1.6%

AIMS 26.2% 2.2%

VIPB 31.8% 7.8%

Source: Unicap annual report 2017

6.2. Lack of confidence of the investors:
Investors invest in mutual funds for professional advice and more return from investment. The
lack of trust among investors exist because fund managers in Bangladesh fail to provide expected
return to the investors. This is why investors are more interested in stock market rather than mutual
funds. Investors are receiving fewer amounts of cash and stock dividend and have less idea of the
portfolio of their mutual fund agreement. Most fund managers don’t give proper disclosures
regularly and there is less communication between investors. All of these reasons contributes to
the currently poor investors perspective in mutual funds of Bangladesh.
6.3. Lack of Disclosure and communication with investors:

11
It has been reported that fund managers don’t provide disclosures timely. In most cases, they’re
unwilling to disclose their activities. Rules and regulations are flexible for open ended mutual
funds and here managers generally provide less disclosures. If there were little to no lack of
communication, investors would’ve pushed managers to improve their performances.

6.4. Not timely Redemption of the fund:

It has been observed that most liquidated funds are not given timely redemption. Timely
redemption can boost confidence of the investors. Whenever a fund is not liquidated timely it
means there is a problem in the governing body and management. These mishaps damage the
reputation of the fund managers and the asset management company which might later effect other
mutual funds of the asset management company.
6.5. Investors Inclination towards short term trade:
It has been observed that people hold the securities for a short period of time and are not interested
to get long term returns. In open end fund when investors want to sell the fund, managers give
back the money. Whenever fund managers have fewer amounts of cash and cash equivalents
securities in the portfolio, it becomes difficult to give the money back to the investors. Good
performance can’t be expected overnight so if investors don’t hold their investments for a long
period of time it will be difficult for fund managers to perform well. Investors usually sell their
investments out of panic when they see the price of the mutual fund fall.
6.6. Volatility of capital market :
The capital market of Bangladesh is so volatile that it’s very difficult to trace it’s movements. No
model works in the market and there are more individual investors than institutional investors in
the stock market. This makes up the volatility and it’s hard to regulate a large of individual
investors.
6.7. Lack of availability of quality shares and number of holdings in portfolio:
In the Bangladeshi stock market there are lack of quality shares which is why proper diversification
benefit can’t be ensured. Due to this lack, fund managers fail to make a portfolio that will provide
the expected return to the investors and hence expected performance can’t be obtained.
6.8. Poor Governance
Rules and regulation in monitoring the activities of the fund managers of related to mutual fund is
not sound enough. Mutual funds are taken care well all over the world as it contributes a lot to the
GDP, have good market turnover and market capitalization. But Bangladesh Security and
Exchange Commission (BSEC) makes many limitations in Bangladesh market so that’s why it’s

12
quite difficult to do well in this sector. Many fund managers don’t follow the rules and regulations
of the mutual fund operation and BSEC is not taken care of.
6.9. Unskilled Human resource
It is observed that not every fund management team is skilled enough. There are few skilled people
in the team who have good knowledge about the market and know the rule and regulations
regarding the mutual fund. Poor performing mutual funds have this problem. Unskilled human
resource is a barrier to good performance...

6.10. Concentrated Market:

In Bangladesh, Mutual Fund sector is highly concentrated. The performance of the sector depends
on few companies. RACE Asset Management Company is operating 50% close end funds, ICB
and LR Global are operating 40% close end funds and rest of the asset management company is
operating 10% of the close end mutual funds. There is lacks of close end mutual fund to make the
mutual fund sector competitive.

13
 Chapter 7: Recommendations

The overall performance of mutual funds in Bangladesh is not satisfactory. Mutual funds have
substantial contribution tl the GDP in market capitalization of most nations of the world. But in
Bangladesh it’s not well taken care of. To improve this situation and bring back investors’
confidence, the following rules can be followed.

• Regulatory reform on investment exposure of mutual fund should be modified

• Fund managers should be regularly trained so that they can provide expected returns to the
investors.
• There should be regular disclosures and communication with the investors
• Investors should be encouraged to hold on to their fund for a long time.
• More mutual funds should be introduced with good asset management teams
• There should be regular inspection of mutual funds operation and portfolio
• Transparency of mutual fund managers should be ensured
• Good corporate governance of listed asset management companies should be ensured
• There should be organized secondary debenture market in Bangladesh
• Market needs to be competitive to improve the performance of the sector.
• Immediate redemptions of the funds that missed original deadlines will help gain investor
trust.
• Funds should make the information of their portfolio public.
• If a fund reports abnormal and absurd net asset values, explanation has to be made
• Transparency in the capital market has to be ensured. When the listed companies perform
reasonably, the funds are able to create value for the investors because the funds invest
mostly in listed companies.
• Mutual funds portfolio, operation and investment decision process should be inspected by
BSEC inspectors in the same way bank books are inspected by Bangladesh Bank
inspectors. Banks take deposits from the public and invest it in loan products whereas the
asset management companies raise money from the public for investing mainly in the
capital market. As investing in capital market is riskier than investing in loans, monitoring
of the mutual fund industry is at least as important as monitoring banks.

14
 Chapter 8: Conclusions

Through expert asset management, investors can acquire a diverse portfolio for a low transaction or running
cost by acquiring a single unit of mutual fund. It protects them from a variety of restrictions that apply to
specific investment conditions. Not only is the fund's dividend income tax-free up to a certain point, but
investing in the fund also qualifies for an investment tax credit. They also have the advantage of buying
equities on the Primary Market by default.

Mutual funds have helped to extend the basis of the country's capital market, notwithstanding their limited
size. Growth mutual funds are supposed to provide the following benefits: Diversification, market timing,
and selectivity are all important factors to consider. However, in the long-run, mutual funds’ performance
will be closely related to the performance of the economy in general and the capital market in particular.
Lack of solid corporate governance in publicly traded corporations, accounting and auditing profession
responsibility, and fund managers' professionalism and honesty are all important obstacles to mutual funds'
success. If these challenges are resolved, Bangladesh's mutual fund business can bring value to investors
while also reducing the capital market's over-reliance on the banking sector.

15
 Chapter 9: References

1. Aggarwal, N., & Gupta, M. (2007). Performance of Mutual funds in

India: an empirical study. ICFAI Journal of finance, 13(9).
2. Bangladesh Bank [BB]. (2019). Treasury bill/bond auctions. Retrieved
June 16, 2019, from https://www.bb.org.bd/monetaryactivity/
treasury.php
3. Brown F, Vickers D (1963) Mutual Fund Portfolio Activity, Performance, and
Market Impact. The Journal of Finance 18: 377-391.
4. Bangladesh Securities and Exchange Commission [BSEC]. (2019a).
Mutual Fund. Retrieved July 13, 2019, from https://www.sec.gov.bd/home/mutualfunds
5. Kon S, Jen F (1979) The Investment Performance of Mutual Funds: An
Empirical Investigation of Timing, Selectivity and Market Efficiency. The Journal of Business 52: 263-
289.

6. Volkman D (1999) Market Volatility and Perverse Timing Performance of Mutual

Fund Managers. The Journal of Financial Research 22: 449-470.

7. Henriksson RD (1984) Market Timing and Mutual Fund Performance: An Empirical

Investigation. The Journal of Business 57: 73-96

16