SECURITIES AND EXCHANGE COMMISSION Public Issue of Securities

SECURITIES AND EXCHANGE COMMISSION Public Issue of Securities: Mutual Fund Presented by Mahmudul Haque, Director Securities and Exchange Commission

What is Mutual Fund ? q q A Mutual Fund is a body corporate registered with the Securities and Exchange Commission (SEC) that pools up the money from individual/corporate investors and invests the same on behalf of the investors/unit holders, in equity shares, Government securities, Bonds, Call money markets etc. , and distributes the profits. In other words, a mutual fund allows an investor to indirectly take a position in a basket of assets.

How do mutual funds diversify their risks? q q According to basic financial theory an investor can reduce his total risk by holding a portfolio of assets instead of only one asset. This is because by holding all your money in just one asset, the entire fortunes of your portfolio depends on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced. Can mutual funds assumed to be risk-free investments? No. Mutual fund investments are not totally risk free. In fact, investing in mutual funds bears the same risk as investing in the equities, the only difference is that due to professional management of funds the controllable risks are substantially reduced.

What are the types of risks involved in investing in mutual funds? A very important risk involved in mutual fund investments is the market risk. When the market is in doldrums, most of the equity funds will also experience a downturn. However, the company specific risks are largely eliminated due to professional fund management.

Advantages of Investing Mutual Funds: Professional Management : The basic advantage of funds is that, they are professionally managed, by well qualified professionals. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. Diversification Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. Economies of Scale Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. Liquidity Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. Simplicity Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small.

What are the parameters on which a Mutual Fund scheme are evaluated? Performance indicators are: -total returns given by the fund on different schemes, -the returns on competing funds, -the objective of the fund and -the promoter’s image These are some of the key factors to be considered while taking an investment decision regarding mutual funds.

Types of Mutual Fund BY STRUCTURE Open- Ended Mutual Fund : An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. Closed- Ended Mutual Fund : A closed-end fund has a stipulated maturity period which generally ranging from 5 to 15 years. The fund is open for subscription only during a specified period. In this case , the total size of the fund is limited by the size of the initial offer. This types of fund are always listed in the stock exchange for liquidity.

Types of Mutual Fund (Cont’d) Equity Mutual Fund Categories: Growth Fund Capital Appreciation Fund Growth and Income Fund International and Global Fund Specialty Fund Index Fund of the Fund Bond Mutual Fund Categories: Income Fund Tax Free fund High-yield Bond Fund International and Global Bond Fund

Mutual Fund in Bangladesh wmw. KDwiw. UR I G·‡PÄ Kwgkb (wg. DPz¨qvj dvÛ) wewagvjv, 2001 is the main Rules for Mutual Fund in Bangladesh. As per the wewagvjv definition of the Mutual Fund is, Òwg. DPz¨qvj dvÛÓ A_© Uªvó Av. Kv‡i Mw. VZ Ggb †Kvb dvÛ hvnvi D‡Ïk¨ GB wewagvjv Abymv‡i A_© ev. Rvi Bbóª‡g‡›U wewb‡qv‡Mi Rb¨ GK ev GKvwa. K ¯‹x‡gi Aaxb Rbmvavi‡Yi wb. KU BDwb. U weµ‡qi gva¨‡g ms. M„nx. Z A_©; Ges Av‡jv. P¨ wewagvjv Abyhvqx cÖ‡Z¨K wg. DPz¨qvj dvÛ Trust Act, 1882 (II of 1882) Gi Aaxb Uªv÷ Av. Kv‡i MVb Ki‡Z n‡e Ges Registration Act, 1908 (XVI of 1908) Gi Aaxb Uªv÷ `wjj wbewÜZ n‡e |

Mutual Funds in Bangladesh SL Name of the Year of Mutual Fund Floatation Face Value Fund Size (TK in Crore) Closed End Mutual Funds 01 1 st ICB 1980 100 Tk 0. 75 02 2 nd ICB 1984 100 Tk 0. 50 03 3 rd ICB 1985 100 Tk 1. 00 04 4 th ICB 1986 100 Tk 1. 00 05 5 th ICB 1987 100 Tk 1. 50 06 6 th ICB 1988 100 Tk 5. 00 07 7 th ICB 1995 100 Tk 3. 00 08 8 th ICB 1996 100 Tk 5. 00 09 1 st BSRS 1997 100 Tk 5. 00

Mutual Funds in Bangladesh (Cont’d) SL Name of the Mutual Fund Year of Floatation Face Value Fund Size (TK in Crore) 10 ICB AMCL 1 st 2003 100 Tk 10. 00 11 ICB AMCL Islamic 2005 100 Tk 10. 00 12 ICB AMCL 1 st NRB 2007 100 Tk 10. 00 13 ICB AMCL 2 nd NRB 2008 100 Tk 100. 00 14 AIMS 1 st Guaranteed 2000 1 Tk 16. 80 15 Grameen Mutual Fund One 2005 10 Tk 17. 00 16 Grameen Mutual Fund Two 2008 10 Tk 125. 00 17 Prime Finance 1 st 2009 10 Tk 20. 00 18 EBL 1 st 2009 10 Tk 100. 00 19 ICB AMCL 2 nd 2009 100 Tk 50. 00 20 ICB Employees Mutual Fund One: Scheme One 2010 10 TK. 75. 00

Mutual Funds in Bangladesh (Cont’d) Open-End Mutual Fund SL Name of the Fund Year of Floatation Initial Fund Size (TK in Crore) 1 ICB Unit Certificate 1981 Tk 10. 00 2 ICB AMCL Unit Certificate 2003 Tk 10. 00 3 ICB AMCL Pension Holders Unit Certificate 2004 Tk 10. 00

Formation of Mutual Fund -To launch a Mutual Fund following parties are required: i) Sponsor ii) Trustee iii) Custodian iv) Asset Manager -Sponsor will appoint Trustee, Custodian and Asset Manager for the proposed Fund. Who Can be Sponsor of a Mutual Fund ? -As per the Rule 2(1)(P) of the wmw. KDwiw. UR I G·‡PÄ Kwgkb (wg. DPz¨qvj dvÛ) wewagvjv, 2001; Sponsor is a company, Bank, Finance or Insurance Company or Statutory Organization, Registered Fund like Provident or Pension Fund, Commission registered Asset Management Company or any Commission approved organizations. -There may be single or multiple sponsor for a Fund.

Who may be a Trustee of a Mutual Fund? -Trustee of a Mutual Fund must be registered by the Commission under the wmw. KDwiw. UR I G·‡PÄ Kwgkb (wg. DPz¨qvj dvÛ) wewagvjv, 2001. -Currently there are 4(four) registered Trustees in the market. They are: 1) Investment Corporation of Bangladesh (ICB) and 2) Bangladesh General Insurance Company Ltd. (BGIC) 3) Sandhani Life Insurance Co. Ltd. 4) Brac Bank Ltd. Who may be a Custodian of a Mutual Fund? -Custodian of a Mutual Fund must be registered by Commission under the wmw. KDwiw. UR I G·‡PÄ Kwgkb (wg. DPz¨qvj dvÛ) wewagvjv, 2001. - Currently there are 3(three) registered Custodian in the market. They are: 1) Investment Corporation of Bangladesh (ICB) and 2) Standard Chartered Bank (SCB) 3) Brac Bank Ltd.

Who may be the Asset Management Company of a Mutual Fund? - An Asset Management Company of a Mutual Fund must be registered by the Commission under the wmw. KDwiw. UR I G·‡PÄ Kwgkb (wg. DPz¨qvj dvÛ) wewagvjv, 2001. - Currently there are 10(ten) registered Asset Management Companies in the market. They are: 1) ICB Asset Management Company Ltd. 2) Bangladesh Shilpa Rin Sanstha 3) Assets & Investment Management Services of Bangladesh Ltd. 4) RACE Management Private Company Ltd. 5) LR GLOBAL Bangladesh Asset Management Company Ltd. 6) Prime Finance Assets Management Company Ltd. 7) VIPB Asset Management Company Ltd. 8) Alif Asset Management Ltd. 9) National Asset Management Ltd. 10) Invest. Asia Capital and Asset Management Limited.

Investment Parameters of the Fund/Scheme: -The Schemes of the Fund shall not invest more than 10% of its total assets in any one particular company. -The Schemes of the Fund shall not invest in more than 15% of any company’s paidup capital. -The Schemes of the Fund shall not invest more than 20% of its Assets in shares, debentures or the other securities of a single or group. -The Schemes of the Fund shall not invest more than 25% of its total assets in shares, debentures or other securities in any one industry. -Not less than 75% of the total assets of the Fund shall be invested in capital market instruments out of which at least 50% will be invested in listed securities. -Not more than 25% of the total asset of the Fund will be invested in Fixed Income Securities (FIS). -Not more than 15% of the total asset of the Fund shall be invested in pre-IPOs at one time. -The Fund shall not invest in or lend to another Scheme managed by the same Asset Management Company. -The Fund shall not acquire any asset out of the Trust property, which involves the assumption of any unlimited liability or shall result in encumbrance of the Trust property in any way. -The Fund shall not involve in option trading or short selling or carry forward transactions.

Valuation of Mutual Fund -Funds valuation is done as per Net Asset Value (NAV) of a unit of a particular mutual fund according to the wmw. KDwiw. UR I G·‡PÄ Kwgkb (wg. DPz¨qvj dvÛ) wewagvjv, 2001 -NAV of a unit is the intrinsic value of a unit of a Mutual Fund. As per the wewagvjv; NAV (Fund)= Value of the Total Asset of the Fund as on date- Liabilities of the Fund as on date NAV (Per Unit)= Total NAV/ Number of Outstanding Units Total Dividend of Mutual Fund -The amount of total dividend to be declared for the year shall not be less than 70 (seventy) percent of the total net profit earned in the respective year. -Dividend should be distributed among the unit holders within 45(forty five) days of declaration.

Rights of the Unit Holder -Dividend -Tax Benefit -Transferebility -Right to Vote -Reports and Accounts -Beneficial Interest

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