Mutual funds trading below face value

Most of the mutual funds have been trading at lower than their face value for several years now as poor performance and mismanagement by fund managers spoiled investors' appetite.

A mutual fund is an investment fund that gathers capital from a number of investors to create a pool of money that is then re-invested into stocks, bonds and other assets.

Investors are effectively unit holders in the fund in proportion to their investment. Funds that are close-ended must be liquidated within a certain timeframe.

Of the 37 close-end funds on the premier bourse, 31 are trading below their face value, according to data from the Dhaka Stock Exchange.

Even more, funds are trading on the price that is 34.3 percent lower than their net asset value (NAV), according to IDLC Investments. Investors normally buy mutual funds at around their NAV.

"This sector is full of vagueness and mismanagement, so investors have lost their confidence in it," said Mizanur Rahman, a professor of Dhaka University's accounting and information department.

The information that many of the mutual fund managers publish is not reliable as it is not audited, he said.

The performance of many mutual funds is not lucrative also as the NAV at market price of the most of these funds is lower than the NAV at cost price, said market insiders.

The NAV at market price may be lower for a while following a bearish market, but the deviation should be very minimum as the fund is supposed to be managed by skilled people.

Of the 37 funds, NAV of 22 at market price is lower than the NAV at cost price, according to data from AIMS of Bangladesh Ltd.

The NAV at market price of nine funds is more than 20 percent lower than their NAV at cost price.

"The value of the portfolio of the funds is in a losing position," said Yawer Sayeed, managing director and chief executive of AIMS, the country's first private-owned investment and fund management company.

So, people are not encouraged to invest in these funds. "These funds are giving the others a bad name," he said.

There are funds that are reaping in lucrative profit and providing dividend as well.

"But the dividend policy of all fund managers is not investor friendly," he said, adding that some fund managers declare re-investment unit as dividend and the unit price is lower than the face value.

"The stock exchange and the capital market regulator failed to bring good governance in this sector," Rahman said.

Subsequently, he called for publication of verified portfolio on their website every week so that investors have an idea of how their investment is faring.

The regulator should observe the activities of fund managers vigorously so that they cannot hide anything and cannot swindle investors' money.

There are 37 closed-end and 41 open-ended mutual funds of Tk 6,100.9 crore and Tk 3,722.1 crore respectively.