Amendment of 'mutual fund rules' to inject huge funds in stock market
Raihan M Chowdhury | Sunday, 8 June 2008
The Securities and Exchange Commission (SEC) has approved the amendment of 'mutual fund rules' so that the sizeable pension and gratuity funds, which mostly remains idle, can be invested in the form of mutual funds in the country's stock market.
"The vetting of the amendment has been completed and it is in the process of gazette notification, " a source in the SEC said.
Meanwhile, the number of asset management companies (AMCs) will increase to four from two once the amendment of 'mutual fund rules' is published in the gazette.
One of the core functions of AMCs is to float mutual funds, regarded as one of the risk-free tools in the stock trading.
LR Global Bangladesh Asset Management Co Ltd became the fourth AMC when the SEC approved the company's application Tuesday last.
Earlier, the SEC allowed Venture Investment Partner Bangladesh Ltd as the third AMC in early April of this year.
State-owned Investment Corporation of Bangladesh and private AIMS of Bangladesh operated as the AMCs during the last one decade.
"More companies have applied to us for operating as AMCs and we are scrutinising the applications," the SEC source said.
Under the existing rules, a company or a statutory body can sponsor a mutual fund but the pension or retirement funds which are established as trust under the existing law of the country are not eligible for the mutual funds.
After the amendment, there will be no bar for a company or statutory body to act as trust for floatation of pension and retirement funds in the form of mutual fund in the stock market, a source said.
The move will help increase the depth of the country's growing stock market suffering from dearth of quality shares.
"Obviously, it's very good news for the stock market as the stock exchanges and investors were demanding for enhanced flow of stocks for a long period," Yawer Sayeed, a capital market analyst said.
More mutual funds will be floated under the new arrangement in the stock market as the funds can play a significant role to minimise the risk of investors particularly small ones.
The country has now a substantial size of pension and retirement funds that could occupy a large share of the market's total marke t capitalisation, said Yawer, also the managing director of AIMS of Bangladesh, the lone private AMC in the country.
Mutual funds in the neighbouring countries of Bangladesh account for over 30 to 40 per cent of the total market capitalisation of those countries while in Bangladesh, mutual funds contribute only three per cent of total capitalisation.
The total market capitalisation of DSE now hovers about $ 12 billion though it was below $ 5.0 billion in December, 2006.
Currently, the market has a total of 14 mutual funds worth Tk 866 million only, but the size of the funds will increase manifold within the next few months with the trading of 'ICB NRB second mutual fund' and Grameen One: Scheme Two.
The subscription of 'ICB NRB second mutual fund' worth Tk 1.0 billion has been completed and another one-- Grameen One: Scheme Two--worth Tk 1.25 billion begins June 30.
"The vetting of the amendment has been completed and it is in the process of gazette notification, " a source in the SEC said.
Meanwhile, the number of asset management companies (AMCs) will increase to four from two once the amendment of 'mutual fund rules' is published in the gazette.
One of the core functions of AMCs is to float mutual funds, regarded as one of the risk-free tools in the stock trading.
LR Global Bangladesh Asset Management Co Ltd became the fourth AMC when the SEC approved the company's application Tuesday last.
Earlier, the SEC allowed Venture Investment Partner Bangladesh Ltd as the third AMC in early April of this year.
State-owned Investment Corporation of Bangladesh and private AIMS of Bangladesh operated as the AMCs during the last one decade.
"More companies have applied to us for operating as AMCs and we are scrutinising the applications," the SEC source said.
Under the existing rules, a company or a statutory body can sponsor a mutual fund but the pension or retirement funds which are established as trust under the existing law of the country are not eligible for the mutual funds.
After the amendment, there will be no bar for a company or statutory body to act as trust for floatation of pension and retirement funds in the form of mutual fund in the stock market, a source said.
The move will help increase the depth of the country's growing stock market suffering from dearth of quality shares.
"Obviously, it's very good news for the stock market as the stock exchanges and investors were demanding for enhanced flow of stocks for a long period," Yawer Sayeed, a capital market analyst said.
More mutual funds will be floated under the new arrangement in the stock market as the funds can play a significant role to minimise the risk of investors particularly small ones.
The country has now a substantial size of pension and retirement funds that could occupy a large share of the market's total marke t capitalisation, said Yawer, also the managing director of AIMS of Bangladesh, the lone private AMC in the country.
Mutual funds in the neighbouring countries of Bangladesh account for over 30 to 40 per cent of the total market capitalisation of those countries while in Bangladesh, mutual funds contribute only three per cent of total capitalisation.
The total market capitalisation of DSE now hovers about $ 12 billion though it was below $ 5.0 billion in December, 2006.
Currently, the market has a total of 14 mutual funds worth Tk 866 million only, but the size of the funds will increase manifold within the next few months with the trading of 'ICB NRB second mutual fund' and Grameen One: Scheme Two.
The subscription of 'ICB NRB second mutual fund' worth Tk 1.0 billion has been completed and another one-- Grameen One: Scheme Two--worth Tk 1.25 billion begins June 30.