Mutual fund industry, high time to harness opportunities and overcome challenges.

Categories: Investment Management, Financial Policy, Regulatory changes

Country or region: Bangladesh

Summary:
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This is a short paper written by CFA Society Bangladesh member on the topic "The asset management industry in Bangladesh". The paper addresses the challenges that prevent growth of the industry and provide solutions to those challenges. The paper was published by the Bangladesh Securities and Exchange Commission, as part of their Silver Jubilee celebration.


Abstract

Total asset under management (AUM) of the mutual fund industry of Bangladesh was BDT 118.78 bn (US$ 1.42 bn) in June 2018. We have 37 closed-end funds with BDT 61.77 bn AUM and 43 open-ended funds with BDT 57.01 bn AUM.

The industry started its journey as state-sponsored Investment Corporation of Bangladesh (ICB) launched its first unit-fund in 1981. Later in 2000, first private-sector asset management company (AMC) – AIMS of Bangladesh launched its first closed-end mutual fund. In 2001, Bangladesh Securities And Exchange Commission enacted the Mutual Fund Rules, 2001 which facilitated development of the mutual fund industry of the country. The industry got its momentum before the market turmoil in 2010 as a number of private-sector AMCs came into operation, mostly through floatation of closed-end mutual funds. Currently there are 36 registered AMCs in Bangladesh- out of these, 26 AMCs have mutual funds under management. Largest three AMCs have roughly 80% market share in terms of AUM value. Unlike the comparable markets, local financial institutions are not the usual sponsors of asset management companies in Bangladesh- only one of the top four AMCs have local institutional sponsors.

Local institutions, mostly banks, non-bank financial institutions (NBFIs) and insurance companies, are the sponsors of mutual funds in Bangladesh. The industry is regulated by the Bangladesh Securities And Exchange Commission (BSEC). Management fee received by the AMCs for managing mutual funds is determined by the Mutual Fund Rules, 2001 which also set a single-set of investment constraints for all kinds of mutual funds. This primarily explains absence of fixed income funds or money market funds in Bangladesh, unlike the other comparable markets. 


Bangladesh has been striding strongly as an important developing economy and frontier market. The capital market of the country has come a long-way - now comprising a weight of more than 5% in the MSCI Frontier Market Index which was just less than 1% in 2010. However, the local mutual fund industry has a great role to play in the future market development phase. BSEC has navigated the mutual fund industry remarkably well in last 25 years and set stakeholders’ expectation on high-note for the journey ahead. 




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Reader Comments

Dhanesh Kumar
Nov 01 2018
Given the information in the abstract, there is a lot of potential that Mutual Fund Industry in Bangladesh has to explore. Absence of Debt and Money Market Funds is one of those major potential areas which will require BSEC to strengthen and make more transparent the debt-paying ability of Corporations and to amend its rules in order to attract investments in Potential Debt Funds.


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