There is a need for making mutual funds (MFs) and bond market vibrant, reducing extreme dependence on banking sector, to mobilise funds for boosting the country's trade and investment.
The observation was made by the Bangladesh Securities and Exchange Commission (BSEC) Chairman Professor Shibli Rubayat-Ul-Islam in a programme in the city on Tuesday.
He said, "Investors' dependency on bank deposit is much higher in Bangladesh than other countries, although the financial instrument is no more profitable for them due to lower interest rates and rising trend in inflation."
Mutual funds can be the most reliable investment options for individual investors in the country, as such funds have the capability to give dividend at rates ranging between 12 per cent and 18 per cent, he opined.
The BSEC chairman was speaking at a financial literacy programme - "Products and Instruments for Managing Personal Finance" - organised by 'Amar Taka', an online news portal, at BICM Auditorium in the city's Topkhana Road area.
The Insurance Development and Regulatory Authority (IDRA) Chairman Dr M Mosharraf Hossain spoke as the special guest in the function, with 'Amar Taka' editor Ziaur Rahman in chair.
The Bangladesh Institute of Capital Market (BICM) executive president Dr Mahmuda Akter and former president of the CFA Society Bangladesh Shahidul Islam also spoke on the occasion.
At the end of the programme an online news portal - amartaka.net - was inaugurated by the organisers.
Dr Shibli, in his speech, said, "With an increased per capita income, people now have disposable money for savings and investments. But they have only a few alternatives to utilise the extra money."
Vibrant MFs and bond market can be a better alternative for individual investors.
The BSEC chairman noted that more savings will lead to more investments. But without financial literacy, investments will be exposed to different types of risk.
He also said it is very crucial for general investors to have basic financial literacy, and they should also understand different economic indicators of the country to make secure investments.
Professor Shibli suggested the IDRA to facilitate insurance companies in introducing bond insurance to make the bond market secure to attract more investors.
He also hoped that different types of bonds - government, corporate and sukuk - will be available in the market in the next one to one and a half year.
Presenting the keynote paper, Mr Shahidul Islam said prevalence of bank deposit is much higher in Bangladesh comparing to the developed economies, as it is more than 50 per cent of the equity market capitalisation or Tk 12 trillion.
Mr Islam, also the CEO of VIPB Asset Management Company Ltd, noted that money market funds and treasury bills are emerging as alternatives to bank deposit in the developed markets, which need more concentration in the country also.
Savings certificates as an asset class has grown by almost 10 folds in last one decade to Tk 3.1 trillion because of their very attractive risk-free returns.
But higher interest payment against the savings certificates will force the government to reduce interest rates in near future and borrow more by issuing bonds, he mentioned.
Corporate bonds, municipal bonds and asset-backed securities are riskier than the government bonds, but safer than equities. With only two listed corporate bonds, Bangladesh has a long way to go in developing a bond market.
Terming municipal bonds quite popular in the developed countries, he opined that city corporations and municipality authorities can issue municipality bonds to carry on their development works.
Mr Islam further said annuity (pension) is a big business around the world for insurance companies, as it holds 50 per cent of their business, while the rest depends on other insurance products.
Options to invest in pension funds for senior citizens can reduce pressure on the government's savings certificates.
A vibrant secondary market is needed for trading the government bonds, corporate bonds and municipal bonds before taking initiatives to develop a market for asset-backed securities and derivative products, he added.
Underlining insurance as the backward linkage of capital market, the IDRA chairman said insurance not only reduces the risk of investment, but also strengthens capital market.
Mentioning the ratio of stock market capitalisation and gross domestic product (GDP) in Bangladesh is less than 13 per cent, he noted that the ratio is 63 per cent in India, 80 per cent in Singapore, 157 per cent in Japan, and 1,055 per cent in Hong Kong.
Dr Hossain also said the size of capital market can be bigger than a country's economy, but in order to do so robust reform in financial ecosystem is required.
He also emphasised increasing financial literacy among investors, as a significant number of general investors invest (their money) according to others' opinions.
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