Mutual funds also lose their way

In a strange behaviour, all but a few mutual funds are trading below the present value of their portfolio assets.

A mutual fund's portfolio is made up of shares from various companies and other assets such as fixed deposits with banks and investment in bonds or other mutual funds.

Dhaka Stock Exchange data show the mutual funds are trading at 44 percent lower than their current asset value. 

This is quite unusual because the funds' prices have dipped way below the combined values of the shares they are made up of.

Experts say such a dip in price, often referred to as "discount", universally does not go beyond 10-12 percent of their asset value.

There are 37 mutual funds listed with the Dhaka Stock Exchange. Of them, units of 34 funds are being bought and sold cheaper to the assets they hold.

Mutual funds are usually thought to be safe investment zones as they are made up of various shares and other assets, thus spreading the risk. Such funds are run by professionals who make informed decisions.

And that is why investors prefer the low-risk investment that mutual funds offer, although such funds give small returns.

In Bangladesh too, after the 2010 crash, a number of investors had given an ear to the universal advice to take help of the professional asset managers, instead of making gross mistakes while trying the stock market by themselves.

And now they regret it.

Surprisingly, 10 listed mutual funds representing over half the assets under management are trading at a 60-percent discount.

A new shock to investors has arrived in recent months as around a dozen fund units nosedived to a historic low price at the stock exchange.

Investors, who own those, are feeling deeply entrapped as their wait for a fair price sees no end. If people decide to withdraw the investments, they will be compelled to sell those at half the deserving price on an average.

A private company accountant, who invested in mutual funds, has recently shared his frustration with The Business Standard. "Listed mutual funds appeared as nightmares even though they were supposed to be the easiest and safest capital market tool for general people.

"Our dream to see the mutual funds working for us seems to never come true," said the literate individual preferring anonymity.

He has been investing in undervalued listed mutual funds for the last five years but is still stuck in losses. He is one of the local individuals to rely on professional asset management services after a hard lesson from trying to gain on his own in 2010.

"I myself used to trade stocks until 2012. Amid both profits and losses, I was not unhappy. Of course, I, like thousands of other investors, could not take away enough after the 2010 crash," he recalled old days.

"After reading about the safety nature of mutual funds, I gradually shifted my approach and went for mutual funds. But that also did not work and I do not know if it ever will," he felt hopeless. "I was holding listed fund units with a hope that the market will be okay at some point but it is worsening day by day."

Listed mutual funds had been trading at an average discount of nearly 30 percent in 2017 but it has widened more this year.

Nearly a decade of unpleasant experiences pushed individuals in a psychic territory that they do not care about how much opportunity a mutual fund offers.

A rare situation has emerged in recent years where some closed-end funds received zero subscription from individual investors against their publicly offered units.

The list of entrapped investors not only contains general people but also some top local and foreign institutional investors and many financially literate individuals.

The Business Standard has spoken to a wide range of experts and market professionals to figure out the main reasons of such an unwanted situation in the mutual fund sector.

They have blamed market inefficiency, regulatory unpredictability, desperation of a few fund managers to secure own benefits for themselves at the cost of investors – which led to a deferred exit point, non-transparent and poor investments in private securities, and the recently shut-off dividend debate to have caused the gloom in the sector.