Making mutual funds attractive to investors

Published: November 28, 2018 21:46:37 | Updated: November 30, 2018 22:08:07

The state of the country's stock market is pitiable, in terms of investors' participation. Yet the price level of most listed issues on both the bourses is found to be in keeping with their fundamental strength. Rather, a few stocks, including the ones belonging to the multinational companies, are unreasonably over-priced. Mutual funds are the only exceptions, in terms of both demand and price. All the 37 listed closed-end mutual funds, barring four, are now being traded at prices well below their respective face value and net asset value (NAV).

The situation as far as the mutual funds are concerned is quite abnormal in Bangladesh market. World over mutual funds are considered the safest investment tools except the government-sponsored saving schemes and fixed deposits with banks because the former do ensure a modest return on a regular basis. In the event of market collapse, mutual funds are affected less than other issues. Enlightened small investors prefer mutual funds because those are diversified investment tools that have inherent strength to absorb loss. The situation in Bangladesh market, however, is different; the mutual funds here    have suffered more than the other issues. There must be some reasons behind it.

In fact, mutual funds here have a number of policy and management-related weaknesses. A good number of funds got listed in 2010-11 when the market was unduly bullish. When market collapsed as an inevitable consequence of manipulative activities in December 2010, those funds faced a very tough time. Even many old funds could not manage a decent rate of dividend in a bearish market. 

In a moribund market, nobody expects any spectacular performance from the listed mutual funds. But their current showing is also not in line with their potential. It is not just poor market situation, lack of transparency and accountability in the operations of the mutual funds is also seen as a major weakness which is largely responsible for their current hapless state. Unfortunately, the regulator concerned has never been serious about attaching due importance to this issue.

The asset management companies (AMCs) that manage and operate the mutual funds in exchange for hefty amount of fees, hardly communicate with their investors. The latter are not in a position to ask the AMCs the reasons for poor performance of funds in the absence of provisions for holding annual general meetings of the unit holders.

Apparently, with a good intention of righting a few wrongs visible in the management of mutual funds, the Bangladesh Securities and Exchange Commission (BSEC) approved a few amendments to the relevant rules back in 2015, but those are yet to be put into effect for unexplained reasons. This delay coupled with regulatory move to extend both tenure and size of closed-end mutual funds is making this safe mode of investment in capital market the least desired one. The extension of duration does only discourage investors in these instruments.

The mutual funds are not preferred by small-time or fly-by-night investors. These are usually liked by investors, retirees included, who tend to remain satisfied with a reasonable volume of return from their investments. There should be no reason for the AMCs and the securities regulator to back this type of investors. Hopefully, the BSEC would do the needful to make the mutual fund industry attractive for investment by taking necessary measures. The first and foremost job on its part should be to make the operations of the industry transparent and accountable.

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