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Open-ended MFs boom as bourses stay bearish

Open-ended mutual funds investors boom 270pc to 35,000 in a year to June 30, 2017

Jasim Uddin Haroon | March 28, 2018 00:00:00

By a seeming contrast to a bearish run of Bangladesh's bourses, trading in open-ended mutual funds finds an exponential growth, with the number of investors in ICB tools showing a boom.

The Investment Corporation of Bangladesh (ICB) sources said the number of investors in their funds had risen fast in recent years, coming to nearly 13,000 until June 30, 2016 and booming by nearly 270 per cent to 35,000 in a year to June 30, 2017.

Market sources said such mutual funds are expanding fast, totalling now 41 with their aggregate initial sizes amounting to Tk 207.35 billion.

They think such fast bucks may help stabilise the capital market as the wealth companies invest in the funds by analysing scrips.

These funds begin with certain initial sizes and they grow over time - some grow fast exceeding the initial sizes while some expand at a slow rate or some remain static.

Citing the reasons for such fastest growth, people familiar with the matter in asset- management companies told the FE that closed-end funds usually become less attractive after trading and their prices fall below face below.

There were 37 closed-end funds traded on the exchanges and usually liquidated after a certain period.

The sources also said such funds (open-ended) should be widened further considering investors' interests as they can come out from market anytime at net asset values of the units.

However, until 2012, there had been only four open-ended funds, also dubbed growth fund, worth Tk 5.4 billion. Its fastest growth had been seen in last two years to December 2017, with 22 such funds being operationalised during the period.

As of March 2018, some 37 such funds are in operation and the remaining four either under subscription process or some beginning to receive subscriptions.

Individuals and institutions can purchase open-ended units from asset-management companies and the latter manage the funds with their prudent investment decisions in the exchanges.

Currently, there is no trading platform for open-ended mutual funds and its buy and sale are executed manually through the counter of selling agents and asset managers.

The asset firms announce net asset values of their respective funds on a weekly basis. And those who retain their units can derive yearly dividends also.

Md Golam Rabbani, chief executive at the ICB Asset Management Company, feels this should be open-ended as managing fund individually is too tough.

He said there are many investors who do not want fixed-income instruments but fear to trade on the stock-market and usually come to invest in the open-ended funds.

The ICB holds the biggest number of such funds, totalling 13 schemes, with the first one launched in 1981. And the number of investors in their funds had also risen in recent years, booming by nearly 270 per cent to 35,000 in a year to June 30, 2017.

"We provide good dividend each year and people have trust on us," Mr Rabbani told the FE about the exponential growth in this securities trade by the ICB Asset Management Company count.

Shahidul Islam, chief executive at the VIPB Asset Management, told the FE that the recent trend of open-ended fund is a very good sign for the capital market.

"In all advanced and emerging markets, such fund usually dominates, and Bangladesh's latest trend is a good sign," said Mr Islam, also a qualified chartered financial analyst.

He said from the investors' perspective, this is safe. "Even today, at a time when market is falling almost every day, the investors in the open-ended fund can come out with good profits."

The asset-management companies provided yearly dividend between 5.0 per cent and 17.5 per cent in 2017.

In the meantime, the DSE has set a deadline for the launch of a trading platform for open-end mutual fund by June this year, according to the latest annual report of the Dhaka Stock Exchange.

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