Investors lose confidence in mutual funds

The extension of closed-end mutual funds' tenure further sapped investors' confidence in the sector, with almost Tk 430 crore lost since the decision came into effect on September 16.

Closed-end mutual funds are investment funds that gather a fixed amount of money at regular intervals from a number of investors over a decade and re-invest them into stocks, bonds and other assets.

Once the fund reaches maturity, the assets are distributed among investors. In a baffling move, the Bangladesh Securities and Exchange Commission (BSEC) announced on September 16 that fund managers can extend the tenure by ten years.

The sector has already been suffering from low investor confidence; the decision, which came following the government's order, could be another nail in the coffin. Thanks to the BSEC decision investors will now have to wait for another ten years to get profits from mutual funds.

“So, some of them decided to wash their hands of mutual funds,” said Abu Ahmed, a former chairman of the Dhaka University's economics department and a market analyst. Since September 16, the closed-end mutual fund sector lost 11.63 percent of its market capitalisation.

Of the listed 37 funds, 33 traded at lower than their face value yesterday.

“The decision is a total violation of fund managers' commitment, and the BSEC has created the opportunity to break their commitment,” said the managing director of an asset management company, requesting anonymity.

He went on to predict that the impact of the decision would be profound.

Shakil Rizvi, president of the DSE Brokers' Association, echoed the same.

“It is necessary to liquidate the funds within the committed time of their prospectuses to keep the confidence of investors.”

He, however, hinted at some incentives for investors since the decision came at the government's behest.

“As there is no research on it, no one can say that this is the sole reason behind the fall of market capitalisation,” said Saifur Rahman, spokesperson of the BSEC.

He, however, acknowledged that it affected the confidence of investors of closed-end mutual funds.