Retail investors' participation has remained insignificant in mutual funds (MFs) whereas these investment instruments are especially designed to ensure good returns for small investors with the help of professional fund managers.
There is a lack of data on investments of retailers in MFs, but several asset management companies (AMCs) said institutions have higher stakes in MFs - more than 60 per cent in the country. On the other hand, retailers account for around 90 per cent of the money injected in such investment schemes in the neighbouring country India.
The under-subscription of recently launched close-ended Capitec Grameen Bank Growth Fund is a proof of retail investors' apathy.
Fund managers say limited marketing, technology support and manpower shortage are the reasons as to why MFs - be it close-ended or open-ended - failed to draw retail investors.
Besides, the impact of 2010-11 stock market debacle, imprudent policies, and scams committed by unscrupulous fund managers have served as deterrents for general investors to put their money in MFs.
However, there are MFs that are paying high returns at above FDR (fixed income receipt) rates.
For example, an open-ended fund managed by Shanta Asset Management gave investors an annual average return of more than 10 per cent over a period of five years.
The AMC piled up money from retailers securing 80 per cent stake of them in the fund by designing products suitable for such investors. The same strategy has been applied by IDLC Asset Management and that helped increase individual investors' share up to 90 per cent in MFs that it manages.
On the other hand, retailers constituted only around 40 per cent in the funds managed by VIPB Asset Management Company and EDGE Asset Management.
Systematic Investment Plan (SIP) is an investment tool that encourages investors to set aside an equal amount of cash on a monthly basis for investing in MFs.
It is a very popular tool in India, driving up monthly collection of funds, which recently crossed Rs 160 billion.
The vice chairman of Shanta Asset Management, Arif Khan said they had a business focus on boosting retailers' participation from the very beginning. The asset manager deployed sales representatives to carry out publicity to attract retailers.
Mr Khan said four funds managed by his company had an annual average return of more than 10 per cent excluding all fees charged by fund managers.
"It [the high return] was also a reason behind an increase in retailers' participation," he said, adding that retailers' participation in their funds rose 60 per cent in the last one year.
Rajib Kumar Dey, managing director of IDLC Asset Management, said there was no future of the MF industry without participation of retailers.
The fund manager has floated an open-ended fund, aiming to divert 60 per cent of money gathered to fixed-income securities.
This scheme along with the SIP contributed to a steep rise in retailers' participation in mutual funds managed by IDLC Asset Management, said Mr Dey.
"The industry as a whole should work on how to secure higher participation of retailers," said Shahidul Islam, chief executive officer of VIPB Asset Management Company.
In doing so, short- and long-term measures should be drawn up, said Chairman of EDGE Asset Management Asif Khan.
In the short term, the industry needs to simplify the process of investing in funds and redeeming units.
"Long-term measures should include improving governance standards and building trust."
If the goals of the long- and short-term measures are attained, there are factors already existing, for example tax benefits, to fuel fund collection from retailers.
MF investors avail of tax benefits for investments up to Tk 0.5 million, 15 per cent of which is deducted from the estimation of tax to be paid on taxable income. In case of FDR, the 15 per cent tax rebate is applied to investments up to Tk 0.12 million only.
Moreover, the return in the form of interest rate from FDRs is fixed for a specific tenure while return from MFs is likely to move up if the stock market performs well and bonds pay at higher rates.
Because of the retailers' insignificant participation, the country's MF industry lags far behind other countries, including those in the South Asia.
The spokesperson of the Bangladesh Securities and Exchange Commission (BSEC), Mohammad Rezaul Karim said the responsibility of restoring investors' confidence lied with fund managers.
"The regulator will provide any kind of policy support."
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