Bangladesh Securities and Exchange Commission is planning to amend the mutual fund rules to strengthen its supervision over the asset management companies following their failure to issue dividends to the unit holders, BSEC officials said. A BSEC high official said, ‘As per the existing mutual fund rules, the capital market regulator has no legal power in penalizing the AMCs for their failure in making funds attractive to the investors.’
The commission aims to amend the mutual fund rules to empower the regulator in this regard, he said.
Once the rules are changed, it will be possible for the BSEC to penalize the AMCs as they are getting management fees in full despite their failure in issuing any dividends for the shareholders, he said.
He also said that the AMCs might face cut in management fees or force release from managing funds.
Experts on mutual funds said that lack of investment instrument, managerial capability and imprudence of the asset management companies are the main reasons behind the failure in making funds profitable.
A mutual fund is a company that brings together money from many people and invests it in stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the fund owns are known as its portfolio. Each investor in the fund owns shares, which represent a part of these holdings.
Though the asset management companies are primarily responsible for their failure in issuing any dividend for the unit holders, lack of financial instruments is the key reason behind their failure in diversifying their portfolio in making them profitable, Dhaka University finance professor Mahmood Osman Imam told New Age.
As per the existing rules, there are chances of changing AMC if sponsors of the fund desire, but none of the AMCs is performing well due to some limitations, he said.
As per the latest reports of the mutual funds, 13 mutual funds out of 41 mutual funds listed with Dhaka Stock Exchange have failed to issue any dividend to their unit holders in last year.
Out of the 26 mutual funds that issued dividends for their shareholders in the latest financial year, 10 issued around 2.50 per cent to 10 per cent re-investment units or stock dividends for their shareholders.
The mutual funds that failed to issue dividends are : First Janata Bank Mutual Fund, AIBL 1st Islamic Mutual Fund, DBH First Mutual Fund, Grameen Mutual Fund One, Green Delta Mutual Fund, ICB AMCL Third NRB Mutual Fund, ICB AMCL Second Mutual Fund, ICB Employees Provident MF 1 : Scheme 1, IFIL Islamic Mutual Fund-1, MBL 1st Mutual Fund, Finance 1st Mutual Fund, PHP First Mutual Fund and Prime Bank 1st ICB AMCL Mutual Fund.
Mismanagement and irrational behavior of the issue managers were the main reasons behind the poor situation of the mutual fund sector, Yeawar Sayeed, managing director of Aims, an asset management company, told New Age.
Despite the AMCs’ failure to provide dividends to the unit holders, the AMCs are getting their fees properly which is not logical, he said.
There should be a punishment system for the AMCs, which the developed companies follow, for their failure to issue any dividends, he said.
Slashing management fees, merger with other mutual fund, change of asset manager are the punishments which the developed markets practice, he said.
‘Allowing mutual funds to issue stock dividends or re-investment was another wrong decision taken by the commission which had affected the mutual funds further as the net asset value of the MFs declined further after issuing bonus shares,’ Yeawar Sayeed said.
-With New Age input
