An alternative to low-yield bank deposits | The Daily Star
12:00 AM, April 30, 2021 / LAST MODIFIED: 02:14 PM, April 30, 2021


An alternative to low-yield bank deposits

With the interest rate on deposits falling steadily, keeping money in the banks seems to provide negative returns.

So instead, if you are looking to invest in securities that offer higher gains, open-ended mutual funds could be a good alternative despite certain risks.

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Mutual funds pool money from investors to channel it into securities such as stocks, bonds, and other assets.

Depending on the profits earned, investors are then paid their share as dividends.

As of March 2021, 29 asset management companies in the country are managing a total of Tk 13,420 crore under 101 mutual fund schemes.

Some 64 of these schemes are open-ended mutual funds that have a combined asset value of Tk 10,380 crore.

In 2018 and 2019, all open-ended funds generated an average excess return of 7.5 per cent and 9.6 per cent respectively over stock market movement.

Some fund managers have provided dividend yields of more than 8 per cent year-after-year while others paid 12 to 15 per cent cash dividends even amid the ongoing Covid-19 crisis in 2020.

"Return on investments on open-ended mutual funds are better compared to bank deposits," said Mahmood Osman Imam, a professor of finance at the University of Dhaka.

It should be kept in mind that some risks are attached to the investments on mutual funds, because mutual funds earn by pouring money into stocks, which can fall anytime, the professor added.

Despite the volatility, some fund managers generate handsome dividends every year, he said.

So, investors need to choose the right ones, because all mutual funds do not perform the same way, he said.

"But if you have the ability to take those risks, you could consider investing in open-ended mutual funds."

"In India, there is a ranking system and this helps investors analyse the performance of funds but we have no such ranking system," Imam added.

Shahidul Islam, chief executive officer of the VIPB Asset Management Company, echoed the same.

Open-ended mutual funds are a suitable investment alternative for retail investors who are interested to take exposure in the capital market instrument but are unable to do research.

Before investing in any fund, investors should analyse the track records of fund managers.

"As investors buy the funds on the basis of its net asset value, they do not need to analyse the price for open-ended funds," Islam said.

"Investors should consider the transparency of fund managers. If fund managers disclose their portfolios regularly, investors can see the securities being invested in," he added.


Open-ended mutual funds are not listed with the stock market but one can buy them from a fund managers' office on the basis of its net asset value.

Similarly, investors can sell off fund units at any time at prices based on its current net asset value.

As most general investors are not well informed about mutual funds, their presence is very low in the sector.

Besides, corporate houses prefer open-ended funds as those pay handsome dividends on most years.

Major open-ended mutual fund managers in the country are: Investment Corporation of Bangladesh (ICB) Asset Management Company, VIPB Asset Management Company, IDLC Asset Management Company, LankaBangla Asset Management Company, Universal Financial Solutions, CAPM Co, CWT Asset Management Company and Edge AMC.

"If anyone wants to invest in stocks but avoid high risk of volatile share prices, then the person could choose open-ended mutual funds," said Md Belal Hossain, an investor who has investments in the Prime Finance Asset Management Company.

"As I do not have enough knowledge on the stock market, I invested here as it currently offers higher returns than keeping money in banks," he said, adding that if any fund manager launches a Shariah-based open-ended mutual fund, it would be more preferable among investors.   

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