Outperforming the market, mutual fund industry awaits big growth

In contrast to the popular belief in Bangladesh that mutual funds do not generate sufficient returns for their investors, asset managers have outperformed the market over the last five years.

Alongside the investment performance, joint efforts by the capital market regulator and the industry are set to help the total asset grow under professional management, experts have said.

"In recent years, we could not proclaim, but now it is time to say that the investment in mutual funds is the most lucrative now," said Dr Hasan Taher Imam, president of the Association of Asset Management Companies and Mutual Funds.

Supporting him in a recent programme titled "Institutional role in sustainable financing", Professor Shibli Rubayat-Ul-Islam, chairman of the Bangladesh Securities and Exchange Commission (BSEC), said mutual funds are performing well and his commission will facilitate the sector to grow up to ten times.

BSEC Commissioner Professor Mizanur Rahman, who heads the mutual fund department, said the country's mutual fund industry is managing around Tk15,000 crore of investors' money when the DSE market capitalisation is more than Tk5.8 lakh crore.

The ratio of mutual fund industry size and the market capitalisation is too low in the country, compared to peer markets.

They were speaking on the occasion of World Investors' Week which promotes investors' awareness and protection.

 The outperformance

A mid-September report by UCB Asset Management shows the mutual fund industry generated double-digit annual average returns on a compound basis over the 2016-21 period, while DSEX, the broad-based index at the Dhaka bourse, grew at a lower 8.5% compound annual rate, amid the roller-coaster rides.

This might sound insufficient to the average people who chase quick bucks. But those who want their assets to grow steadily and sustainably, in the long run, may find the rate lucrative as compound growth is calculated based on the grown-up base of the previous year.

The asset management firm's portfolio manager SM Samiuzzaman, a CFA charter holder, said, "Your Tk100 would have grown to TK166 in the last five years had you put the capital in open-end funds.

It would grow to Tk276 in 10 years and Tk764 in a 20-year horizon as the open-end funds helped investors' assets grow at a 10.7% rate in the last five years.

Closed-end funds which have tenure and are tradable on the bourses helped investors' wealth grow at a compound average of 9.3% rate in each of the last five years.

Mutual funds are also giving more cash dividends now, following regulatory pushes. Mutual funds' average dividend yield, which calculates dividends as the percentage of unit price, is more than double what the DSE scrips are paying on average.

Dividend yield from some funds even went as high as 15% this year, while the DSE average is around 3%.

 Do-it-yourself Vs professionals' edge

In Bangladesh, most retail investors prefer investing in stocks themselves as they are more for short-term speculative trading for quick bucks despite high risks than investing in a potential company for a long-term sustainable return.

That had been one of the reasons behind the meagre size of the mutual fund industry, while many observers also used to blame unfriendly regulations and lack of professionalism among several asset managers in the past.

Things are changing now.

Professor Shibli Rubayat-Ul-Islam said the asset management industry has the most qualified and skilled investment professionals and they have many things to do for their investors and the market.

A mutual fund is a collective investment scheme that collects money from investors and prudently invests the funds into diversified scrips for a better return alongside keeping the risks in mind.

Nowadays, many people are interested in learning about how much return mutual funds tend to generate for investors, which fund managers can do better, the BSEC chairman said in the virtual discussion organised by the mutual fund industry association.

This comes in a situation when bank deposit returns dropped to a much lower level at par inflation rate, subsidised national savings certificates have investment limits for wealthy people, and the stock market indices have travelled to a fair height, doubling from their mid-2020 bottom.

Inviting people to take professional asset managers' services, asset management industry association leader Hasan Taher Imam said, "It is the safest to invest through mutual funds."

In a speech, he mentioned the recent developments for the better governance of his sector that include transparent reporting and compliances with the regulations.

AIM STEPs Ltd Chief Executive Officer Azad Chowdhury in his keynote speech pointed out how mutual funds can play a role in sustainable development.