Investors withdrawing funds from savings instruments
Sunday, 5 August 2007
Siddique Islam
Small investors are diverting their funds to capital market and government bonds following the government's fiscal measures in this year's national budget.
They are now withdrawing funds from savings certificates after the government imposed tax on income from savings certificates, sources in the market said.
The government imposed 10 per cent tax on annual interest income exceeding Tk 25,000 from savings certificates and abolished the provision of all up-front and advance tax on government bonds for fiscal 2007-08.
The rate of encashment of savings certificates is much more higher compared to investment, indicating that the funds are being diverted to other areas.
A central bank official said savings certificates worth Tk 3.0 million (3.0 crore) were cashed against Tk 8.2 million (82 lakh) in fresh investment in a single day at the end of July last.
"Such a huge encashment means the people are diverting their investments to capital market, gold or land," the official told the FE.
He also said some investors, who have a large amount in savings certificates, are now putting the fund in different names in small amount to avoid the burden of tax.
Meanwhile, some primary dealer (PD) banks are now planning to open a new window for trading on mainly government-approved securities.
"We are planning to set up such a unit to provide services to our potential clients in this connection," a senior treasury official of a nationalised commercial bank (NCB) told the FE Saturday.
He also said the PD banks are also planning to provide services to their clients for trading on such securities through opening beneficiary (BO) accounts.
For the first time, an individual bought the 5-year tenure government bonds worth Tk 400,000 from a private commercial bank on Thursday last.
"We are hopeful about a rise of investment in bonds by individuals in the near future to take advantage of the fiscal measures," a senior official of the private commercial bank said.
On the other hand, the Dhaka Stock Exchange (DSE) has taken a fresh initiative to resume trading on the government bonds for ensuring participation of the general investors.
Chief Executive Officer (CEO) of the DSE Salahuddin Ahmed Khan has already started consultations with the stakeholders in this connection.
"We will sit with the officials concerned of the finance ministry, central bank and PDs shortly to find out ways to resume trading of the bonds," the CEO of DSE told the FE.
The trading of bonds was officially started on the DES January 1, 2005, but it did not continue later due to absence of investors, who felt discouraged because of high unit value and tax on related income.
Only one or two banks transacted the bonds briefly, sources in the DSE said.
The government has issued two more treasury bonds of 15-year and 20-year terms to attract more investors and activate the country's secondary bond market.
Besides, Bangladesh Bank (BB) has amended the auction system of the government bonds, officially known as Bangladesh Government Treasury Bonds (BGTBs).
Under the new provisions, the auction of all government bonds is being held as per yield-based multiple prices system, popularly known as at par system, instead of the discount method earlier.
Small investors are diverting their funds to capital market and government bonds following the government's fiscal measures in this year's national budget.
They are now withdrawing funds from savings certificates after the government imposed tax on income from savings certificates, sources in the market said.
The government imposed 10 per cent tax on annual interest income exceeding Tk 25,000 from savings certificates and abolished the provision of all up-front and advance tax on government bonds for fiscal 2007-08.
The rate of encashment of savings certificates is much more higher compared to investment, indicating that the funds are being diverted to other areas.
A central bank official said savings certificates worth Tk 3.0 million (3.0 crore) were cashed against Tk 8.2 million (82 lakh) in fresh investment in a single day at the end of July last.
"Such a huge encashment means the people are diverting their investments to capital market, gold or land," the official told the FE.
He also said some investors, who have a large amount in savings certificates, are now putting the fund in different names in small amount to avoid the burden of tax.
Meanwhile, some primary dealer (PD) banks are now planning to open a new window for trading on mainly government-approved securities.
"We are planning to set up such a unit to provide services to our potential clients in this connection," a senior treasury official of a nationalised commercial bank (NCB) told the FE Saturday.
He also said the PD banks are also planning to provide services to their clients for trading on such securities through opening beneficiary (BO) accounts.
For the first time, an individual bought the 5-year tenure government bonds worth Tk 400,000 from a private commercial bank on Thursday last.
"We are hopeful about a rise of investment in bonds by individuals in the near future to take advantage of the fiscal measures," a senior official of the private commercial bank said.
On the other hand, the Dhaka Stock Exchange (DSE) has taken a fresh initiative to resume trading on the government bonds for ensuring participation of the general investors.
Chief Executive Officer (CEO) of the DSE Salahuddin Ahmed Khan has already started consultations with the stakeholders in this connection.
"We will sit with the officials concerned of the finance ministry, central bank and PDs shortly to find out ways to resume trading of the bonds," the CEO of DSE told the FE.
The trading of bonds was officially started on the DES January 1, 2005, but it did not continue later due to absence of investors, who felt discouraged because of high unit value and tax on related income.
Only one or two banks transacted the bonds briefly, sources in the DSE said.
The government has issued two more treasury bonds of 15-year and 20-year terms to attract more investors and activate the country's secondary bond market.
Besides, Bangladesh Bank (BB) has amended the auction system of the government bonds, officially known as Bangladesh Government Treasury Bonds (BGTBs).
Under the new provisions, the auction of all government bonds is being held as per yield-based multiple prices system, popularly known as at par system, instead of the discount method earlier.