The closed-end mutual fund units saw their turnover double last month upon expectation of better dividends for the year ending on June.
Closed-end mutual funds are investment funds that gather a fixed pool of money for 10 years from a number of investors and re-invest them into stocks, bonds and other assets. Their shares trade like stocks.
In March, closed-end mutual funds' turnover stood at Tk 164.25 crore in contrast to Tk 74.84 crore a month earlier, according to data from the Dhaka Stock Exchange. However, total turnover in the DSE declined 10.73 percent during the period.
“Some of these funds will be liquidated soon, and they are trading at a discount, so investors are rushing to buy their units,” said Sherif MA Rahman, chief executive officer of Brac EPL Securities.
Grameen One: Scheme Two and ICB AMCL 2nd NRB Mutual Fund will be liquidated in 2018 and five other funds in 2019. In 2020, 11 funds will be liquidated.
The unit price of the funds is lower than their net asset value (NAV), and the unit holders will get returns as per the NAV after conversion or redemption.
“In fact, the unit price of closed-end funds is lower than other shares.”
All mutual funds listed on the DSE are trading on huge discount except Prime Finance First Mutual Fund, according to an analysis of Brac EPL.
“The performance of mutual funds was admirable last year and investors are expecting better dividend this year as the broad index of the DSE was mostly dynamic this time,” Rahman said.
DSEX, the benchmark general index of the DSE, soared 22.82 percent to 6,244.52 points in 2017 from a year earlier. Earnings of the mutual fund sector are soaring but their unit prices have remained almost the same, so the price-earnings ratio declined to 8.12 in March from 8.20 in February.
When the PE ratio of a unit is lower than the price, it is more lucrative to investors, according to market analysts.
“The unit price of most funds is comparatively undervalued so investors are opting for mutual funds,” said Md Moniruzzaman, managing director of IDLC Investments.
Some fund managers are doing well so people have confidence in them, he said. “If all funds are able to earn the expected profits and liquidate on time, investors will get confidence in the mutual fund sector,” he added.
SEML Lecture Equity Management Fund dominated the mutual fund turnover chart last month with its transaction of 1.66 crore shares worth Tk 12.50 crore.
It was followed by First Bangladesh Fixed Income Fund, AB Bank 1st Mutual Fund, EBL First Mutual Fund, Popular Life First Mutual Fund and Grameen One: Scheme Two.
SEML Lecture Equity Management Fund was the month's best performer among all mutual funds with its gains of 9.09 percent, followed by Popular Life First Mutual Fund, Grameen One: Scheme Two, Vanguard AML Rupali Bank Balanced Fund and IFIC 1st Mutual Fund. DSEX shed 4.65 percent to 5,597.44 points in March.