EXECUTIVE SUMMARY
Investment Corporation of Bangladesh (ICB) is a statutory corporation. It acts as an investment bank. An investment bank is a financial institution which mobilizes funds from the surplus economic units by selling shares and securities and deployed funds to the deficit economic units also by underwriting securities. It also plays an active role for making investment opportunities and maintains a healthy investment environment. It also plays an important role for maintaining stability in the security market specially when the market tends to be unstable.
Among the products of ICB Mutual Fund is an important one. ICB pioneered the mutual fund industry in Bangladesh. The country’s first mutual fund was launched on 25 April 1980.
In this report I tried to analyze the management of ICB mutual fund. The discussion of this report is divided into five chapters. The first one is the introductory chapter which will give an idea about how this report is conducted, and it consists with the topics like origin of the report, scope of the report, objective of the report, methodology and limitation of the report.
The second chapter will give a brief idea about ICB’s historical background, objective, business policy, capital structure, share capital ownership pattern, management and functions which help to understand the main topic of this report “Management of ICB mutual funds”.
In the third chapter I tried to mention some key issues of mutual fund. This chapter is basically focused on the theoretical aspects of mutual fund like definition of the mutual fund, types of mutual fund, purposes of mutual fund etc.
Fourth chapter is the main part of this paper. This chapter focuses on the management of ICB mutual funds. It will give idea about the age of ICB mutual fund, management fees and charges, assets of ICB mutual fund, declaration of dividend, comparative performance, comparative position, and portfolio position and operational results etc. of ICB mutual funds.
The fifth chapter is the concluding one in which I tried to mention some problems related to ICB and its mutual funds and their solutions.
Investment Corporation of Bangladesh (ICB) is a statutory corporation. It acts as an investment bank. An investment bank is a financial institution which mobilizes funds from the surplus economic units by selling shares and securities and deployed funds to the deficit economic units also by underwriting securities. It also plays an active role for making investment opportunities and maintains a healthy investment environment. It also plays an important role for maintaining stability in the security market specially when the market tends to be unstable.
Among the products of ICB Mutual Fund is an important one. ICB pioneered the mutual fund industry in Bangladesh. The country’s first mutual fund was launched on 25 April 1980.
In this report I tried to analyze the management of ICB mutual fund. The discussion of this report is divided into five chapters. The first one is the introductory chapter which will give an idea about how this report is conducted, and it consists with the topics like origin of the report, scope of the report, objective of the report, methodology and limitation of the report.
The second chapter will give a brief idea about ICB’s historical background, objective, business policy, capital structure, share capital ownership pattern, management and functions which help to understand the main topic of this report “Management of ICB mutual funds”.
In the third chapter I tried to mention some key issues of mutual fund. This chapter is basically focused on the theoretical aspects of mutual fund like definition of the mutual fund, types of mutual fund, purposes of mutual fund etc.
Fourth chapter is the main part of this paper. This chapter focuses on the management of ICB mutual funds. It will give idea about the age of ICB mutual fund, management fees and charges, assets of ICB mutual fund, declaration of dividend, comparative performance, comparative position, and portfolio position and operational results etc. of ICB mutual funds.
The fifth chapter is the concluding one in which I tried to mention some problems related to ICB and its mutual funds and their solutions.
ICB at a glance
Background:
The investment corporation of Bangladesh (ICB) was established on 1 October 1976 under “The Investment Corporation of Bangladesh Ordinance 1976” (No. XL of 1976). It is an investment bank established to accelerate the pace of industrialization and develops a sound security market in Bangladesh.
The establishment of ICB was a major step in a series of measure undertaken by the government to accelerate the pace of industrialization and to develop a well-organized and vibrant capital market particularly securities market in Bangladesh. ICB caters to the need of institutional support to meet the equity gap of the companies. In view of the national policy of accelerating the rate of savings and investment to foster self reliant economy, ICB assumes an indispensable and pivotal role.
Through the enactment of the Investment Corporation Of Bangladesh (Amendment) Act, 2000 (NO. 24 of 2000), reforms in operational strategies and business policies have been implemented by establishing and operating subsidiary companies under ICB.
Objectives:
The objectives of ICB are:
- To encourage and broaden the base of investments.
- To develop the capital market.
- To mobilize savings.
- TO promote and establish subsidiary companies for business expansion.
- To provide for matters ancillary thereto.
Management of ICB:
The head office of the corporation as per the requirement of the ordinance of ICB is located in Dhaka. The general direction and superintendence is created in the board of directors, which consists of persons including the chairman and managing director of ICB.
The board of directors consists of the following members
- The chairman to be appointed by the government.
- The directors to be appointed by the government from among persons serving under the government.
- One director to be nominated by the Bangladesh Bank.
- The managing directors, Bangladesh Shilpa Bank, Ex-office.
- The managing directors, Bangladesh Shilpa Rin Sangstha, Ex-office.
- Four other directors to be elected by the shareholders other than the government, Bangladesh Bank, Bangladesh Shilpa Bank, Bangladesh Shilpa Rin Sangstha.
- The government appoints the managing director of ICB.
Business policy of ICB:
The corporation has adopted a realistic business policy framework within which its operation is conducted. Business policy of ICB includes the following
- To act on commercial consideration with due regard to the interest of the industry, commerce, depositors, investors and to the public in general.
- To provide financial assistance to projects subject to their economic and commercial validity.
- To arrange equity support and loans for projects singly or through consortium of financial institutions including banks.
- To develop and encourage entrepreneurs.
- To diversify investments.
- To inspire small and medium savers for investment in securities.
- To create employment opportunities.
- To encourage more investment in agro based and Information & Communication technology (ICT) sectors.
Capital structure:
Table: Capital structure of ICB
| particulars |
As on 30 June 2007 |
As on 30 June 2006 |
Increase or Decrease (Percentage) |
| Paid-up capital Reserves Retained profit Long term govt. loan Debentures Others Total |
50.00 122.61 13.82 4.55 41.80 16.29 249.07 |
50.00 100.61 9.82 4.90 51.80 18.93 236.06 |
– 21.87 40.73 -7.14 -19.31 -13.95 5.51 |
Figure: Capital structure of ICB as on 30 June 2007
| Particulars |
As on 30 June 2007 |
As on 30 June 2006 |
Increase or Decrease (Percentage) |
| Paid-up capital Reserves Retained profit Long term govt. loan Debentures Others Total |
50.00 130.06 36.43 4.55 41.80 17.18 280.02 |
50.00 104.31 22.95 4.90 51.80 20.13 254.09 |
– 24.69 58.74 -7.14 -19.31 -14.65 10.21 |
Shareholding position:
The shareholding position as on 30 June was as follows
Table: Shareholding position as on 30 June 2007
| Serial No. | Shareholders | No. of Shareholders | No. of shares | Percentage of shareholdings |
| 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Total |
Government of Bangladesh Nationalized commercial banks Development financial institutions Insurance corporations Denationalized private commercial banks Private commercial banks Foreign commercial banks First BSRS mutual funds Other institutions General public |
1 4 2 2 2 3 2 1 12 1121 1150 |
1350000 1137220 1281550 617781 454263 28286 450 7500 29454 93496 5000000 |
27.00 22.74 25.63 12.35 9.09 0.57 0.01 0.15 0.59 1.87 100.00 |
Functions of ICB:
Basic functions of ICB are as follows:
- Underwriting of initial public offering of shares and debentures.
- Underwriting of right issue of shares.
- Direct purchase of shares and debentures including placement and equity participation.
- Providing lease financing to industrial machinery and other equipments singly or by forming syndicate.
- Managing existing investment accounts.
- Managing existing mutual funds.
- Managing portfolio of existing business.
- Providing advance against ICB unit and mutual fund certificates andICB AMCL unit fund certificates.
- Providing consumer credit.
- Providing bank guarantee.
- To act as trustee and custodian.
- Participating in and financing of joint-venture companies.
- Providing investment counseling to investors.
- Participating in government divestment program.
- Introducing new business products suiting market demand.
- To supervise the activities of the subsidiary companies.
- Dealing in other matters related to capital market.
SOME KEY ISSUES OF MUTUAL FUNDS
The History of Mutual Funds:
Mutual funds began in the Netherlands in 1822. The concept eventually migrated to Scotland in the 1880's and later to the United States in 1889. Originally called investment trusts, the first American mutual fund was the New York Stock Trust. This fund was later followed by numerous other funds, such as the State Street fund, the Massachusetts Investor's trust, Fidelity, Scudder, Pioneer, and the Putnam Fund.
Later, in the 1960's there was tumultuous increase in aggressive growth (and High Risk) funds. Sometimes called "go-go" or "hot-shot" funds, they received the majority of the billions of dollars flowing into mutual funds at that time. In 1968 and 1969, over 100 of these new aggressive growth funds were established. However, in 1969, a severe bear market began and many investors fled mutual funds.
In the mid-to-late 1970's, enhancements in mutual funds were sought to encourage more investors. As a result, the new fund innovation came about, funds with no sales commission or "no-load" funds. These funds have continued to grow since the 1970's and represent the largest sector of the investment market in America.
Proponents of mutual funds are fond of saying that, since the Investment Companies Act of 1940, not one single mutual fund has gone bankrupt. However, the current crisis involving mutual funds may well test that claim as the current dilemma may be the most significant facing the mutual fund industry in its history.
Definition of Mutual Fund:
One of the simplest investment instruments available to a new investor is a mutual fund. A mutual fund is a professionally managed pool of money invested by people. There are many different types of mutual funds, each designed for a different type of investor with a different financial profile.
Briefly, mutual funds are investment vehicles that allow investors to place money into the stock market and achieve investment diversity through the "pooling" (or accumulation) of investment funds of numerous individuals. This occurs through the employment of an investment company-a corporation, partnership or trust that invests the monies and offers professional management and diversification of investments in exchange for a commission paid by the individual investor.
A mutual fund company is a financial intermediary that pools the resources of many small investors (individual and institutions) by selling units and then invests the proceeds to purchase a portfolio of securities. Mutual funds allow the participants to obtain the benefit of lower transaction costs in purchasing securities. In addition, mutual funds allow shareholders to hold more diversified portfolios that they otherwise would. The increased diversification for individual investors allows a more efficient allocation of risks.
Mutual funds operate by aggregating the
Funds of investors and placing
Those funds into all sorts of
Investments. It looks like this bellow figure:
Mutual fund instruments are usually treated as a means of relatively safe and profitable investment in the capital market because these comprise a diversified portfolio of securities. The basic theme of mutual fund originates from the concept of portfolio management. The principal of portfolio management is to maximize the return and to minimize the risk. The better portfolio is one which provides maximum return per unit of risk. Mutual fund is such an investment vehicle that ensures such type of benefits. The main advantage of mutual fund is the benefit of diversification, which reduces the unsystematic risk of investment to a significant extent.
The Difference between Hedge Funds and Mutual Funds:
Hedge funds are much more secretive than mutual funds and, because they are not currently regulated in any significant fashion by the Securities Exchange Commission, they remain very flexible in the types of investments and techniques they can utilize. In the mutual fund cases, some hedge funds are alleged to have acted inappropriately in taking advantage of the inefficiencies in how mutual funds operate.
In short, hedge funds are defined as "aggressively managed portfolios taking positions on safe and speculative opportunities. Most hedge funds are limited to a maximum of 100 investors. For the most part, hedge funds are unregulated because it is assumed the people investing in these are very sophisticated and wealthy." Hedge funds, like mutual funds, pool funds of investors.
The similarities end there. Unlike mutual funds, hedge funds are allowed to make a variety of otherwise risky maneuvers or "positions" to maximize return to their investors. These "positions" may include more sophisticated financial tools such as the use of options and "short-selling" stocks. Mutual funds do not have the flexibility to work in the same fashion as hedge funds.
It becomes easier to distinguish hedge funds and mutual funds when considering the investors who belong to each. Hedge funds require a much larger investment and attract much more sophisticated investors.
Mutual funds, on the other hand, provide investment opportunities for persons with relatively weaker financial experience than hedge fund investors. For this reason, mutual funds are heavily regulated and cannot employ the more sophisticated financial tools available to hedge funds. For example, mutual funds cannot use "short-sales" as an investment tool.
Types of Mutual Funds:
Mutual Funds are also known as close-ended Mutual Funds. The issued capital of a Mutual Fund is limited, that is, a Mutual Fund offers a limited number of certificates for sale to the public. The amount of capital and the number of certificates of each Mutual Fund remains unchanged. ICB Mutual Funds are independent of one another. A Mutual Fund being listed is traded on the Stock Exchanges. Price of Mutual Fund certificates after IPO is determined on the Stock Exchanges through interaction of supply and demand. The market price of a Mutual Fund certificates is available in Stock exchange quotations and in newspapers.
There are three basic types of mutual funds. These are as described below:
1. Open-end mutual fund:
An open-ended) fund is a collective investment which can issue and redeem shares at any time. An investor can purchase shares in such funds directly from the mutual fund company, or through a brokerage house. That is, Open-end investments funds are willing to repurchase the shares they sell from investors at any time. This is an attractive characteristic, because it offers liquidity to investors.
An open-ended fund is equitably divided into shares (or units) which vary in price in direct proportion to the variation in value of the funds net asset value. Each time money is invested new shares or units are created to match the prevailing share price; each time shares are redeemed the assets sold match the prevailing share price. In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets.
2. Closed-end Mutual Fund:
Closed-end mutual finds do not repurchase the shares they sell. Instead, investors must sell the shares on a stock exchange just like corporate stock. The number of outstanding shares sold by a closed-end investment company usually remains constant and is equal to the number of shares originally issued. When the demand for a particular closed-end mutual fund is strong, the market price may be higher than its net asset value (NAV).
When closed-end fund's market price per share is less than the NAV per share, the fund is priced at a discount. Some research has documented high returns from investing in closedend funds with large discounts from NAV, which suggests in price are undervalued, however, this strategy may not always generate high adjusted returns, because the market price of some closed-end funds with large discounts continues to decline over time.
Some traditional and distinguishing characteristics of closed-end funds are given below:
- Closed-end funds generally do not continuously offer their shares for sale. Rather, they sell a fixed number of shares at one time (in the initial public offering), after which the shares typically trade on a secondary market.
- The price of closed-end fund shares that trade on a secondary market after their initial public offering is determined by the market and may be greater or less than the shares' net asset value (NAV).
- Closed-end fund shares generally are not redeemable. That is, a closed-end fund is not required to buy its shares back from investors upon request. Some closed-end funds, commonly referred to as interval funds, offer to repurchase their shares at specified intervals.
- The investment portfolios of closed-end funds generally are managed by separate entities known as "investment aciviscrs" that are registered with the SEC.
- Closed-end funds also are permitted to invest in a greater amount of "illiquid" securities than mutual funds. (An "illiquid" security generally is considered to be a security that can't be sold within seven days at the approximate price used by the fund in determining NAV.) Because of this feature, funds that seek to invest in markets where the securities tend to be more illiquid are typically organized as closed-end funds.
Closed-end funds come in many varieties. They can have different investment objectives, strategies, and investment portfolios. They also can be subject to different risks, volatility, and fees and expenses.
Closed-end funds are subject to SEC registration and regulation, and are subject to numerous requirements imposed for the protection of investors.
In short, a closed-end fund is a collective investment scheme with a limited number of shares. New shares are rarely issued after the fund is launched; shares are not normally redeemable for cash or securities until the fund liquidates. Typically an investor can acquire shares in a closed-end fund by buying shares on a secondary market from a broker, market maker, or other investor.
3. Unit Investment Trust
A unit trust is a form of collective investment constituted under a trust deed. Unit trusts are open-ended investments; therefore the underlying value of the assets is always directly represented by the total number of units issued multiplied by the unit price less the transaction or management fee charged. Each fund has a specified investment objective to determine the management aims and limitations.
Each time money is invested, like the Open-end Mutual fund, new units are created to match the prevailing unit buying price; each time units are redeemed the assets sold match the prevailing unit selling price. In this way there is no supply or demand created for units and they remain a direct reflection of the underlying assets.
Each time money is invested, like the Open-end Mutual fund, new units are created to match the prevailing unit buying price; each time units are redeemed the assets sold match the prevailing unit selling price. In this way there is no supply or demand created for units and they remain a direct reflection of the underlying assets.
Structure of Unit Investment Trust
- The fund manager runs the trust for profit.
- The trustees ensure the fund manager keeps to the fund's investment objective and safeguards the trust assets.
- The unit holders have the rights to the trust assets.
4. Stock Mutual fund
Investors have various objectives and no single portfolio can satisfy every one. Consequently, a variety of stock mutual funds have been created. The more popular categories include:
1) Growth funds
For investors who desire a high return and are willing to accept a moderate degree of risk, growth funds are appropriate. These funds are typically composed of stocks of companies that have not fully matured and are expected to grow at a higher than average rate in the future. The primary objective of a growth fund is to generate an increase in investment value, with less concern about the generation of steady income. Growth funds do not all necessarily share the same degree of risk. Some concentrate on companies that have existed for several years but are still experiencing growth, while others concentrate on relatively young companies.
2) Capital appreciation funds
Capital appreciation fund is known as aggressive growth funds. Capital appreciation funds are composed of stocks that have potential for very high growth but also be unproven. These funds are suited for investors who are more willing to take a possible loss in value. In response to rapid changes in the economy, portfolio managers of capital appreciation funds constantly revise the portfolio composition to take full advantage of their expectations. They sometimes even use borrowed money to support their portfolios, thereby using leverage to
Increase their potential return and risk.
3) Growth and income funds
The investors who prefer potential for capital appreciation along with some stability in income, a growth and income fund, which contains a unique combination of growth stocks,. high-dividend stocks and fixed-income bonds, may be most appropriate.
4) International and global funds
In recent years, awareness of foreign securities has been increasing. Investors historically avoided foreign securities because of the high information and transaction costs associated with purchasing them and monitoring their performance. International mutual funds were created to allow investment in foreign securities without incurring these excessive costs. The returns on international stock mutual funds are affected not only by foreign companies' stock price but also by the movements of the currencies that dominate these stocks.
An alternative to an international mutual fund is a global mutual fund, which includes some local country's stock in its portfolio. International and global mutual funds have historically included stocks from several different countries to limit the portfolio's exposure to economic conditions in any single foreign economy.
5) Internet funds
Internet funds focus their investment on Internet companies. These funds have performed extremely well recently because of the surge in stocks price of Internet companies. Investors who want to invest in technology but do not have any insight about specific companies commonly invest in these mutual funds.
6) Specialty funds
Some mutual funds, called specialty funds, focus on a group of companies sharing particular characteristics. For example, there are industry specific funds such as energy, banking and high-tech funds. Some funds include only stocks of firms that are likely takeover targets. There are even mutual funds that specialize in options or other commodities, such as precious metals. The risk of specialty funds varies with the particular characteristics of each fund.
7) Index mutual funds
Some mutual funds are designed to simply match the performance of an existing stock index. Index funds are composed of stocks that, in aggregate, are expected to move in line with a specific index. They contain many of the same stocks contained in the Corresponding index and tend to have a very low expense because they require little portfolio management and execute a relatively small number of transactions.
5. Multifund funds:
In recent years multifund mutual funds have been created. A multifund fund's portfolio managers invest in a portfolio of different mutual funds. A multifund mutual fund achieves even more diversification than a typical mutual fund, because it contains several mutual funds. However, investors incur two types of management expenses:
Investors have various objectives and no single portfolio can satisfy every one. Consequently, a variety of stock mutual funds have been created. The more popular categories include:
1) Growth funds
For investors who desire a high return and are willing to accept a moderate degree of risk, growth funds are appropriate. These funds are typically composed of stocks of companies that have not fully matured and are expected to grow at a higher than average rate in the future. The primary objective of a growth fund is to generate an increase in investment value, with less concern about the generation of steady income. Growth funds do not all necessarily share the same degree of risk. Some concentrate on companies that have existed for several years but are still experiencing growth, while others concentrate on relatively young companies.
2) Capital appreciation funds
Capital appreciation fund is known as aggressive growth funds. Capital appreciation funds are composed of stocks that have potential for very high growth but also be unproven. These funds are suited for investors who are more willing to take a possible loss in value. In response to rapid changes in the economy, portfolio managers of capital appreciation funds constantly revise the portfolio composition to take full advantage of their expectations. They sometimes even use borrowed money to support their portfolios, thereby using leverage to
Increase their potential return and risk.
3) Growth and income funds
The investors who prefer potential for capital appreciation along with some stability in income, a growth and income fund, which contains a unique combination of growth stocks,. high-dividend stocks and fixed-income bonds, may be most appropriate.
4) International and global funds
In recent years, awareness of foreign securities has been increasing. Investors historically avoided foreign securities because of the high information and transaction costs associated with purchasing them and monitoring their performance. International mutual funds were created to allow investment in foreign securities without incurring these excessive costs. The returns on international stock mutual funds are affected not only by foreign companies' stock price but also by the movements of the currencies that dominate these stocks.
An alternative to an international mutual fund is a global mutual fund, which includes some local country's stock in its portfolio. International and global mutual funds have historically included stocks from several different countries to limit the portfolio's exposure to economic conditions in any single foreign economy.
5) Internet funds
Internet funds focus their investment on Internet companies. These funds have performed extremely well recently because of the surge in stocks price of Internet companies. Investors who want to invest in technology but do not have any insight about specific companies commonly invest in these mutual funds.
6) Specialty funds
Some mutual funds, called specialty funds, focus on a group of companies sharing particular characteristics. For example, there are industry specific funds such as energy, banking and high-tech funds. Some funds include only stocks of firms that are likely takeover targets. There are even mutual funds that specialize in options or other commodities, such as precious metals. The risk of specialty funds varies with the particular characteristics of each fund.
7) Index mutual funds
Some mutual funds are designed to simply match the performance of an existing stock index. Index funds are composed of stocks that, in aggregate, are expected to move in line with a specific index. They contain many of the same stocks contained in the Corresponding index and tend to have a very low expense because they require little portfolio management and execute a relatively small number of transactions.
5. Multifund funds:
In recent years multifund mutual funds have been created. A multifund fund's portfolio managers invest in a portfolio of different mutual funds. A multifund mutual fund achieves even more diversification than a typical mutual fund, because it contains several mutual funds. However, investors incur two types of management expenses:
- The expense of managing each individual mutual fund and
- The expenses of managing the multifund mutual fund.
6. Bond Mutual Fund
Investors in bond primarily concerned about interest rate, credit risk (default) and tax implications. Thus most funds can be classified according to either their maturities (which could affect interest rate) or the type of bond issuer (which affects credit risks and taxes incurred). The different types of Bond funds are given below:
I. Income funds
For investors who are mainly concerned with stability of income rather than capital appreciation, income funds are appropriate. These funds usually composed of bonds that offer periodic coupon payments and vary in exposure to risk. Some income funds are composed of only corporate bonds that are susceptible to credit risk, while those composed of only treasury bonds are not. A third types of income fund agencies, such as Government National Mortgage Association. These funds are normally perceived to be less risky than a fund containing corporate bonds. Those income funds exhibiting more credit risk will offer a higher potential returns.
2. Tax free funds
High tax bracket investors historically purchased municipal bonds as a way to avoid tax. Because these bonds are susceptible to default, a diversified portfolio is desirable. Mutual funds containing municipal bonds allow high tax bracket investors with even small amounts of funds to avoid taxes while maintaining a low degree of credit risk.
3. High-Yield (Junk) Bond funds
Bond portfolio with at least two-third of the bond rated hollow Baa by Moody's or BBB by Standard and Poor's are available for investors desiring high return and willing to incur high risk. These portfolios are sometimes referred to as high-yield (Junk) funds. Typically, the bonds are issued by highly leveraged firms. The issuing firm's ability to repay the bonds is very sensitive to economic conditions.
4. International and global Bond funds
International bond funds contain bonds issued by corporations or governments based on other countries. Global bond fund differ from international bond funds in that they contain local country's bond as well as foreign bonds. These funds may be more appropriate for investors who want a fund that includes local bonds within a diversified portfolio, where as investors in international bond funds may already have a sufficient investment in local bond market and prefer a fund that focuses entirely on foreign bonds. International and global bond funds provide investors with an easy way to invest in foreign bonds. However, these funds are subject to default risk, interest rate risk, and exchange rate risk.
Purposes of Mutual Fund:
The objective of any fund would fit into one of three broad categories.
- Income: The emphasis is on producing a steady flow of dividend payment.
- Capital gain: The manager concentrates on increasing the value of principal through appreciation of the stocks held.
- Income and capital gain: Some combination of the first two Approaches.
Benefits Against of Mutual Fund:
- Mutual Fund substantially lowers the investment risk of lower investors through diversification in which funds are spread out into various sectors, companies, securities as well as entirely different market.
- Mutual Fund mobilizes the savings of small investor and channels them into lucrative investment opportunities. As a result, Mutual Fund adds liquidity to the market.
- Mutual Fund provides the small investors access to the whole market that at an individual level, would be difficult if not impossible to achieve.
- Because funds are professionally managed, investors are relieved from the emotional strain associated with the day-to-day management of the fund.
- The investors save a great deal in transaction costs given that s/he has access to a large number of securities by purchasing a single share of a Mutual Fund.
- The investors can pick and chase a Mutual Fund to match his / her particular needs.
- Mutual Fund is the only vehicle which operates simultaneously both at the demand as well as the supply side of the market. On the supply side, the Mutual Fund being itself security at the SEC introduces a good and reliable instrument in the capital market for the small but astute investor.
- Mutual Fund is one of the most strictly regulated investment vehicles. The laws governing Mutual Fund require exhaustive disclosure to the SEC as well as the general public. The laws also entail continuous regulations of fund operations by the Trustee.
Mutual Fund in Bangladesh:
Mutual funds are now perhaps the most widely known investment schemes around the world, especially in last few years. However, in Bangladesh, there are only 14 listed mutual funds among the 326 listed securities in the Dhaka Stock Exchange. The market capitalization of all the mutual funds stood at Tk.2, 971 million in May 2007, which was 9.5 percent higher compared to the same period in 2005. The share of mutual funds in total market capitalization (Tk.323.4 billion) stood at merely 0.5 percent. This indicates that mutual funds are not very popular instrument in Bangladesh. This might be due to the fact that the capital market is still diminutive and the market lacks sufficient number of quality shares.
Among the 14 mutual funds,-eight are managed by the government owned Investment Corporation of Bangladesh (ICB), three are managed by ICB Asset Management Company Ltd (AMCL), one is managed by Bangladesh Shilpa Rin Sangstha (BSRS) and remaining two are managed by privately owned Asset and Investment Management Services (AIMS) of Bangladesh Ltd. Another closed-end mutual fund "Prime Finance First Mutual Fund" is under active consideration for immediate flotation by the ICB AMCL.
The ICB has a long history of successfully managing closed-end mutual funds. In Bangladesh, ICB has played a key role in the development of the mutual funds on behalf of investors. Mutual funds are popular to the investors because these are sources of consistent rate of dividend and scope of capital gain. Dividends declared on the funds were attractive and ranged from 15 percent to 210 percent in 2005 / 06.
Performance Analysis:
Mutual fund has performed a vital role in bringing transparency and stability in the market over the years. Bellow Table shows some important statistics regarding the performance of the mutual funds in Bangladesh. Total issued capital increased by three (3) times within this four (4) year period as compared to six (6) times increase in market capitalization. As of May 2007, total market capitalization stood at Tk. 2,971 million, which was nearly 200% increase over the same period. Turnover fluctuated significantly because of the volatile nature of the Dhaka Stock Exchange. Price-earning ratio reflects the price offer per Taka against the earnings of a company share. Generally, a higher P/E means the company has the potential to improve its fundamentals so that investors may be willing to pay a large multiple of its current earnings to buy the stock. From the table it is evident that P/E ratio of the mutual funds has declined over the years until recently.
Table: Key Statistics of Mutual Funds
| No. of Mutual Funds |
Total Issued Capital (in million BDT) |
Total Market Capitalization (in million BDT) |
Turnover (in million BDT) |
P/E Ratio |
|
| June, 03 | 10 | 295 | 512 | – | – |
| December, 03 | 11 | 395 | 664 | 27.86 | 8.48 |
| June, 04 | 11 | 395 | 835 | 34.52 | 8.43 |
| December, 04 | 11 | 395 | 1046 | 55.98 | 8.27 |
| June, 05 | 12 | 495 | 1247 | 180.00 | _ 8.37 |
| December, 05 | 13 | 735 | 1521 | 61.48 | 6.55 |
| June, 06 | 13 | 735 | 1185 | 14.03 | 6.32 |
| December, 06 | 13 | 735 | 1537 | 378.24 | 6.13 |
| May, 07 | 14 | 835 | 2971 | 954.94 | 11.83 |
Source: Monthly Review, Dhaka Stock Exchange Ltd. (June, 2007)
Mutual funds are one of the fastest growing investment instruments throughout the world. In Bangladesh this industry is beginning to receive the status of a preferred savings mode. With the wide range of products, the industry is well positioned to meet the investor's need even with different risk profiles. Investors are also getting various tax benefits. Mutual funds have helped to broaden the investor base of the country. Since mutual funds industry offers long term value, this industry has enormous prospects in Bangladesh.
Mutual funds are one of the fastest growing investment instruments throughout the world. In Bangladesh this industry is beginning to receive the status of a preferred savings mode. With the wide range of products, the industry is well positioned to meet the investor's need even with different risk profiles. Investors are also getting various tax benefits. Mutual funds have helped to broaden the investor base of the country. Since mutual funds industry offers long term value, this industry has enormous prospects in Bangladesh.
Management of ICB mutual fund
Introduction:
ICB pioneered the mutual fund industry in Bangladesh. The country’s first mutual fund, the “First ICB mutual fund” was launched on 25 April 1980. Since then ICB has floated 8 mutual funds of total capital of taka. 17.5 crore up to 1996. ICB mutual funds are now perceived by investors as a rewarding and relatively safe investment vehicle because of its strong and steady performance in terms of dividend and portfolio management.
Investment Corporation of Bangladesh (ICB) declared record dividends on its eight mutual funds in 2006-07. The first ICB mutual fund has earned the distinction of declaring the stock dividend (bonus share) in 2006-07 for the first time in Bangladesh. The first ICB mutual fund declared the highest dividend of 240.0 percent including 190 percent in cash and 50.0 percent in stock (one bonus certificate for every two certificates). The dividend declared by the first mutual fund was the highest for the fifth consecutive year compared with other listed companies in the country which attests to its excellent performance.
The dividend declared by seven other mutual funds ranged from 62.0 percent in respect of Second ICB mutual fund to 18.0 percent in Eight ICB mutual fund. The rates of dividends for the previous year ranged from 210.0 percent to 15.0 percent. Strong performance of the funds is reflected in the market price of the funds. All the mutual funds were traded significantly above per value in both the bourses.
The portfolios of all the mutual funds were managed with diligence and prudence to ensure maximization of return and minimization of risk in the interest of investors.
Launching of eight ICB mutual funds:
Table: Launching of funds:
Introduction:
ICB pioneered the mutual fund industry in Bangladesh. The country’s first mutual fund, the “First ICB mutual fund” was launched on 25 April 1980. Since then ICB has floated 8 mutual funds of total capital of taka. 17.5 crore up to 1996. ICB mutual funds are now perceived by investors as a rewarding and relatively safe investment vehicle because of its strong and steady performance in terms of dividend and portfolio management.
Investment Corporation of Bangladesh (ICB) declared record dividends on its eight mutual funds in 2006-07. The first ICB mutual fund has earned the distinction of declaring the stock dividend (bonus share) in 2006-07 for the first time in Bangladesh. The first ICB mutual fund declared the highest dividend of 240.0 percent including 190 percent in cash and 50.0 percent in stock (one bonus certificate for every two certificates). The dividend declared by the first mutual fund was the highest for the fifth consecutive year compared with other listed companies in the country which attests to its excellent performance.
The dividend declared by seven other mutual funds ranged from 62.0 percent in respect of Second ICB mutual fund to 18.0 percent in Eight ICB mutual fund. The rates of dividends for the previous year ranged from 210.0 percent to 15.0 percent. Strong performance of the funds is reflected in the market price of the funds. All the mutual funds were traded significantly above per value in both the bourses.
The portfolios of all the mutual funds were managed with diligence and prudence to ensure maximization of return and minimization of risk in the interest of investors.
Launching of eight ICB mutual funds:
Table: Launching of funds:
| Name of the funds | Date of launching | Paid up capital (Tk. in crore) |
| First ICB mutual fund | 25 April 1980 | 0.50 |
| Second ICB mutual fund | 17 June 1984 | 0.50 |
| Third ICB mutual fund | 19 May 1985 | 1.00 |
| Fourth ICB mutual fund | 06 June 1986 | 1.00 |
| Fifth ICB mutual fund | 08 June 1087 | 1.50 |
| Sixth ICB mutual fund | 16 May 1988 | 5.00 |
| Seventh ICB mutual fund | 30 June 1995 | 3.00 |
| Eighth ICB mutual fund | 23 July 1996 | 5.00 |
Source: Annual report of ICB mutual funds, 2006-07
To mobilize savings and broaden the base of investment ICB has floated these mutual funds. Details of these funds are analyzed below:
First ICB mutual fund:
The first ICB mutual fund was established in 25 April, 1980 under regulation 29 A of ICB general regulations with a total capital of Tk. 50, 00,000 divided into 50,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 1524.69 lac, and the cost price was Tk. 324.26 lac. The fund declared dividend at the rate of Tk. 240.00 per certificates of Tk. 100.00 each for the year 2006-07.
Second ICB mutual fund:
The second ICB mutual fund was established in 17 June, 1984 under regulation 29 A of ICB general regulations with a total capital of Tk. 50, 00,000 divided into 50,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 383.40 lac, and the cost price was Tk. 327.06 lac. The fund declared dividend at the rate of Tk. 62.00 per certificates of Tk. 100.00 each for the year 2006-07.
Third ICB mutual fund:
The third ICB mutual fund was established in 19 May, 1985 under regulation 29 A of ICB general regulations with a total capital of Tk. 100,00,000 divided into 100,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 545.04 lac, and the cost price was Tk. 418.11 lac. The fund declared dividend at the rate of Tk. 56.00 per certificates of Tk. 100.00 each for the year 2006-07.
Fourth ICB mutual fund:
The fourth ICB mutual fund was established in 06 June, 1986 under regulation 29 A of ICB general regulations with a total capital of Tk. 100, 00,000 divided into 100,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 778.64 lac, and the cost price was Tk. 483.86 lac. The fund declared dividend at the rate of Tk. 52.00 per certificates of Tk. 100.00 each for the year 2006-07.
Fifth ICB mutual fund:
The fifth ICB mutual fund was established in 08 June, 1987 under regulation 29 A of ICB general regulations with a total capital of Tk. 150, 00,000 divided into 150,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 1246.17 lac, and the cost price was Tk. 752.58 lac. The fund declared dividend at the rate of Tk. 33.00 per certificates of Tk. 100.00 each for the year 2006-07.
Sixth ICB mutual fund:
The sixth ICB mutual fund was established in 16 May, 1988 under regulation 29 A of ICB general regulations with a total capital of Tk. 500, 00,000 divided into 500,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 1160.94 lac, and the cost price was Tk. 896.91 lac. The fund declared dividend at the rate of Tk. 23.00 per certificates of Tk. 100.00 each for the year 2006-07.
Seventh ICB mutual fund:
The seventh ICB mutual fund was established in 30 June, 1995 under regulation 29 A of ICB general regulations with a total capital of Tk. 300, 00,000 divided into 300,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 1493.72 lac, and the cost price was Tk. 1130.41 lac. The fund declared dividend at the rate of Tk. 22.50 per certificates of Tk. 100.00 each for the year 2006-07.
Eighth ICB mutual fund:
The eighth ICB mutual fund was established in 23 July, 1996 under regulation 29 A of ICB general regulations with a total capital of Tk. 500, 00,000 divided into 500,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 1544.30 lac, and the cost price was Tk. 1171.93 lac. The fund declared dividend at the rate of Tk. 18.00 per certificates of Tk. 100.00 each for the year 2006-07.
How to buy existing mutual funds:
An investor can purchase any of the eight ICB mutual funds certificates through the Stock Exchange at the prevailing market price. However, if an investor buys mutual fund certificates through the Stock Exchanges he/she must be careful to submit the certificates along with duly filled-in transfer deed at ICB Head office to ensure that the certificates are registered in his/her name.
Advance against Mutual Fund certificates scheme:
Advance against ICB Mutual Fund certificates scheme was introduced in 2003, designed for the ICB Mutual Fund certificate holders to meet their emergency fund requirement. One can borrow maximum of 50% value of last one year weighted average market price of certificates at the time of borrowing by depositing his/her certificates under lien arrangement from any of the ICB offices. The rate of interest on the loan is reasonable and also competitive.
Management fee, Charge etc:
At present management fee @ 1% on the paid up capital of the fund is charged annually. No amount is charged on account of custodial and trust services. Part of operating expenses is charged to the respective Mutual Fund on pro rata basis.
Assets of ICB Mutual Fund:
ICB Mutual Funds certificate holders shall have unfettered ownership in the assets of the fund to which they are related. In case of winding up of the corporation the assets belonging to any ICB Mutual fund shall not be treated as the assets of the corporation.
Management of the funds:
There is a decision making board in order to manage different mutual funds. As per boards decision securities are bought and sold. In case of new mutual fund it subscribes for public issue. First ICB authority creates a portfolio by its own finance and gives it a name. After that it is published on the newspaper as prospectus. By studying this prospectus public responses whether they will buy the fund or not.
Declaration of dividend:
The net income received on investments of funds on account of dividend, bonus, interest, capital gain etc. are distributed amongst the certificate holders as per the decision of the Board of directors of ICB. Board declares such income in the form of dividend at the end of July each year. Dividends declared by ICB in the past on the mutual funds are very attractive.
Like to the previous years, ICB has been able to declare attractive dividends on its mutual funds during 2006-07 as previous year. Among the 8 mutual funds the highest dividend of 240.00 percent was declared on the first ICB mutual fund followed by 62.00 percent on the Second ICB mutual fund, with the lowest being 18.00 percent declared on the eight ICB mutual funds during 2006-07. In 2006-07 the market price of all the mutual funds on Dhaka and Chittagong Stock Exchange were above their per values, reflecting strong performance of the funds. Average dividend yield on these 8 listed mutual funds worked out to Tk.63.3125 percent per certificate based on closing price. The rate of dividend declared by First ICB mutual fund ranked first amongst all the listed companies that declared dividend during 2006-07. ICB has been succeeded to a great extent in broad basing equity ownership through mutual funds as is evident from the number of certificate holders which was over 31000 as on 30, June 2005.
SWOT analysis:
SWOT analysis is a tool that identifies the strengths, weakness, opportunities, and threats of an organization. Specifically, SWOT is a basic straightforward model that assesses what an organization can and cannot do as well as its potential opportunities and threats.
Strengths of ICB mutual fund:
The internal strength gives the fund comparative advantage in the marketplace. These internal capabilities of ICB mutual funds are given below:
To mobilize savings and broaden the base of investment ICB has floated these mutual funds. Details of these funds are analyzed below:
First ICB mutual fund:
The first ICB mutual fund was established in 25 April, 1980 under regulation 29 A of ICB general regulations with a total capital of Tk. 50, 00,000 divided into 50,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 1524.69 lac, and the cost price was Tk. 324.26 lac. The fund declared dividend at the rate of Tk. 240.00 per certificates of Tk. 100.00 each for the year 2006-07.
Second ICB mutual fund:
The second ICB mutual fund was established in 17 June, 1984 under regulation 29 A of ICB general regulations with a total capital of Tk. 50, 00,000 divided into 50,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 383.40 lac, and the cost price was Tk. 327.06 lac. The fund declared dividend at the rate of Tk. 62.00 per certificates of Tk. 100.00 each for the year 2006-07.
Third ICB mutual fund:
The third ICB mutual fund was established in 19 May, 1985 under regulation 29 A of ICB general regulations with a total capital of Tk. 100,00,000 divided into 100,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 545.04 lac, and the cost price was Tk. 418.11 lac. The fund declared dividend at the rate of Tk. 56.00 per certificates of Tk. 100.00 each for the year 2006-07.
Fourth ICB mutual fund:
The fourth ICB mutual fund was established in 06 June, 1986 under regulation 29 A of ICB general regulations with a total capital of Tk. 100, 00,000 divided into 100,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 778.64 lac, and the cost price was Tk. 483.86 lac. The fund declared dividend at the rate of Tk. 52.00 per certificates of Tk. 100.00 each for the year 2006-07.
Fifth ICB mutual fund:
The fifth ICB mutual fund was established in 08 June, 1987 under regulation 29 A of ICB general regulations with a total capital of Tk. 150, 00,000 divided into 150,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 1246.17 lac, and the cost price was Tk. 752.58 lac. The fund declared dividend at the rate of Tk. 33.00 per certificates of Tk. 100.00 each for the year 2006-07.
Sixth ICB mutual fund:
The sixth ICB mutual fund was established in 16 May, 1988 under regulation 29 A of ICB general regulations with a total capital of Tk. 500, 00,000 divided into 500,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 1160.94 lac, and the cost price was Tk. 896.91 lac. The fund declared dividend at the rate of Tk. 23.00 per certificates of Tk. 100.00 each for the year 2006-07.
Seventh ICB mutual fund:
The seventh ICB mutual fund was established in 30 June, 1995 under regulation 29 A of ICB general regulations with a total capital of Tk. 300, 00,000 divided into 300,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 1493.72 lac, and the cost price was Tk. 1130.41 lac. The fund declared dividend at the rate of Tk. 22.50 per certificates of Tk. 100.00 each for the year 2006-07.
Eighth ICB mutual fund:
The eighth ICB mutual fund was established in 23 July, 1996 under regulation 29 A of ICB general regulations with a total capital of Tk. 500, 00,000 divided into 500,000 certificates of Tk. 100 each. The market value of the portfolio as on 30 June 2007 was Tk. 1544.30 lac, and the cost price was Tk. 1171.93 lac. The fund declared dividend at the rate of Tk. 18.00 per certificates of Tk. 100.00 each for the year 2006-07.
How to buy existing mutual funds:
An investor can purchase any of the eight ICB mutual funds certificates through the Stock Exchange at the prevailing market price. However, if an investor buys mutual fund certificates through the Stock Exchanges he/she must be careful to submit the certificates along with duly filled-in transfer deed at ICB Head office to ensure that the certificates are registered in his/her name.
Advance against Mutual Fund certificates scheme:
Advance against ICB Mutual Fund certificates scheme was introduced in 2003, designed for the ICB Mutual Fund certificate holders to meet their emergency fund requirement. One can borrow maximum of 50% value of last one year weighted average market price of certificates at the time of borrowing by depositing his/her certificates under lien arrangement from any of the ICB offices. The rate of interest on the loan is reasonable and also competitive.
Management fee, Charge etc:
At present management fee @ 1% on the paid up capital of the fund is charged annually. No amount is charged on account of custodial and trust services. Part of operating expenses is charged to the respective Mutual Fund on pro rata basis.
Assets of ICB Mutual Fund:
ICB Mutual Funds certificate holders shall have unfettered ownership in the assets of the fund to which they are related. In case of winding up of the corporation the assets belonging to any ICB Mutual fund shall not be treated as the assets of the corporation.
Management of the funds:
There is a decision making board in order to manage different mutual funds. As per boards decision securities are bought and sold. In case of new mutual fund it subscribes for public issue. First ICB authority creates a portfolio by its own finance and gives it a name. After that it is published on the newspaper as prospectus. By studying this prospectus public responses whether they will buy the fund or not.
Declaration of dividend:
The net income received on investments of funds on account of dividend, bonus, interest, capital gain etc. are distributed amongst the certificate holders as per the decision of the Board of directors of ICB. Board declares such income in the form of dividend at the end of July each year. Dividends declared by ICB in the past on the mutual funds are very attractive.
Like to the previous years, ICB has been able to declare attractive dividends on its mutual funds during 2006-07 as previous year. Among the 8 mutual funds the highest dividend of 240.00 percent was declared on the first ICB mutual fund followed by 62.00 percent on the Second ICB mutual fund, with the lowest being 18.00 percent declared on the eight ICB mutual funds during 2006-07. In 2006-07 the market price of all the mutual funds on Dhaka and Chittagong Stock Exchange were above their per values, reflecting strong performance of the funds. Average dividend yield on these 8 listed mutual funds worked out to Tk.63.3125 percent per certificate based on closing price. The rate of dividend declared by First ICB mutual fund ranked first amongst all the listed companies that declared dividend during 2006-07. ICB has been succeeded to a great extent in broad basing equity ownership through mutual funds as is evident from the number of certificate holders which was over 31000 as on 30, June 2005.
SWOT analysis:
SWOT analysis is a tool that identifies the strengths, weakness, opportunities, and threats of an organization. Specifically, SWOT is a basic straightforward model that assesses what an organization can and cannot do as well as its potential opportunities and threats.
Strengths of ICB mutual fund:
The internal strength gives the fund comparative advantage in the marketplace. These internal capabilities of ICB mutual funds are given below:
- Provide good customer service to the certificate holder.
- Strong brand image.
- Secured investment opportunity.
- Certain and high dividend payment.
- Cumulative investment plan (CIP) for the investors.
- Broad market coverage.
- Superior R&D skills.
- Efficient management team and human resource competence.
- Excellent management of portfolio.
- Strong and adequate financial backup.
Weakness of ICB mutual funds:
Weakness result when competitors have potential advantage over the fund. The weakness of ICB mutual funds are:
- Growth rate of dividend and income is in declining trend.
- R&D innovation is squeeze.
- Investment growth is declining year by year.
- Bureaucratic system and high conflict arise.
- Undue political influence.
Opportunities of ICB mutual funds:
External opportunities of environmental factors can favor the fund. these external factors of opportunities are:
- Prospective environmental opportunities.
- Diversity of business into new business with changing condition.
- Low level of rivalry among the competitors.
- Governments help to develop the capital market.
- Confidence of investors getting high over the securities market.
Threats of ICB mutual funds:
Threats are environmental factors that can hinder the fund in achieving its goal. These threats of ICB mutual funds are given below:
- ICB’s subsidiary product obsoletes the ICB mutual fund.
- Substitute product of private competitor is increased.
- Threats of new entry are increased.
- No promotional and attractive offer for the investors.
- Buyers are seeking to increase their return from alternative investment.
Consolidated portfolio statement:
As on 30 June, 2007 cosst price and market price of eight mutual funds were Tk. 5505.12 lac and Tk. 8676.90 iac respectively. A consolidated statement of the portfolio of the funds is given in the following table:
Table: Consolidated position of the portfolios of ICB mutual funds:
As on 30 June, 2007 cosst price and market price of eight mutual funds were Tk. 5505.12 lac and Tk. 8676.90 iac respectively. A consolidated statement of the portfolio of the funds is given in the following table:
Table: Consolidated position of the portfolios of ICB mutual funds:
| Serial No. | Particulars | 1st mutual fund | 2nd mutual fund | 3rd mutual fund | 4th mutual fund | 5th mutual fund | 6th mutual fund | 7th mutual fund | 8th mutual fund |
| 1 | No. of companies | 60 | 69 | 83 | 90 | 102 | 135 | 129 | 126 |
| 2 | No. of securities | 60 | 71 | 84 | 91 | 103 | 136 | 132 | 128 |
| 3 | Total investment at cost | 324.26 | 327.06 | 418.11 | 483.86 | 752.58 | 896.91 | 1130.41 | 1171.93 |
| 4 | Market value (30 June 2007) | 1524.69 | 383.40 | 545.04 | 778.64 | 1246.17 | 1160.94 | 1493.72 | 1544.30 |
Source: Annual report of ICB mutual fund 2006-07
Day by day all mutual funds attract the notion of the investors because of this the amount of investment in each fund increased. The number of securities increased in every fund except the 1st fund. The market value of the funds also increased because of availability of good securities, efficiency of the funds and for constant dividend payment.
Price movement and transactions:
During the year under review, certificates of eight mutual funds were actively traded on the floor of the Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd. The highest and lowest price of the eight mutual funds certificates on Dhaka Stock Exchange Ltd. and the position of total transaction during 2006-07 are shown in the following table:
Table: Market price of ICB mutual funds and Transactions:
| Serial No. | Mutual funds | Highest market price (Taka) | Lowest market price (Taka) | Annual transaction number | Annual amount (Taka in lac) |
| 1 | 1st mutual fund | 3500.00 | 2650.00 | 1263 | 36.31 |
| 2 | 2nd mutual fund | 1100.00 | 721.00 | 1582 | 13.89 |
| 3 | 3rd mutual fund | 690.00 | 460.00 | 6620 | 37.96 |
| 4 | 4th mutual fund | 700.00 | 458.00 | 10882 | 60.64 |
| 5 | 5th mutual fund | 465.00 | 200.00 | 13020 | 48.27 |
| 6 | 6th mutual fund | 350.00 | 175.00 | 131900 | 338.31 |
| 7 | 7th mutual fund | 320.00 | 165.25 | 74432 | 187.93 |
| 8 | 8th mutual fund | 316.00 | 162.00 | 87470 | 211.39 |
Note: As per quotation of Dhaka stock Exchange
Source: Annual report of ICB mutual funds, 2007-07
During the short period large investors came in the market. Initially public were interested of buying the share of renowned companies. Good securities were available in the market, EPS was high, and there was chance of capital gain and as a result the market price of the funds increased.
Comparative performance of ICB mutual funds:
Table: Comparative performance:
Source: Annual report of ICB mutual funds, 2007-07
During the short period large investors came in the market. Initially public were interested of buying the share of renowned companies. Good securities were available in the market, EPS was high, and there was chance of capital gain and as a result the market price of the funds increased.
Comparative performance of ICB mutual funds:
Table: Comparative performance:
| Name of mutual funds |
Size of funds (Tk. in crore) | 2006-07 |
2005-06 |
||||||
| Per certificate | As on 30 June 2007 | Per certificate | As on 30 June 2006 | ||||||
| Income | Dividend | Market price per certificate | Market capitalization(in Crore) | Income | Dividend | Market price per certificate | Market capitalization(in Crore) | ||
| 1st mutual fund | 0.50 | 691.25 | 240.00 | 3433.25 | 16.61 | 660.43 | 210.00 | 2670.00 | 13.35 |
| 2nd mutual fund | 0.50 | 254.24 | 62.00 | 900.50 | 4.50 | 233.08 | 55.00 | 720.00 | 3.60 |
| 3rd mutual fund | 1.00 | 184.26 | 56.00 | 654.75 | 6.55 | 167.14 | 52.00 | 475.00 | 4.75 |
| 4th mutual fund | 1.00 | 182.47 | 52.00 | 628.00 | 6.28 | 167.36 | 48.00 | 520.00 | 5.20 |
| 5th mutual fund | 1.50 | 69.55 | 33.00 | 453.50 | 6.80 | 55.54 | 27.00 | 275.25 | 4.13 |
| 6th mutual fund | 5.00 | 41.49 | 23.00 | 279.50 | 13.97 | 33.94 | 18.50 | 184.50 | 9.22 |
| 7th mutual fund | 3.00 | 50.54 | 22.50 | 283.50 | 8.50 | 39.02 | 16.00 | 172.00 | 5.16 |
| 8th mutual fund | 5.00 | 40.90 | 18.00 | 272.25 | 13.61 | 33.77 | 15.00 | 172.00 | 8.60 |
Source: Annual report of ICB 2006-07
The above table reveals that the market price per certificate of the funds has increased because large number of investors came into the market. There were consistent dividend policy, good portfolio management, increase in EPS, chance of capital gain, good corporate governance of SEC and DSE, share dematerialization, growing confidence of the investors, more placement by the companies which led the price of the securities to increase.
Comparative position of ICB mutual funds:
The following table shows the comparative position of cost price, market value, net asset value and number of certificate holders of all the mutual funds as on 30 June 2006 and 2007.
Table: Comparative position
The above table reveals that the market price per certificate of the funds has increased because large number of investors came into the market. There were consistent dividend policy, good portfolio management, increase in EPS, chance of capital gain, good corporate governance of SEC and DSE, share dematerialization, growing confidence of the investors, more placement by the companies which led the price of the securities to increase.
Comparative position of ICB mutual funds:
The following table shows the comparative position of cost price, market value, net asset value and number of certificate holders of all the mutual funds as on 30 June 2006 and 2007.
Table: Comparative position
| Name of the funds | Cost price of the portolio (Tk. in crore) | Market price of the portfolio (Tk. in crore) | Ex. Dividend intrinsic value oer certificate (Tk) | No. of certificate holders | ||||
| 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |
| 1st mutual fund | 3.24 | 3.09 | 15.24 | 10.51 | 2977.58 | 2059.55 | 988 | 954 |
| 2nd mutual fund | 3.27 | 3.01 | 3.83 | 2.71 | 418.34 | 231.66 | 989 | 962 |
| 3rd mutual fund | 4.18 | 3.92 | 5.45 | 3.52 | 359.06 | 179.50 | 2740 | 2680 |
| 4th mutual fund | 4.84 | 4.02 | 7.78 | 3.76 | 534.37 | 202.45 | 1955 | 2061 |
| 5th mutual fund | 7.52 | 7.06 | 12.46 | 6.85 | 475.07 | 123.83 | 3685 | 3789 |
| 6th mutual fund | 8.97 | 8.76 | 11.61 | 7.49 | 173.03 | 91.77 | 8995 | 9307 |
| 7th mutual fund | 11.30 | 10.76 | 14.94 | 9.31 | 249.20 | 74.85 | 2797 | 2926 |
| 8th mutual fund | 11.72 | 11.16 | 15.44 | 9.46 | 197.37 | 84.85 | 7537 | 7323 |
Source: Annual report of ICB 2006-07.
The above table reveals that cost price of the portfolio of the funds is increased because most of the shares were bought from the secondary market rather than the primary market. The cost price of 6th, 7th, and 8th mutual fund is very high because in the period of 1995 and 1996 the capital market crashed and in this period these mutual fund was floated.
Portfolio position:
Table: Portfolio position ( As on 30 June, 2007) (Taka in lac)
The above table reveals that cost price of the portfolio of the funds is increased because most of the shares were bought from the secondary market rather than the primary market. The cost price of 6th, 7th, and 8th mutual fund is very high because in the period of 1995 and 1996 the capital market crashed and in this period these mutual fund was floated.
Portfolio position:
Table: Portfolio position ( As on 30 June, 2007) (Taka in lac)
| Name of the fund | Cost of portfolio (Tk. in lac) | Market value of the portfolio (Tk. in lac) | Market price per certificate | No. of certificate holders |
| First ICB mutual fund | 324.26 | 1524.69 | 3433.25 | 988 |
| Second ICB mutual fund | 327.06 | 383.40 | 900.50 | 989 |
| Third ICB mutual fund | 418.11 | 545.04 | 654.75 | 2740 |
| Fourth ICB mutual fund | 483.36 | 778.64 | 628.00 | 1955 |
| Fifth ICB mutual fund | 752.58 | 1246.17 | 453.50 | 3685 |
| Sixth ICB mutual fund | 896.91 | 1160.94 | 279.50 | 8995 |
| Seventh ICB mutual fund | 1130.41 | 1493.72 | 283.50 | 2797 |
| Eighth ICB mutual fund | 1171.93 | 1544.30 | 272.25 | 7537 |
Source: Annual report of ICB mutual fund 2006-07.
Portfolio investment: {(Market value of the portfolio – Cost of portfolio)*100}/ Cost of portfolio.
The above table shows that as per securities price as on June 30, 2007, market value of the 1st mutual fund stood at Taka 1524.69 lac which is 370.21% higher than the investment cost. Market value of 2nd, 3rd,4th,5th,6th 7th, and 8th mutual fund stood at Taka 383.40, 778.64, 1246.17, 1160.94, 1493.72, and 1544.30 lac respectively which are 17.23%, 30.36%, 60.92%, 65.59%, 29.44%, 32.14%, and 31.77% higher than the investment cost respectively.
.
4.15: Operational results:
Table: Operational results (2006-2007)
Portfolio investment: {(Market value of the portfolio – Cost of portfolio)*100}/ Cost of portfolio.
The above table shows that as per securities price as on June 30, 2007, market value of the 1st mutual fund stood at Taka 1524.69 lac which is 370.21% higher than the investment cost. Market value of 2nd, 3rd,4th,5th,6th 7th, and 8th mutual fund stood at Taka 383.40, 778.64, 1246.17, 1160.94, 1493.72, and 1544.30 lac respectively which are 17.23%, 30.36%, 60.92%, 65.59%, 29.44%, 32.14%, and 31.77% higher than the investment cost respectively.
.
4.15: Operational results:
Table: Operational results (2006-2007)
| Name of the fund | Net income(taka in lac) | Distributable income per certificate (taka) | Ex-dividend extrinsic value per certificate |
| 1st ICB MF | 120.41 | 691.24 | 2977.58 |
| 2ndICB MF | 38.08 | 254.24 | 418.34 |
| 3rd ICB MF | 69.11 | 184.26 | 359.06 |
| 4th ICB MF | 63.10 | 182.47 | 534.37 |
| 5th ICB MF | 61.50 | 69.55 | 475.07 |
| 6th ICB MF | 130.23 | 41.49 | 173.04 |
| 7th ICB MF | 82.57 | 50.54 | 249.20 |
| 8th ICB MF | 110.63 | 40.90 | 197.37 |
Source: Annual report of ICB mutual fund 2006-07
With favorable market condition all the funds earned handsome capital gain and dividend income. This is because of public interest in the capital market, availability of good securities in the market, and as a result of vibrant capital market.
Dividend performance of ICB mutual fund:
Since floating all of ICB mutual funds have been offering lucrative cash dividend to its certificate holder. Moreover, this year ICB has declared stock dividend on its 1st mutual fund. The following matrix shows the dividend performance of the funds from 1980-2007.
Table: Rate of dividend per certificate.
| Financial year | 1st mutual fund | 2nd mutual fund | 3rd mutual fund | 4th mutual fund | 5th mutual fund | 6th mutual fund | 7th mutual fund | 8th mutual fund |
| 1980-81 | 20 | – | – | – | – | – | – | – |
| 1981-82 | 20 | – | – | – | – | – | – | – |
| 1982-83 | 20 | – | – | – | – | – | – | – |
| 1983-84 | 25 | – | – | – | – | – | – | – |
| 1984-85 | 35 | 21 | – | – | – | – | – | – |
| 1985-86 | 38 | 23 | 21 | – | – | – | – | – |
| 1986-87 | 41 | 25.50 | 22.50 | 21.50 | – | – | – | – |
| 1987-88 | 48 | 28 | 25.50 | 23 | – | – | – | – |
| 1988-89 | 49 | 29 | 26 | 23.50 | 20.50 | 15.50 | – | – |
| 1989-90 | 49 | 29 | 26 | 23.50 | 20.50 | 13.25 | – | – |
| 1990-91 | 35 | 22 | 19 | 17 | 10 | 6 | – | – |
| 1991-92 | 31 | 22 | 19 | 18 | 11 | 6 | – | – |
| 1992-93 | 31.50 | 21 | 18 | 17 | 12 | – | – | – |
| 1993-94 | 45 | 27 | 22 | 40 | 25 | 16 | – | – |
| 1994-95 | 50 | 40 | 27 | 41 | 28 | 18 | – | – |
| 1995-96 | 60 | 42 | 28 | 41 | 30 | 20 | 18 | – |
| 1996-97 | 70 | 45 | 38 | 45 | 35 | 24 | 21 | 18 |
| 1997-98 | 70 | 30 | 35 | 32 | 22 | 18 | 14 | 12 |
| 1998-99 | 100 | 32 | 38 | 35 | 20 | 15 | 13 | 12 |
| 1999-00 | 125 | 35 | 40 | 36 | 21 | 16 | 13.5 | 12.50 |
| 2000-01 | 170 | 40 | 45 | 38 | 23 | 17 | 14 | 13 |
| 2001-02 | 175 | 42 | 50 | 40 | 24 | 17.50 | 14.50 | 13.50 |
| 2002-03 | 180 | 45 | 50 | 40 | 24 | 17.50 | 14.50 | 13.50 |
| 2003-04 | 200 | 50 | 50 | 45 | 24 | 17.50 | 15 | 14 |
| 2004-05 | 210 | 55 | 52 | 48 | 27 | 18.50 | 16 | 15 |
| 2005-06 | 215 | 56 | 53 | 50 | 28 | 19 | 17 | 15.50 |
| 2006-07 | 240 | 60 | 55 | 57 | 30 | 20 | 18 | 16.50 |
Source: Annual report of ICB
Findings, Recommendations and conclusions
Problems related to mutual funds:
Mutual funds are managed and run by a professional management team. On the decision and efficiency of the management tea, the success & growth of the mutual fund depend. Future profitability and investor’s confidence also depend on the management performance. The management team should analyze internal and external factors that are affecting the funds growth, stability & profitability. Identifying the problems, taking effecting solutions & implementing the solutions a management team can gain investors confidence which is the most important for the fund.
During my internship at ICB, I have found some problems which can affect the funds future and the confidence of investors.
The problems related to mutual funds are as follows:
Findings, Recommendations and conclusions
Problems related to mutual funds:
Mutual funds are managed and run by a professional management team. On the decision and efficiency of the management tea, the success & growth of the mutual fund depend. Future profitability and investor’s confidence also depend on the management performance. The management team should analyze internal and external factors that are affecting the funds growth, stability & profitability. Identifying the problems, taking effecting solutions & implementing the solutions a management team can gain investors confidence which is the most important for the fund.
During my internship at ICB, I have found some problems which can affect the funds future and the confidence of investors.
The problems related to mutual funds are as follows:
- Reserve is an important part of any business. For the funds reserve is kept for the future uncertainty, funds liquidation & use for buying securities without borrowing costly capital . Reserve is kept from income as undistributed income. But the question is how much a fund may keep reserve from income.I think ICBs reserve policy for mutual fund is not correct. Because it keeps a huge amount of reserve from funds.
- Using costly borrowing capital for the investment on the securities is anoither factor causing problem for high expenditure of maintainance of funds which affects the income of funds.
- There is a policy problem. There is no redemption or maturity date for the funds. But there is rule for the close-end funds that it should be redeemed at a specific time in the future.
- Management of ICB is sometimes inefficient in taking bold decision & has failed to stabilize the capital market.
- Withdraw of any fund or security is a lengthy & complicated process.
- Because of less employees and lack of training facilities, investors get poor customer service.
- ICB has not yet done any systematic analysis for measuring how well they are doing.
- ICB has not identified any key variables to size up all its diversified performance.
Recommendations:
Recommendations are suggested on the basis of problems. They are:
- Reserve should be kept at a minimum level. It may vary from fund to fund but not more than 25% of a funds income.
- Investment by costly funds should be reduced. Management may look for source of less costly funds & reduce expenses & increase income.
- ICB may fix redemption date of each fund.
- ICB may take initiative & decision to float more funds for the stabilization of capital market & for gaining of investment confidence to invest in the capital market.
- Unnecessary documentation & levels in the process of withdraw or securities should be eliminated. For this training is must.
- To properly monitor and evaluate the mutual funds.
Conclusion:
ICB plays a vital role to encourage and broaden the base of investments and thereby helps to develop the capital market in Bangladesh. It has experienced labor force and professional dedicated management team that enable to pursue the ICB’s goals and objectives. ICB is helping to the industrial growth in our country by mobilizing the small savings from the investors to the capital market. ICB should be concerned about its investors, because most are small investors and willing to take less risk. But ICB has a great influence on the capital market as a large and institutional investor. So ICB play an important role for gaining the investors confidence on the capital market. The main focus of this paper is on the management of ICB mutual funds. These funds are professionally managed and diversified in various sectors in such a way that minimize the risk at acceptable level with optimum return. These funds are playing a strong role in the security market.
ICB plays a vital role to encourage and broaden the base of investments and thereby helps to develop the capital market in Bangladesh. It has experienced labor force and professional dedicated management team that enable to pursue the ICB’s goals and objectives. ICB is helping to the industrial growth in our country by mobilizing the small savings from the investors to the capital market. ICB should be concerned about its investors, because most are small investors and willing to take less risk. But ICB has a great influence on the capital market as a large and institutional investor. So ICB play an important role for gaining the investors confidence on the capital market. The main focus of this paper is on the management of ICB mutual funds. These funds are professionally managed and diversified in various sectors in such a way that minimize the risk at acceptable level with optimum return. These funds are playing a strong role in the security market.