The Financial Express

The decline of mutual fund industry

| Updated: November 23, 2020 22:07:01

Evaly and Fianancial Express Evaly and Fianancial Express
The decline of mutual fund industry

It is natural for the mutual fund (MF) industry to show results in line with the overall health of the country's capital market. The performance of the market, barring occasional flare-ups, has been dismal for nearly a decade. The state of the MF industry turned out to be even worse. The slump in stock prices and several other factors have stunted its growth and downsized the return on investments.

The MF industry's growth has been lacklustre in Bangladesh in contrast to that in many developed and developing countries across the world. The value of 30 closed-ended mutual funds traded on the bourses is equivalent to only 0.53 per cent of the country's gross domestic product (GDP). The ratio is 11 per cent for India, 32 per cent for Malaysia, 73 per cent for the UK and 118 per cent  for the USA.

The MFs are considered the safe investment vehicles for the people who prefer a modest and secured earning. Those are not for the daredevil investors who are willing to take risks and also not for the investors who want to be rich overnight. In this part of the world, the MFs are supposed to be chosen by retirees and elderly persons.

The MFs are unique security tools since it allows investors to make investments in diversified portfolios. For many investors, investment in so many issues individually is not possible. What is however important here is the much-needed awareness on the part of the people wanting to put in their money in MFs. Equally important is to know some of the key attributes of the funds and match the individual goals with the operational objectives of funds.

While the overall stock market situation has a bearing on the market price and dividend earnings from the MFs, the management of funds, regulatory supervision and investors' awareness do play a role in the growth of the industry. Allegations have it that there exists a lack of professionalism on the part of the asset management companies (AMCs) that have mushroomed in recent years.

Bangladesh has 47 AMCs that are operating in a very small market while in India, which has an MF industry worth over $368 billion--- the size is larger than Bangladesh's GDP---has 49 AMCs. Yet the efficiency level of the AMCs could be put to question as the MFs are being traded at a very heavily discounted price.  Besides, questions are being asked about the management cost of MFs, which is important as far as their net return is concerned.

The Bangladesh Securities and Exchange Commission (BSEC) while ensuring accountability on the part of the AMCs and relevant others should promote campaign to encourage people to invest in MFs. Usually, people put in their money in MFs here without knowing the investment portfolios. But it is easy to have access to such information that are available on the websites of AMCs. The AMCs on their part also need to be innovative in matters of crafting new investment instruments, including ones that guarantee return to the investors at the end of every month.   

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