90pc MFs trading below face value

HM Murtuza | Published: 21:58, May 12,2017

 
 

Most of the mutual funds were trading below face value since the market crash in 2010-11 even after the market surge in last one year, mainly due to the stakeholders’ lack of efforts to attract investors.
Experts said that lack of good governance and failure to attract investors were the major reasons behind the poor state of mutual fund sector.
Besides, introduction of a legal provision for the mutual funds to issue re-Investment unit or stock dividend for their unit holders was another blow for the sector as such provision did not provide any benefit to the investors except the asset managers, they said.
Of the listed 35 closed-end mutual funds listed with Dhaka Stock Exchange, 28 were trading below their face value, while only 7 were trading above their face value of Tk 10.
The key index of Dhaka Stock Exchange, DSEX, increased 1,325 points to 5,496 points on Thursday from that of 4,171 points on May 1, 2016.
Although the sector has recovered to some degree during the market surge, a significant number of the mutual funds were still trading below face as investors did not conceive any positive perception regarding the sector mainly because of lack of transparency, United International University School of Business and Economics dean Mohammad Musa told New Age on Friday.
‘Basically our investors do not know about the portfolio of the mutual funds and about the qualification of the people who were managing the portfolios,’ he said.
Besides, investors’ lack of interest over the mutual funds was among other reasons behind the transaction of the funds below their face value, Musa added.
Asked about the legal scope of issuing re-investment unit as dividend, the UIU professor said that it was a bad policy for the mutual fund sector.
Suggesting for the repeal of RIU dividend policy, Musa said that the policy also affected investors as such dividend was issued at the moment when shares of most MFs’ were trading below face value.
On the other hand, due to investors lack of interest over the mutual funds, floating fresh mutual funds at the capital market through initial public offerings also became tough in recent times as none of the last two closed-end mutual funds floated in the market in 2016 were subscribed fully by investors.
One of the MFs was even under-subscribed by almost half of its target size.
Due to investors’ lukewarm response, both of the mutual funds were launched far below their target size.
Another statistics showed that most mutual funds declared lower dividends for the year ended on June 30, 2016 compared with those announced in the previous year.
Of the 32 mutual funds which maintained the July-June accounting year, 10 declared higher dividends, 15 announced lower dividends and six mutual funds declared dividends at the same rates they had given in the previous year, depressing a large number of investors who were expecting better dividends from the MFs.
Of the MFs, 11 declared re-investment units or stock dividends for their unit-holders, in violation of a Bangladesh Securities and Exchange Commission’s instruction to the trustees of the mutual funds not to issue RIU if issuance of such dividend causes losses for the investors.
Investment Corporation of Bangladesh is the trustee of a number of mutual funds managed by Bangladesh RACE Management PCL.
The capital market regulator refrained from taking punitive measures against the trustees of the mutual funds.
In 2015, the commission drafted an amendment to the rules mutual fund rules mainly to close the scope for issuing re-investment units or stock dividend as issuance of such dividend caused heavy losses for investors. But the rule is yet to be finalised.

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