Oldest mutual fund beyond securities laws as mismatches emerge

The operations of the ICB Unit Fund, the country's oldest and largest mutual fund (MF) floated in the 1980s, have yet to come under securities laws.
Officials of the Bangladesh Securities and Exchange Commission (BSEC) said repeated attempts had been made to streamline the fund's operations in line with stipulated rules and regulations, but the fund manager-the Investment Corporation of Bangladesh (ICB)-was able to evade regulatory compliance with support from the ministry concerned.
As a result, the regulator remains unable to properly monitor the fund's operations.
BSEC officials said the trustee and the asset manager of a mutual fund should not be the same entity. However, in the case of the ICB Unit Fund, the ICB is acting as both trustee and asset management company (AMC).

The Corporation formed three separate subsidiaries-a merchant bank, an asset management company and a brokerage firm-in 2012. "But the Corporation has not yet shifted the ICB Unit Fund to its subsidiary company designated for managing mutual funds," said BSEC spokesperson Md Abul Kalam.
ICB Chairman Prof Abu Ahmed said he was not aware of the BSEC's efforts to regulate the fund. He, however, said the Unit Fund's isolated operations should be allowed.
Meanwhile, the fund's auditor has flagged several inconsistencies in its management.
For example, the fund incurred an unrealised loss of Tk 14.27 billion from marketable investments in FY25, but the loss was not recognised in its profit and loss statement. Instead, it was shown under other comprehensive income.
Md Sultan Mahmood, a chartered accountant and partner of MABS & J Partners, said the fund would have reported losses had the unrealised loss been taken into account.
"The fund did this to avoid provisioning against the unrealised loss," Mahmood said.
In the financial statements, the fund also failed to consider the fair value of an investment made in non-listed securities. The cost value and market value of the investment were Tk 2.58 billion and Tk 1.50 billion respectively.
Mr Mahmood said the ICB avoided reflecting the cost value in the financial statements when the market value declined sharply.
The fund's bank account opened for undistributed dividends was supposed to have a balance of Tk 466 million. However, the auditor found a shortfall of Tk 201 million.
The securities regulator was established more than a decade after the launch of the Unit Fund.
"After the establishment of the BSEC, there is no scope for operating a pooled fund beyond the securities laws," said Mr Kalam.
Whenever the regulator asked the ICB to ensure that the fund was operated in compliance with securities rules, the Corporation overlooked the directives with "unofficial" backing from the finance ministry, he added.
The Bangladesh Securities and Exchange Act, 1993 states that the registration, regulation and management of all types of collective investment schemes, including mutual funds, fall under its purview.
Moreover, the Securities and Exchange Commission (Mutual Fund) Rules, 2001 came into effect in July of that year, while the latest revised rules for pooled funds have been effective since November last year.
Mutual funds are generally operated by asset management companies licensed by the securities regulator.
ICB Asset Management, a subsidiary of the ICB, currently operates 25 mutual funds, including 15 open-ended funds. However, the ICB Unit Fund continues to be managed by the parent company.
"It's [the ICB Unit Fund] also an open-ended fund. But the regulator has failed to bring the fund under its supervision," Mr Kalam said.
Most unitholders of the decades-old fund are public and private sector employees. Registered fund owners also include retired employees, housewives, non-resident Bangladeshis and institutional provident funds.
The primary objective of the ICB Unit Fund was to mobilise savings from small investors through the sale of units and to invest in marketable securities.
The fund declared a cash dividend of Tk 30 per unit for FY25, while dividend payouts between FY14 and FY24 ranged from Tk 34.9 to Tk 45 per unit.
Under the rules, the surrender price of fund units should not deviate by more than 5 per cent from the net asset value (NAV). Previously, unitholders had to surrender units at prices deviating by more than that threshold.
Now, unitholders are surrendering units at prices higher than the NAV, said a senior official of the ICB Unit Fund, requesting anonymity.
For instance, when the fund's NAV stood at Tk 234 per unit, unitholders received Tk 264 per unit upon redemption-13 per cent higher than the NAV.
Asked about redemptions at prices higher than the NAV, ICB Managing Director Niranjan Chandra Debnath said the fund's asset value had declined sharply due to prolonged market depression.
The NAV, he said, would rise if market prices of securities in the fund's portfolio increased. However, unitholders would incur losses if the surrender value was not set higher than the NAV.
"Logically, what was done might not be correct. But it's a ground reality."
The BSEC spokesperson said redeeming units at prices higher than the NAV was not rational under accounting standards.
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