“Performance Evaluation of ICB Mutual Funds”

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“Performance Evaluation of ICB Mutual Funds”

Introductory Part

1.1 Background of the report:

In Bangladesh, problem of active participation of medium and small saver in investment do not organize properly. So, financial institution cannot accelerate the wheel of the industry as by expectation. On the other hand, medium and small saver is increasing. So there is a strong distinction participation in the capital market in financial institutions, and help to judge investment decision critically. Mutual funds were established as an important part of the ICB. ICB has played a pioneering role in the development of close ended mutual funds in Bangladesh. Mutual fund such a fund which is formed as a trust and whose object is to collect money from people by selling unit certificate one or more scheme and invests its fund in a diversified portfolio of stock, bonds and securities.

But there are some problems in the mutual funds management. These problems need to solve and to solve the problems it is necessary to find out them first. This report will help to explore the problems. To the end of the report some recommendation will be present to overcome the problems. To the end of the report some recommendation will be present to overcome the problems of the problems of operation and management of ICB’s mutual fund.

1.2 Objectives of the Report:

General Objective:

The general objective of this study is to discuss the Performance Evaluation of ICB mutual Fund, Head Office, Motijheel.

Specific Objective:

The study has been conducted with the Following specific objectives.

i. To know the different functions performed by the different department of ICB.

ii. To identity the problems related to ICB Mutual Funds operation.

iii. To evaluate and analysis the performance of ICB Mutual Funds.

iv. To make some recommendations about Mutual Funds of ICB.

1.3 Coverage of the Report:

The main focus of the study is “The Performance Evaluation of ICB Mutual Fund”. But the report has tried to cover overview of ICB objectives, functions, management business policy and other things. This report has also mentioned some problems of ICB’s mutual fund and its solutions. The empirical part includes only the published information and current practices of the Investment Corporation of Bangladesh.

Organizational Part of Investment Corporation of Bangladesh (ICB)

2.1 Background of ICB:

The Investment Corporation of Bangladesh (ICB) was established on 1st October 1976 under “The Investment Corporation of Bangladesh Ordinance, 1976” (No. XL of 1976).The establishment of ICB was a major step in a series of measures 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. It caters to the need of institutional support to meet the equity gap of the companies. In view of the national policy of increasing the rate of savings and investment of foster self-reliant economy, ICB assumes an indispensable and pivotal role. Through the enactment of the Investment Corporation of Bangladesh (Amendment) Act, 2000 (XXIV), reforms in operational strategies and business policies have been implemented by establishing and operating subsidiary companies under ICB.

2.2 Objectives of ICB:

ICB has several objectives. These are:

To encourage and broaden the base of investment.
To develop the capital market.
To provide for matters ancillary thereto.
To mobilize savings.
To promote and establish subsidiaries for business development.

2.3 Business policies of ICB

To act on commercial consideration with due regard to the interest of industry, commerce, depositors, investors and to the public in general.
To provide financial assistance to projects subject to their economic and commercial viability.
To arrange consortium of financial institutions including merchant banks to provide equity support to projects and thereby spread the risk of underwriting.
To develop and encourage entrepreneurs.
To diversify investments.
To induce small and medium savers for investment in securities.
To create employment.
To encourage Investment in IT sector.
To encourage Investment in joint venture capital/project.

2.4 Basic Function of ICB:

Underwriting of initial public offering of shares and debentures
Underwriting of right issue of shares
Direct purchase of shares and debentures including Pre-IPO placement and equity participation
Providing lease finance to industrial machinery and other equipments singly or by forming syndicate
Managing investors’ Accounts
Managing Open End and Closed End Mutual Funds
Operating on the Stock Exchanges
Providing investment counsel to issuers and investors
Participating in Government divestment Program
Participating in and financing of, joint-venture projects
Dealing in other matters related to capital market operations
Trusty, Custodian, Bank Guarantee
Consumer Credit

2.5 Capital Structure of ICB:

2.6 Shareholding Position:

The shareholding position as on 30 June 2011 was as follows:

Sl. No. Shareholders No. of Shareholders No. of Shares Percentage of shareholdings
1. Government of Bangladesh 1 6750000 27.00
2. State owned commercial Bank 4 5681749 22.73
3. Development financial institutions 1 6407749 25.63
4. State owned Insurance corporations 2 3088905 12.36
5. Denationalized private commercial banks 2 2271312 9.08
6. private commercial banks & Mutual fund 6 20892 0.08
7. Other Institutions 73 56829 0.23
8. General public 1840 722564 2.89
Total 1929 25000000 100.00

Graph – 02

2.7 Management of ICB:

The Head office of the corporation as per the requirement of the ordinance of ICB is located at Dhaka. The general direction and superintendence and superintendence of the corporation are created in a board of director, which consists of 11 directors including the chairman and managing Director of ICB. The Board of Directors consists of the following Directors:

v Chairman to be appointed by the government.

v The Director to be appointed by the government from among person servicing under the government.

v The Directors to nominate by Bangladesh Bank.

v The Managing Directors, Bangladesh Shilpa Bank, Ex-office.

v Four other directors to be elected by the shareholders than the government, Bangladesh Bank, Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Sangstha.

v The managing directors of ICB to be appointed by the government. The board is discharging its functions acts on commercial consideration with due regard to the industry and commerce, investment climate, capital market, depository, investors and to the public interest. The managing director is the chief Executive of the corporation. The corporation gas an executive comprised of 5 persons including managing Director.

2.8 Share Price:

Share price of ICB varied from lowest Tk. 2787.25 to highest Tk. 5900.00 in the stock exchanges during the year. As on 30 June 2011, the market price of share was Tk.3749.50 and Tk.3502.00 in the DSE and CSE respectively.

2.9 Transfer of share:

No shares have been transferred during the year. The number of 625 shares were transferred during 2009-2010.

2.10 Milestones of ICB

Milestones Date of Establishment /Commencement
ICB 1st October 1976
Investors’’ Scheme 13th June 1977
First ICB Mutual Fund 25th April 1980
ICB Unit Fund 10th April 1981
Second ICB Mutual Fund 17 June 1984
Third ICB Mutual Fund 19 May 1985
Fourth ICB Mutual Fund 6 June 1986
Fifth ICB Mutual Fund 8 June l987
Sixth ICB Mutual Fund 16 May 1988
Nomination as the country’s Nodal DFI in SADF 7 May 1992
Seventh ICB Mutual Fund 30Junel995
Eighth ICB Mutual Fund 23 July 1996
Purchase of own Land & Building 11 December 1997
Participation in Equity of SARF 16 January 1998
Advance Against ICB Unit Certificates Scheme 12 October 1998
Lease Financing Scheme 22 April 1999
“The Investment Corporation of Bangladesh (Amendment)Act, 2000 5 and 6 July 2000
Formation and Registration of three Subsidiary Companies 5 December 2000
Computer Training Program 25 March 2001
ICB Capital Management Ltd 01 July 2002
ICB Asset Management Company Ltd. 01 July 2002
ICB Securities Trading Company Ltd. 13 August 2002
Registration as a Trustee with SEC 20 August 2002
Registration as a Custodian with SEC 20 August 2002
Bank Guarantee Scheme 21 June 2003
Advance Against ICB Mutual Fund Certificate Scheme 21 June 2003
Consumers Credit Scheme 15 February 2004
Received BASIS-SEDF Best IT Use Awarding SOFTEXPO,2004 28 November 2004
Venture capital financing scheme 26April 2007
Purchase of own land 3March 2008
Equity and Entrepreneurship Fund 1June 2009
Bangladesh Fund 5May 2011

2.11 Regulatory of ICB:

As the mentioned earlier the regulatory framework of ICB is the, Investment Corporation of Bangladesh Ordinance, 1976. This Ordinance and regulations laid under the authority of the ordinance is the source of all power and authority of ICB. Through the recent enactment of “The Investment Corporation of Bangladesh (Amendment) Act, 2000” (XXIV) of 2000scope of activities through the formation of subsidiaries have been extended. In addition to these, to resume its duties and functions, it has to compelled by Companies Act 1994, Act 1882, insurance Act 1983, Security and exchange commission Act 1993, Banking Company Act 1993, Foreign exchange regulation 1974 Income Tax Act etc.

It is to note that no provision of laws relating to the winding up of companies or bank shall apply to the corporation and the corporation and corporation shall not be wound up save by order of the government and in such manner as it may direct.

2.12 Institutional Framework

Investment Corporation of Bangladesh is a corporate body as per section 3 of Investment Corporation of Bangladesh ordinance, 1976 and deemed to be a banking company within the meaning of the Banking companies ordinance, (1962 L VII of 1962). The shares of corporation are listed with the stock exchange. ICB is an authorized broker of DSE.

2.13 Manpower:

The Corporation’s manpower strength enhance by 60 persons through recruitment of 35 officers and 25 employees at the different levels during 2009-2010. This appointment was made mainly to add dynamism and efficiency in overall activities of ICB through the uses of computer technology. On the other hand, four officers resigned and one officer retired from the service of ICB. One officer got promotion as General Manager and Joined in another bank. The total manpower as on June 2010 stood at 485, which was 418 on the same date of last year. Out of 485 persons, 264 were officer and 162 non-officers, representing 14.9 per cent of the total manpower.

2.14 NO. Of Branch of ICB:

ICB is a statutory corporation and selling securities. In order to perform these activities efficiently ICB has group of skilled manpower. For these purposes ICB has established seven branches in Bangladesh. Total branches are as follows:

• Chittagong Branch

• Sylhet Branch

• Barisal Branch

• Khulna Branch

• Bogra Branch

• Rajshahi Branch

• Local office, Dhaka

2.15 Training of employees:

There are two types of training:

1. Local Training

2. Foreign Training

2.15.1 Local Training:

During 2010-11, as part of human resource development programmer, ICB took steps to develop skill, knowledge and professional competence of its manpower by arranging various in-house and local training courses. During the year, 35 officers and 24 employees of ICB received local training on different subject including Grassroots Training Course, Financial institutions Financing Homeownership Experience with public-private partnership, Leadership Training Course for women, International workshop on the Development of Bond Market in Bangladesh, Joint Leadership training course for finance sector, Trade Union Course for Youth Member, National Training Course on public procurement Management, Marketing of Bank Product, Corporate Governance, Departmental Inquiry, Asset Securitization Role of Trustee, Database Administration with SQL Server-2000, Securitization, Bond market and commercial papers: Primary and secondary market Development, factoring for SME Financing, The Stock market in Bangladesh with particular Reference to the Operation of the Exchange and Regulatory Issues Related to Market Safety,

3.15.2 Foreign Trading:

During 2010-11, 5 officers participated in a training course held in India on Identification

and Rehabilitation of sick projects.

Functions of Various Departments:

Functions of Various Departments under the Various Divisions of ICB are as follows:

Divisions Departments
01 Administrative A. PersonnelB. Establishment
02 Merchandising A. InvestorsB. SharesC. Transaction
03 Funds A. Units salesB. Unit registration & procurementC. Mutual Funds
04 Accounts & Finance A. Central accountsB. Projects Loan account
05 Computer A. System analysisB. ProgrammingC. Data management
06 Loan Appraisal A. Loan appraisalB. Economic & Business Research
07 Implementation & Recovery A. Project implementationB. Recovery & follow up
08 Legal Affairs A. Public issue B. Law
09 Audit & Methods A. Audit & methods
10 Secretary’s A. Secretary’s B. Public relations
1 1 Branch & Subsidiary Control A. Branch Control
12 Activities of Subsidiary Companies A. ICB Capital Management Ltd.B. ICB Asset Management Ltd.C. ICB Securities Trading co. Ltd.

01 Administrative Division

A. Personnel Department:

This department deals with the human resources of the organizational makes the rules and regulation of the right person to the right place. The process may be held two ways:

1. Direct recruitment

2. Promotion

This department takes disciplinary action gradually to that employee who violates the rules and regulation of the organization. This action types is now:

A. Light Punishment.

B. Heavy punishment the other functions of this department are as follows:

  • To make necessary rules, regulations, policies for efficient administration of the corporation
  • To handle all personnel matters including confirmation, posting transfer fixation, leaves.
  • To process all promotion, time-scale encashment; to process registration, retirement cases; to deal with retirement benefits including gratuity, pension, provident fund etc.
  • To handle national pay scale, fixation, increment etc.
  • To explore more sources of financing of foreign training; to arrange seminar/symposia/workshops where experts in the line may be invited to deliver lectures; To procure training equipments and facilities for training manpower;
  • To deal with all matters relating to ICB employees Union and ICB officers Association

B. Establishment Department:

This department deals with purchase and sales of office supplies, office equipment etc. They also maintain the utility service like telephone bill, electricity bill etc. This department dividend cost into two categories. These are:

1. Revenue cost

2. Fixed cost

For fixed cost, depreciation is charged at a straight-line basis. There are two purchase committees do the purchase. There remains a quality control committee to examine the quality of the product purchased. For the purchase of the products, this department gives tender offer to the listed suppliers. In case selling of scraps and wastage, the tender offer is also offer is also followed.

02. Merchandising Divisions

A. Investor Department:

The main task of Investors Department is to accumulate the investment of small and new investors of the capital market by helping them open an investment account in the concern department. This department deals with “Investors Scheme”. The following are the main function of this department:

  • Open and maintain Investment accounts
  • Sanction loans against in Investment Accounts.
  • Buy and sale shares on behalf of the investors.
  • Counsel investors in respect of building up their portfolios.
  • Withdraw funds and shares from Investment Accounts;
  • Issue income tax certificates, portfolio statement, accounts statement etc;
  • Provide service to Investment Account Holder;
  • Collect commission as a banker to the issue and brokerage commission from the companies;
  • Keep financial records of all Investment Account;
  • Processing of withdrawal of funds;
  • Confirm fund position of individual accounts and
  • Posting of all transactions.

B. Shares Department:

The shares act as the custodian of securities. These department facilities the physical transfer of shares. For performing the above mentioned activities share Department is divided into five sections. These sections are:

  1. Investors portfolio section
  2. Sale and withdrawal section
  3. Fund’s portfolio section
  4. Securities reconciliation section
  5. Procurement section

C. Transaction Department:

Transaction Department executes the sales and purchase order of shares of the following different portfolios; ICB, Unit Fund, Mutual Fund and Government portfolio and the order from investors of investment arid the order from ICB’s branches.

For the portfolios order the securities purchase and sale committee take decision every morning what share be bought and what should be sold for that day. The sale and purchase orders of the investors constitute demand for execution in this regard. Before execution, in case of sale, this department has to get aware about the physical existence of shares from the share – department.

3. Funds Divisions

Department under Funds Divisions are showing in the following figure:

A. Mutual Funds Department

B. Unit Sales Department

C. Unit Registration & Procurement Department

A. Mutual Funds Department:

  • Broadly the function of Mutual Funds Department consist of
  • Act as manager of all mutual funds
  • Maintenance of ledger with the name, address and number of certificates alone; with distinct folio number for each Mutual Fund separately.
  • Verify the signature of the holders in the 117 forms
  • Preparation of dividend list from the ledger position
  • Issue dividend warrants to the holders of the certificates
  • Distribution of final dividend warrants to the certificate holders after completing necessary formation
  • In case of change of ownership of mutual funds certificate holder facilities the transfer process
  • Make arrangement for re-issue or duplicate copy of certificate in case of loss or damages of certificates
  • Receiving application for the change of address, correction of names and forwarding the same to the computer department
  • Arrange for splitting the share scraps as and when necessary in accordance with the stock exchange rules
  • Arrange for revalidating the date of payment of dividend on dividend warrant.

B. Units Sales Department:

ICB unit is an open end Mutual Fund through which the small and medium savers get opportunity to invest their savings in a balanced and relatively low risk portfolio. It ensures a continuous and regularly flows of incomes for the holders and is easily cashable. The responsibility undertaken for managing the fund, management fee charges @ Tk. 1.00 per unit sold. Units are sold through ICB offices and other authorized bank branches. In lieu of cash dividend, one can re-invest his/her dividend income under Cumulative Investment Plan (CIP) to purchase additional units with a price rebate. ICB stopped selling of unit certificates from 1st day of July after the business operation starts of ICB Asset Management Company Limited. The main functions of this department are to sale, repurchase and transfer of Unit Certificates.

C. Unit Registration and Procurement Department:

The following are the functions of this department:

  • Registration and transfer Unit Certificates
  • Maintain a separate register for Unit holders under CIP
  • Verify signature of transfer deed
  • Issue dividend warrants and CIP certificates to the holders
  • Procure Unit certificates of various denominations from the printing press
  • Issue Unit Certificates to ICB sale officers/branches as well as appointed bank branches.

4. Accounts and Finance Divisions

Departments under Account and Finance are showing in the following figure:

A. Central Account Department

B. Project Loan Accounts Department

A. Central Account Department:

All kinds of receipts and payments of ICB are done by the Central Account Department. The Bill of all departments end destination is account department. Account departments holds and maintain all accounts separately. For this reason adjustment and rectification of any transaction of all departments become easier to this department. The functions of this department are to:

  • Prepare income tax return and matters relating to accounts
  • Prepare bill including projects accounts and maintenance of project accounts
  • Prepare salary statements, overtime statements etc.
  • Prepare final accounts
  • Keep accounts for Govt. loan and debentures
  • Keep accounts of Unit and Mutual Funds
  • Make correspondence with the Government, Financial institutions, branches etc
  • Maintain liaison with external audit and commercial audit
  • Maintenance of investors accounts and portfolio ledgers
  • Calculation of quarterly interests
  • Posting and balancing of ledgers
  • Furnishing of information to other departments related to Investor’s Scheme
  • Determine sources of fond, raising of fund ensure proper utilization of fund
  • Prepare fund flow statement of the Corporation
  • Ensure proper budgetary and cost control

B. Project Loan Accounts Department:

The function of this department is to maintain project loan accounts and supply the management up to-date relevant information of the project. In addition to this the department is to:

  • Issue check to the project after getting disbursement order from the project
  • implementation department & any recoverable amount in the disbursement
  • Calculate interest on the disburse amount (half-yearly compounded cyclic interest rate using days average).
  • Maintain loan ledger, interest suspense ledger etc
  • Classify the loan as per rules and make appropriate provision
  • Prepare necessary statement related to project loan
  • Make necessary account adjustment for interest waved as per decision of the authority.

5. Computer Divisions

A. System Analysis Department:

The main functions of this department are: System administration of the entire network setup;

  • Performing system analysis wherever ICB feels the need for periodic change in computerization setup.
  • Performing miscellaneous small hardware and software related servicing tasks on the many workstations, network system, server and other components and provide training to staff of other departments about computer usage
  • Any other assignment given by the management.

B. Programming Department:

The following are the main functions of this department are:

  • Developing new software for ICB.
  • Customizing the software developed in the present computerization phase according to the change of the requirements of the ICB with time.
  • Provide active assistance to the staff of system analysis department for training of the staff of other department about computer usage.
  • Handling peak lead of data entry and data processing work for all other department of ICB.

A. Data Management Department:

The following are the functions of this department:

  • Handling peak load of data entry and data processing work for all other departments of ICB
  • Any other assignments given by the management.

6. Loan Appraisal Division

Department under Loan Appraisal Division are showing in the following figure:

A. Loan Appraisal Dept.

B. Economic and Business Research Department

A. Loan Appraisal Department:

ICB provide credit facilities to the public limited companies to meet higher equity gap. There are two modes by which ICB Provides credit facilities to the prospective public limited companies, through:

1. Direct underwriting for BMRE and

2. Underwriting through bridge financing

The main functions of loan appraisal department are:

Ø Received investment proposal from sponsors

Ø Place appraisal reports to the board

Ø Appraisal management on technical aspect of the projects

Ø Prepare appraisal report on project appraisal committee

Ø Issue sanction letters to the project

Ø Conduct meeting of the project appraisal committee

Ø To develop capital market

Ø Placement of share and debenture

Ø Participating in bond financing

Ø Act as trustee on debenture on behalf of the bondholder.

B. Planning Research and Business Department:

In a simple term PRBD is the spokesman of ICB. Basically it is decision making decision. The major functions of this department are:

Ø To take part in the portfolio management decision

Ø Collect information about OS Li, CS Li, public issue and half yearly accounts of the listed companies etc.

Ø Prepare and distribute annual report of ICB, Mutual funds and unit funds

Ø Conduct meeting of the securities purchase and sales committee

Ø Convey securities sale or purchase decision to the merchandising division

Ø Prepare 5 years performance appraisal reports to the listed companies

Ø Prepare board memo regarding declaration of divisions on ICB’s own portfolio, unit and mutual funds.

Ø Make arrangement for offloading of government portion of shares in different companies and state owned institutions.

7. Implementation & Recovery Divisions

A. Project implementation:

The following are the tasks of this department:

Ø Help implementation of the sanctioned projects

Ø Process the case for cancellation of sanctioned project

Ø Follow-up the project until the start of commercial operation

Ø Inspire the project to go for additional loans and refers them to LAD

Ø Send the projects for recovery of dues to recovery department.

B. Recovery & Follow-up Department:

The following functions of this department are as follows:

Ø Recovery the principle and interest due to the sanctioned project.

Ø Check the financial statements and analyze the sectional study review and individual project review.

Ø Send letter to the project for making payments and reminds if necessary

Ø Provide counseling to go for the public issue

Ø Rehabilitation of projects through approved reschedules of loan and waiver of overdue, interest etc.

8. Legal Affairs Division

A. Public Issue Department:

Recently ICB has adopted certain strategic changes in sanctioning bridge loans to unsatisfactory recovery of loans sanctioned by corporation; Bridge loan would only be considered for very selective sectors. Priority has given to direct underwriting, direct investment in debenture and equity participation through placement of share. The ultimate objective of providing direct underwriting and placement of shares is to help the projects to go for public issue.

B. Law Department:

Law department handles any kind of legal affairs of legal affairs of ICB. The functions of this department are as follows:

  • Prepare legal document, advance agreements, share agreements, demand promissory notes, memorandum and deposit of little deed etc.
  • Arrange exception of underwriting-cum-advance agreement, underwriting agreement and supplementary documents etc.
  • Process litigation cases, prepare legal notice and refer cases to legal advises and coordinate with legal advisor in the court.
  • Prepare necessary memos for placement in the board meeting relating litigation and legal affair
  • Handle the legal issue related to employee’s loan facilities and other issues related to law.

9. Audit and Method Departments

Managing director is the head of Audit and Method Department. Without the approval of this department of this department no transaction is done. It checks out the problems and brings clarity of the job and its transparency. This department with regard to ICB does three kinds of audit, such as internal audit, external audit and commercial audit. The main functions of this department are:

  • Checking out that all rules are properly maintained or not.
  • Advising of new methods of ICB
  • This department finds out the fault done by other departments.

10. Secretary’s Division

A. Secretary’s Department:

  • Arrange meeting of the Board of Directors, Executive Committee and other committee.
  • Issue notices of Board, E.G. and other Committee meetings, prepare agenda and memos, etc.
  • Place working papers to the members of the Board/Committee.
  • Send decisions of the meetings for implementation-concerned departments.
  • Correspond with the shareholders on different relevant matters, etc.

B. Public Relation Department:

  • Maintain the close relation with the Ministry of Finance and other concerned
  • Help publish all types of official advertisement
  • Help focusing ICB through mass-media.
  • Publish internal news letter or journal, etc

11. Branch Office Control Division

Branch Office Control Department work as follows:

  • Conduct audit and inspect all branches of the Corporation within and outside Bangladesh.
  • Have overall check on any irregular observed in any branch.

12. Activities of subsidiary Company’s

A. ICB Capital Management Limited:

ICB Capital Management Limited can act all types of merchant banking business and to act as a member of financial markets. Portfolio managers issuer, underwriting, co-underwriters, sub-underwriters, lending activities, to finance venture capital leasing activities, bridge financing and provide long-term loan discounting bill of exchange, providing credit facilities through credit cards, internet counsel regarding investment and industrial entity.

B. ICB Asset Management Company Limited:

ICB Asset Management Company Limited can manage assets of any trustee or funds of any type and/or character and to hold, acquire, sell or deal in such assets or any trusts or funds, to manage and administer provident or pension funds, to organize various schemes of different types for trusts or funds, to take part on the management of mutual fund operation, to operate, conduct, accomplish and establish services for industrial, trading and commercial activities, to invest funds in shares and securities, to carry on business as financial and monetary agents to merchandise shares and other securities.

C. ICB Securities Trading Company Limited:

ICB Securities Trading Company Limited acts as a member of stock Exchange and has over-the-counter markets, to carry out business broker, CDs broker, jobbers or dealers in stock shares, securities, commodities, papers, bonds, obligations, debentures stock, foreign currencies, and treasury bills in Bangladesh and abroad. To open and maintain investors account or margin accounts and purchase and sell shares. To carry on business as financers, promoters, capitalists, financial and monetary agent to merchandise shares and other securities and to provide professional counsel regarding investment and manage industrial entity.

Introduction of ICB Mutual Funds

3.1 Introduction:

Mutual Fund is a recognized principle that diversification of investment reduces risk. An individual may not have the time, expertise and resources to undertake such diversification. Here arises the advantage of a Mutual Fund. Mutual Funds pool the savings of a great number of investors and make investments in a wide array of securities. In Bangladesh ICB has pioneered Mutual Funds for the sake of investors and of the capital market.

3.2 ICB Mutual Funds:

Mutual Funds has been defined by different authors in different words meaning one & the same things i.e., it is a non-deposition or non-banking financial intermediary which act as an important vehicle for bringing wealth holders & deficit units together indirectly.

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.

3.3 Types of Mutual Funds:

There are two types of Mutual Funds:

A. Open-end Mutual Fund

B. Close-end Mutual Fund

3.3. A. Open-end Mutual Funds:

The holders of the shares in fund can resell them to the issuing mutual fund company at anytime. They receive in turn the net assets value (NAV) of the shares at the time of resale. Such mutual funds companies place their funds in the secondary securities market. The open-end mutual fund companies buy or sell their own shares. These companies sell new shares at NAV Plus a loading or management fee & redeem shares at NAV.

3.3. B. Close-end Mutual Funds:

Close-end fund Investment Company has a definite target amount for the funds & cannot sell more shares after its initial offerings. Its shares are issued like any other company’s new issue listed & quoted at stock exchange. The shares of close-end fund are not redeemable of their NAV as are in open-end fund. These shares are traded in secondary market process that may be above or below their NAV. The objectives of close-end funds may differ as compared to open-end fund. The prices of close-end mutual fund shares are denominated by demand & supply & not by NAV. The examples of close-end funds include can stock, can share, master-share, magnum etc. which have the above figures.

3.4 Classification of Mutual Funds:

Each mutual fund has its specific investment policy to serve specific investors. So, mutual fund can be classified by investment policy they are as follow:

3.4. A. Money Market Funds:

This fund is invested in short-term debt securities like commercial paper, Treasury bill,

Net Assets Value is fixed and there is not tax implication with the redemption share.

3.4. B. Equity Funds:

These are the funds that are invested in income stocks.

3.4. C. Fixed income funds:

These funds are invested in bonds like treasury bonds, municipal bond. Here is no risk for the investors because they get fixed income from it.

3.4. D. Income Funds:

From this fund investors can maximize income from investment.

3.4. E. Balanced funds:

These funds are invested in both bonds and stocks. Here investor risk is low and the

Investors get current income.

3.4. F. Asset-Allocation Funds:

There funds may include foreign equity, real estate shares, natural resources companies etc.

3.4. G. Specialized sector funds:

These funds are involved in particular and specific like housing, telecommunication, utilization or precious metals.

3.5 Mutual Funds Returns:

There are three types of mutual fund returns:

I. Dividends: The dividend income to mutual fund company from investments in shares, both equity & preference, are passed on to holders. Their dividends are subject to tax deduction as per income Tax Laws.

II. Capital gain: Mutual fund holders or owners also get benefits of capital gain, which are realized & distribute in cash or hand. There are subject to tax in the same way as gain or uses of directly hold securities.

III. Increase or decrease in net assets value: The increase or decreases in net assets value are the results of unrealized gains & losses on portfolio holdings. They are not tax until released.

3.6 Advantages of Mutual Funds:

  • Mutual fund substantially lowers the investment risks 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 investors & channels them into lucrative investment opportunities. As a result, mutual fund adds liquidity to the market. Moreover, given that the funds are long-term investment vehicles, they reduce market volatility by offering support to scrip price.
  • Mutual fund provides the small investor’s access to the whole market that, at an individual level, would be difficult if not impossible to achieve. Mutual funds are one of the most strictly regulated investment vehicles.
  • Mutual fund is the only vehicle which operates simultaneously both at the demand as well as the supply side of market. One the supply side, the mutual funds being itself a listed security at the SEC, introduces a good & reliable instrument in the capital market for the small investor.
  • The investor can pick & chase a mutual fund to match his or her particulars needs.
  • The investors save a great deal in transaction cost given that he/she has access to a large number of securities by purchasing single share of a mutual fund.

3.7 Launching of ICB Mutual Funds:

Name of The Fund Date of launching Paid-up capital] (Tk. In lac)
First ICB Mutual Fund 25 April, 1980 50.00
Second ICB Mutual Fund 17 June, 1984 50.00
Third ICB Mutual Fund 19 May, 1985 100.00
Forth ICB Mutual Fund 06 June, 1986 100.00
Fifth ICB Mutual Fund 08 June, 1987 150.00
Sixth ICB Mutual Fund 16 May, 1988 500.00
Seventh ICB Mutual Fund 30 June, 1995 300.00
Eighth ICB Mutual Fund 23 July, 1996 500.00
Total = 1750.00

3.8 Regulatory set-up of ICB Mutual Funds:

When ICB took the initiative of floating mutual fund in Bangladesh, there was no organized and recognized regulatory set-up managing of mutual funds in Bangladesh. ICB had to formulate the necessary regulatory set-up and rules for the management of mutual funds; the regulatory set-up for ICB funds is explicitly in the ICB Regulation-1977. The main features of this regulatory set-up are mentioned below:

  • The corporation might form the ICB mutual funds of such denominations and securities in such each case as the board may determine.
  • ICB Mutual fund certificates will list and quoted in the stock exchange in Bangladesh and the board may determine subject to the permission of the stock exchange.
  • ICB Mutual funds certificate shall be movable property and feely transferable.
  • ICB Mutual funds certificates may be offered for sale or subscription to the general public or the institution, individuals or class individuals or to all or some of them and in such manner as the board may in case determine.
  • ICB Mutual fund certificate will be sold or offered for subscription with the prior consent of the government.

3.9 Mutual Funds Management:

There is a decision making board in order to manage different mutual funds. As per board’s decision securities are sold brought under different mutual funds. At the same way securities are sold. In case of new mutual fund subscribes for public issue.ICB authority is made portfolio earlier by its own finance & given it name. After that it is published on any newspaper as prospectus, which shares & debentures have been, brought under these mutual fund shows in the prospectus. By studying this prospectus public response whether they will buy the mutual fund or not.

3.10 How to buy or sale Mutual Funds:

Mutual fund is a close-end fund. So anybody that wants to buy mutual fund he/she has to buy it from Dhaka Stock Exchange or Chittagong Stock Exchange through any stockbroker. In the same way he/she can sale it.

3.11 Registration of Mutual Funds:

In order to receive dividend or to be shareholder of mutual funds anybody who has purchased it must registrar his then name & address to company registration book without book closing date. Mutual fund department register shareholders name & address. As per the name & address Mutual Fund Department sent dividend warrant to shareholders.

3.12 Causes behind Investing in ICB Mutual Funds:

ICB mutual fund is regard as the most trusted medium of investment in the country & it is very much popular with the small & medium of investment in the country & it is very much popular with small & medium investors. The reasons of investing in ICB mutual fund are as follow:

I. Free from Tax: Investment in mutual fund free from income tax.

II. High Return: Most small & medium investor seeks a smooth return from their investment. The dividend payment against each certificate was very much

attractive. This brings satisfaction to the investors.

III. Free from Harassment: Investment want to avoid harassment in the investment

process. Mutual fund of ICB reluctant the investors from such type of Pressure.

IV. Risk Free: Small & medium investors are very much cautions about the security

of their investment & they found that there is not chance to loss their savings & no doubt about the institution that is will not close its operation without any notification.

3.13 How Mutual Funds Works:

A mutual fund is a separate company. It has a structure that offers several safeguards for investors. The structure is stated in the following:

I. Shareholder Ownership: Since the investors bear the fund’s investment risk so they are owners of the corporation.

II. Board of Director: Shareholders elect Board of Directors.

III. Management Company: Management Company handles daily administration. It may serve as the investment advisor, buying & selling of portfolio.

IV. Adviser: According to the objects of the funds adviser runs the portfolio.

V. Independent Custodian: The Funds asset (stock, Bond’s cash) is kept by an independent custodian. This protects shareholders against theft by management.

VI. Transfer agent: The transfer agent handles sale & redemption of fund shares; handle dividend & capital gain distribution.

VII. Principal underwriter (fund distribution): The underwriter helps to distribute fund shares to investing public.

3.14 Contribution in Mutual Fund by Asset Management Company Limited (AMCL):

AMCL is the subsidiary company of ICB AMCL first mutual fund was established under a trust deed executed between the ICB and Capital Management Limited (ICML) as ‘sponsor’ & the Investment Corporation of Bangladesh (ICB) as ‘trustee’ the trust deed executed on 23rd April 2003. The fund was registered with the Securities & Exchange Commission (SEC) on 24 May, 2003. Under the Security & Exchange Commission (Mutual Fund) Rules, 2001 the SEC approved the prospectus on 04 June 2003 in accordance with the Securities & Exchange Commission (Mutual Fund) Rules, 2001. The prospectus of the fund was published on 9th June 2003 & units over allotted on 21st July 2003, ICB AMCL first mutual fund is a close-mutual fund of 10 years tenure. The fund is listed with Dhaka Stock Exchange Limited (DSE) & Chittagong Stock Exchange Limited (CSE). After that ICB AMCL second mutual fund published. Then ICB AMCL first, second, third NRB mutual fund are circulated. The units of the fund are transferable. Income is tax-free up to contain level. Investment is qualified for tax credit as per Income Tax Ordinance, 1974.3.14. A. Operational Highlight:

Name Year of Launching Nature of the Fund Size of the Fund (TK. In crore)
ICB AMCL 1st Mutual Fund 2003 Close-end 10.00
IXB AMCL 2nd Mutual Fund 2009 Close-end 50.00
ICB AMCL 1st NRB Mutual Fund 2007 Close-end 10.00
ICB AMCL 2nd NRB Mutual Fund 2008 Close-end 100.00
ICB AMCL 3rd NRB Mutual Fund 2010 Close-end 100.00

3.14. B. Inclusion of two non-traditional products in the country’s stock market:

During 2004-05, ICB Asset Management Company Limited a subsidiary of ICB Floated two different types of mutual funds, for the first time in Bangladesh, which added a new dimension in the country stock market.

A. ICB AMCL Islamic Mutual Fund: It is a close-end mutual fund, which is governed by the Islamic shariah Law. The size of the fund is Tk. 10.00 crore. The fund would cater to the demand of the investors who wish to invest only in shariah based financial products.

B. ICB AMCL Pension Holders’ Unit Fund: It is a close-end mutual fund with an initial capital of TK. 10.00 crore. The fund has been constituted only for the pensions who retire from their service under pension. Or gratuity scheme from government, semi-government, autonomous bodies, sector corporations, nationalized commercial banks, financial institutions and insurance corporations.

3.15 Corporate Government:

The fund being listed on the stock exchange the management is committed to observe prescribed code of corporate governance the financial statements present fairly the state of affairs of the fund & result of its corporation. There was no qualifying report on the operation of the fund as evident from the Auditor’s reports submitted to the Trustee by the Auditor of the fund Hoda Vasi Chowdhury & Co.

3.16 Importance of the Report:

There are a number of situation in which the evaluation of portfolio performance becomes necessary & important, such as:

v Self-Evaluation: To evaluate how well has done as individual investor with a view of refining one’s skills & improving one’s performance over period of time.

v Evaluation of Managers: To evaluate portfolio managers by an investment company or asset management company in order to compare performance of these manager among several such manager each running a separate fund or sub-fund within an organization on the performance of a portfolio manager over a number of years.

v Evaluation of Mutual Fund: To evaluate the various mutual funds operating in the country in order to take division by the investor which if any of there should be chosen for investment or to evaluate the efficacy by the individuals or organization who engage external agencies for portfolio advisory services.

Thus, one important reason for doing performance evaluation is to help in correcting errors of

Performance Evaluation and Analysis of ICB Mutual Funds

4.1 Mutual Funds of ICB

In the developed countries like Bangladesh, mutual funds are