A majority of the financial institutions are reluctant to play the role of a trustee of mutual funds as they say they do not have the power to check scams committed by asset management companies (AMCs).
Trustees have been blamed for failing to secure unit holders' interest following discovery of fund mishandling by several AMCs. But they say it is unfair to blame them since they are not empowered to oversee financial transactions in the portfolios managed by AMCs.
Underlying assets of MFs are kept under the custody of custodians whereas assets managed under a debt security remain under the supervision of the trustee. Trustees of MFs have to depend on custodians, AMCs and auditors to receive financial documents of the relevant funds.
The documents can be forged and in that case the trustee has to request the custodian to verify the document.
Moreover, the fee that trustees are entitled to get is insignificant for the responsibilities involved.
"We will not work as a trustee for mutual funds in the days to come because of the inherent problems," said Managing Director of Bangladesh General Insurance Company (BGIC) Ahmed Saifuddin Chowdhury.
Presently, there are nine trustees, including ICB, ICB Capital Management, Sandhani Life Insurance Company, Bangladesh General Insurance Company, Eastern Bank, and BRAC Bank for the mutual fund industry. The number of such funds is 127.
Talking to the FE, officials of several of these organisations said the number of trustees remained insignificant over the years as most institutions would like to avoid the hassles of the job.
Md. Abul Hossain, managing director of the state-run Investment Corporation of Bangladesh (ICB), said it had unofficially decided against taking on the job of a trustee for MFs.
Firstly, the role of a trustee is wider in case of MFs than that of debt securities. Secondly, the sizes of MFs are smaller than the sizes of debt securities and so the services are not cost effective compared to the fees earned from handling debt securities, said Mr Hossain.
At present, the ICB is the sole trustee of 65 MFs.
The rules allow a trustee to charge a fee between 0.10 per cent and 0.25 per cent per annum of the funds.
The securities regulator does not allow the ICB to charge a fee more than 0.15 per cent of a fund. Hence, the ICB is not willing to be a trustee for any more MFs.
The ICB was alarmed after Syed Hamza Alamgir, managing director of Universal Financial Solutions, in January last year fled the country with Tk 1.58 billion from four unit funds.
The ICB was the trustee of two of those funds. The state-run corporation came under fire after the fund embezzlement had made headlines.
The ICB's managing director said that except for the central bank, no other regulatory body, including the Anti Corruption Commission (ACC), the National Board of Revenue (NBR), Criminal Investigation Department, and trustee, has any authority to scrutinise bank transactions of an MF.
The trust deed of any MF says the trustee shall act on behalf of and in the "exclusive interest of investors".
But ICB's chief Mr Hossain said, "The trustee has to rely on the documents provided by the AMC." The trustee has to accept a document of FDR (fixed deposit receipt) worth Tk 50 million as it is even if the actual size of the FDR is Tk 0.5 million.
Mohammad Rezaul Karim, spokesperson of the Bangladesh Securities and Exchange Commission (BSEC), ruled out the claims made by the trustees.
He said a trustee is empowered to monitor overall activities of an MF. The trustee's responsibilities include declaration of dividends, and appointment of auditors. The trustee has the ability to place a query following any kind of irregularities in the management of funds. That is where the concern is. Once fund misappropriation has already been committed, there is little to do to reverse it.
According to Mr Karim, however, the trustees have not exercised their power.
Supporting him, Shahidul Islam, chief executive officer of VIPB Asset Management, said the trustee could even write to the securities regulator to change an AMC.
BGIC's MD Mr Chowdhury said the role of a trustee overlaps that of custodian in the trust deeds.
"On receiving a transaction-related document, the trustee has to request the custodian to verify the document."
It takes a few months to get the verified documents from the custodian. "In some cases we were unable to get feedback from a custodian even in six months."
So, the trustees are not as powerful as claimed, added Mr Chowdhury.
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