The Bangladesh Securities and Exchange Commission (BSEC) has formed a committee to investigate the recent unit price hike of five listed mutual funds.
The secondary market trading of the closed-end funds under scrutiny are CAPM-IBBL Islamic Mutual Fund, SEML IBBL Shariah Fund, Vanguard AML Rupali Bank Balanced Fund, NCCBL Mutual Fund-1, and Prime Finance First Mutual Fund.
The committee formed on Tuesday will be led by BSEC Deputy Director Md Ohidul Islam where Assistant Director Md Nannu Bhuiyan will work as the other member.
They will investigate if there are any irregularities in trading of the funds' units in the stock market and will submit their findings within 30 working days.
BSEC Executive Director and Spokesperson Mohammad Rezaul Karim told The Business Standard that over the last one month, the unit prices of the 37 listed mutual funds increased by 4-119%, and the committee picked the five which witnessed over 50% gain.
If the committee finds any price manipulation, the concerned ones will face the music, he added.
Most of the listed mutual funds with their legacy of underperformance, a lack of governance within many, zig-zag in regulations, and series of litigations had almost lost confidence of investors over the last decade.
Investors were not willing to pay more than 60-70%, on an average, of the underlying assets for the fund units at the secondary market.
The new leadership at the securities regulator began to address issues within the sector in recent months. Its chairman expressed his hope in various forum discussions that mutual funds – if governance and skilled asset management ensured – has potential to attract non-expert investors' money which are sitting idle in bank accounts.
The market seems to have turned over enthusiastic. Prices of many mutual fund units began to increase at an insane pace, regardless of their valuation.
For example, Prime Finance First Mutual Fund had spent more than Tk17 to buy the existing financial assets within each of its units, and the market price of the same is now hovering around Tk10, also the face value of each fund units.
The unit price of the fund began to increase from Tk16 and within a month it crossed Tk25 – an absurd 150% overvaluation.
Globally, mutual funds are assumed to be priced best at 5-10% lower than the underlying assets.
However, the securities regulator's investigation will reveal if the abnormal market behaviour was a mere result of overenthusiasm or some people manipulated the prices through illegal activities like circular trading.