Some mutual funds (MFs), allegedly, are making investments ignoring the restrictions set by the securities regulator, market insiders said.
Such a practice is making their investments vulnerable, they said.
Among the fund managers, the LR Global Bangladesh Asset Management Company Limited has invested funds of six MFs in some restricted sectors, they alleged.
Investigation by the Bangladesh Securities and Exchange Commission (BSEC), however, has detected unlawful transactions and practices in the management of MFs by the LR Global.
The BSEC officials said in some cases, the trustees, who are considered as primary regulators of the MFs, are not aware of how the MFs are being run by the AMCs.
By conducting an investigation, the securities regulator has found serious violation of securities rules by the LR Global. The AMC, the securities regulator maintains, has weakened the fundamentals of the six MFs under its management through unlawful and risky transactions and investments.
The BSEC officials said, among other MFs, AIMS of Bangladesh and RACE had earlier made investments ignoring the ceiling fixed for securities and money market.
When contacted, Mr. Donald S. Laguardi, chairman and director of LR Global, refused to make any comment on the issue and said if necessary they would talk later on it.
Yawar Sayeed, managing director of the AIMS of Bangladesh, however, claimed that funds equivalent to only 5.0 per cent of the total investment made by the two MFs under the management of AIMS was invested beyond the stipulated ceiling due to misinterpretation of investment ceiling.
"Now our investments are very much within the limit," said Mr. Sayeed.
A senior official of the RACE told the FE that they are complying with the investment ceiling set by the regulator.
The BSEC officials said the ICB Asset Management Company Limited (IAMCL), a subsidiary of the state-run Investment Corporation Bangladesh (ICB), recently also tried to charge 'formation fee' on the uncollected fund of the Bangladesh Fund, the largest MF, floated following the collapse of the market in the late 2010.
Former chairman of the securities regulator Faruq Ahamd Siddiqi said investors make investments in MFs as they believe that professional fund managers will ensure safety and security of their money minimising risks.
"Investors make investment in MFs due to their confidence in professionalism of the fund managers. The securities regulator should take actions against the fund managers responsible for unlawful activities," Mr. Siddiqi told the FE.
He also said that the regulator should not have preference to any 'privileged' fund manager.
According to a BSEC investigation report, the LR Global invested funds of its six MFs worth Tk 463.9 million in newly- established companies by breaching securities rules.
"The overall profit of six MFs managed by the LR Global is affected seriously as no return is coming from the investments made in those vulnerable companies," the BSEC probe report said.
"As per the securities rules, an MF cannot make any investment in companies which have not taken regulatory consent to raise capital or whose IPO (initial public offering) proposals are not under consideration of the securities regulator," the BSEC report said. It said the LR Global's investment made in such companies could prove vulnerable.
"Recently, the BSEC postponed the floatation of the LR Global's unit fund-- LRGB Unit Fund-- as 90 per cent investment of the fund was made beyond the rules."
The LR Global opened more than one savings account in different banks against their MFs taking consent of their trustee to secure interest.
The BSEC probe committee also found dissimilarity between the actual number of bank accounts and the number of those mentioned in quarterly report submitted to the regulator.
According to the BSEC investigation, the LR Global is also charging additional fees, which was not announced in the prospectuses, to bear the cost of fund manager's office and staffs although the rules say that the fund managers will bear such costs from their own income.
"By conducting investigation, the BSEC also found that the income announced in price sensitive information did not match with the income which was really secured by two MFs of the LR Global. Later, 70 per cent dividends were not announced based on the income announced in price sensitive information," the BSEC investigation report said terming the information as confusing to unit holders.
The securities regulator has decided to refer the issues relating to violations committed by the LR Global to its enforcement department for next course of action.
According to BSEC officials, the ICB Asset Management Company Limited (IAMCL) recently proposed to impose the cost of holding annual general meeting (AGM) of a mutual fund on its unit holders. But the securities regulator rejected the plea.
The BSEC also warned the IAMCL which tried to charge Tk 500 million on the Bangladesh Fund as formation fee.
As per securities rules, the formation fee will be charged by the fund manager only on collected amounts but not on targeted amounts mentioned in prospectus.
When asked, chief executive officer of the IAMCL Md. Alauddin Khan refused to make comment on the issue.
Another senior official of the IAMCL said the securities regulator approved the trust deed of the Bangladesh Fund with a clause of charging formation fee on the targeted size.
"The IAMCL offloaded the Bangladesh Fund paying the registration fee worth Tk 100 million on the targeted size," the official said.
The official sources said the BSEC has also asked the IAMCL to follow the rules in preparing the Bangladesh Fund's next fiscal year's statement.
Recently, a fund manager called on a BSEC policy-maker and verbally proposed to increase the management fee of the mutual funds.
But the regulator rejected the proposal terming it illogical as performance of many fund managers is below the mark.
As per the revised rules, a MF will be able to invest 60 per cent of its total size in capital market and the remaining 40 per cent in the money market.
The BSEC official said as per the Section 41 (1) of the Securities and Exchange Commission (Mutual Fund), 2001, the trustee will ensure the safety of the securities purchased under the operation of a MF along with ensuring best security of the fund.
"But in many cases, the trustees are not aware of the securities purchased by the fund managers. The fund managers sometimes open bank accounts without taking the authorisation of the trustees," said a BSEC official.
"The securities regulator will ask for compliance report to ensure the authority of trustees over the activities of fund managers," said the BSEC official.
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