MF unitholders need to brace themselves for no return for FY24

Mutual Funds (MFs) will hardly be able to recommend any dividend for FY24 as they have failed to gain any profit in the year up until now out of the gloomy market.

To minimise investment risks, fund managers tend to select blue-chip stocks while making investments. These stocks suffered persistent erosion since the removal of floor prices in January this year, irrespective of the companies' financial results.

EBL Securities identified 15 companies that were on the priority lists of asset management companies, having looked into their funds' composition as of March last year.

The companies, including Renata, Square Pharmaceuticals, Grameenphone, British American Tobacco Bangladesh Company (BATBC), Bangladesh Submarine Cable Company, and Beximco Pharmaceuticals, constituted a significant portion of open-ended and close-ended MFs.

Of the companies, the share price of the Submarine Cable plunged 52 per cent as of Thursday since July last year. Renata experienced 48 per cent erosion while BATBC and Grameenphone shed 37 per cent and 22 per cent of their market value respectively in the same period.

"From where will we distribute dividends without making profits? I do not expect this [gaining ability to provide dividends for FY24 to unitholders] unless a miracle happens this month," said Shahidul Islam, chief executive officer of VIPB Asset Management Company.

While talking to the FE, he expressed optimism about a recovery of the market in June but said it was unlikely that the gain would cover the loss endured in the 11 months through May.

As per the securities rules, MFs are required to invest at least 60 per cent of the money raised in stocks and listed bonds and the remaining 40 per cent in the money market.

Most of the fund managers injected up to 80 per cent of their funds in the capital market amid a scarcity of instruments in the money market with high yields.

Between July 1, 2023 and May 30 this year, the market cap of the Dhaka Stock Exchange (DSE) was squeezed by 16 per cent or Tk 1.23 trillion, owing to free fall of stocks since January.

During the same period, the DSE broad index fell 17 per cent or 1092 points to 5251 points.

Almost all stocks suffered price erosion, said Arif Khan, vice-chairman of Shanta Asset Management.

As a result, local fund managers saw significant unrealised losses in their portfolios.

Hence, keeping provision against unrealised losses has become an obligation before considering dividend distribution to unitholders.

Officials of ICB Asset Management Company said their funds saw erosion up to 18 per cent in the current fiscal year that has one more month to finish.

Preferring anonymity, a senior official of LR Global Bangladesh, who has involvement in portfolio management, said they were as hurt as other asset management companies financially.

"The distribution of dividends for FY24 is uncertain due to the erosion in our portfolios," the official said.

About 70 per cent of 37 close-ended MFs maintain fiscal years to recommend dividends while a significant number of 88 open-ended MFs also consider fiscal years for dividend distribution.

These funds usually declare dividends by the second week of July, based on the audited accounts.

However, portfolios of all MFs irrespective of whether they follow calendar year or fiscal year witnessed losses since January. They manage assets worth Tk 160.6 billion.

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