Assainment on An evaluation of ICB Mutual Funds

An evaluation of ICB Mutual Funds:

It is a recognized principle that diversification of investment reduces risk. An individual may not have the time, expertise and resources to undertake such diversification. Here arises the advantage of a Mutual Fund. Mutual Funds pool the savings of a great number of investors and make investments in a wide array of securities. In Bangladesh ICB has pioneered Mutual Funds for the sake of investors and of the capital market. Country’s first Mutual Fund the “First ICB Mutual Fund “was floated on 25^th April 1980. Since then ICB has, over the years, floated 8 Mutual Funds with the total capital of Tk. 17.50 crore. ICB Mutual Funds continued to command the confidence and attraction of investors as lucrative and rewarding investment in terms of steady dividend performance.

DEFINITION OF MUTUAL FUND:

Mutual Funds are also known as close ended Mutual Funds. The issued capital of a Mutual Fund is limited, that is, a Mutual Fund offers a limited number of certificates for sale to the public. The amount of capital and the number of certificates of each Mutual Fund remains unchanged. ICB Mutual Funds are independent of one another. A Mutual Fund being listed is traded on the Stock Exchanges. Price of Mutual Fund certificates after IPO is determined on the Stock Exchanges through interaction of supply and demand. The market price of a Mutual Fund certificates is available in Stock exchange quotations and in newspapers. .

TYPES OF MUTUAL FUND:

Any Mutual Fund could be of either of the following two kinds. Such as-

Open-end Mutual Fund:

Open-end investment company is a fund that continues to sale and repurchases their shares after their initial public offering. They stand ready to sell additional number of shares and thus keep going larger. The open-end fund company can by or sale their own shares.

 Close-end Mutual Fund:

A close-end investment company operates like any other public firm. Their stock is traded on regular secondary market and the market price of its shares is determined by the supply and demand. It has a definite target amount for the found and cannot sell more shares after its initial offering. Its growths in terms of number of shares are issued like any other company’s new issues listed and quoted it stock exchange.

 OBJECTIVE OF MUTUAL FUND:

The objective of any fund would fit into one of three broad categories.

 Income: The emphasis is on producing a steady flow of dividend payment.

Capital gain: The manager concentrates on increasing the value of principal through appreciation of the stocks held.

 Income and capital gain: Some combination of the first two approaches.

ADVANTAGES OF MUTUAL FUND:

• Mutual Fund substantially minimizes the investment risk of small investors through diversification in which funds are spread out into various sectors, companies, securities as well as entirely different market.
• Mutual Fund mobilizes the savings of small investor and channels them into lucrative investment opportunities. As a result, Mutual Fund adds liquidity to the market.
• Mutual Fund provides the small investors access to the whole market that at an individual level, would be difficult if not impossible to achieve.
• Because funds are professionally managed, investors are relieved from the emotional strain associated with the day to day management of the fund.
• The investors save a great deal in transaction costs given that s/he has access to a large number of securities by purchasing a single share of a Mutual Fund.
• Mutual Fund is the only vehicle which operates simultaneously both at the demand as well as the supply side of the market. On the supply side, the Mutual Fund being itself security at the SEC introduces a good and reliable instrument in the capital market for the small but astute investor.
• Mutual Fund is one of the most strictly regulated investment vehicles. The laws governing Mutual Fund require exhaustive disclosure to the SEC as well as the general public. The laws also entail continuous regulations of fund operations by the Trustee.

 LAUNCHING OF ICB’S MUTUAL FUNDS:

ICB pioneered the Mutual Fund industry in Bangladesh. The country’s first Mutual Fund, the “First ICB Mutual Fund” was launched on 25 April 1980. Since then ICB had floated eight Mutual Funds of total capital of Tk.17.5 crore up to 1996.All ICB Mutual Funds are close-end Mutual Funds. Investors now perceive ICB Mutual Funds as a rewarding and relatively safe investment vehicle because of its strong and steady performance in terms dividend and portfolio management.

ICB launches eight Mutual Funds in different period with different paid up capital.

Figure: Paid-up capital of eight ICB Mutual Fund

Here we see that 6^th & 8^th ICB Mutual Fund is the highest paid-up capital (Tk. 500.00 lac)

Operational Result:

Here we see that, maximum Net Income comes from 8^th ICB Mutual Fund 463.64; maximum Distribute Income per certificates comes from 1^st ICM Mutual Fund 1006.53; and Ex-dividend intrinsic value per certificate comes from 1^st ICB Mutual Fund 9877.68

CONSOLIDATED PORTFOLIO STATEMENT:

As on 30 June 2010 cost price and market price of eight Mutual Funds were Tk. 8006.72 lac and Tk 32058.21 lac respectively. A consolidated statement of the portfolio of the Funds is given in the following table:

Consolidated position of portfolios of ICB Mutual Funds as on June 2010

Portfolio Position, Market Price per Certificate and Number of Certificate Holders: (as on 30 June 2010)

 PRICE MOVEMENT AND TRANSACTIONS:

During the year under review, certificates of eight Mutual Funds were actively traded on the floor of the Dhaka Stock Exchange Ltd and Chittagong Stock Exchange Ltd. The highest and lowest price of the eight Mutual Funds certificates on Dhaka Stock Exchange Ltd and position of total transaction during 2009-10 are shown in the following table:

Market prices of ICB Mutual Funds and Transactions during 2009-10

Here we see that, 1^st ICB Mutual Fund’s rate was highest price in the capital market and the amount is Tk. 9450, lowest market price in year of 2009-10 is 8^th ICB Mutual Fund and the amount is Tk. 162. Maximum closing price Tk. 8701 (1^st ICB Mutual Fund) and minimum closing price is Tk. 647.75 (6^th ICB Mutual Fund).

 FUNCTIONS OF ICB MUTUAL FUNDS DEPARTMENT:

Mutual portfolio formation and floating decision taken by ICB with the approval of the management EBR department decides holding category considering capital, portfolio risk, income trend, and risk diversified uniform income and growth. After all these decision security to be held are collected from IPO, Debenture issue, Secondary market etc. ICB helps sometime giving security at discount rate or at face value. Then the Fund is registered with SEC and listed with DSE and CSE. However after public issue, the fund portfolio is handed over to funds division for management operation. For purpose the Mutual Fund department has to perform the following activities mainly:

• Renunciation and issue of certificate.
• Maintain the register of the certificate holders.
• Transfer certificate if applied for after verifying transferee signature.
• Register the name of the transferee after getting approval from competent authority.
• Prepare dividend list and issue and mail dividend warrant as decided by the board.
• Record/ correct changes of address if applied.
• Reissue certificate after confirming loss and mark transfer restriction of the lost certificate, if applied for and also inform DSE & CSE on revision of the following document submitted by the loser.

REGULATORY SET-UP OF ICB’S MUTUAL FUNDS:

When ICB took the initiative of floating mutual fund in Bangladesh, there was no organized and recognized regulatory set-up for managing of mutual funds in Bangladesh. ICB had to formulate the necessary regulatory set-up and rules for the management of mutual funds. The regulatory set-up for ICB mutual funds is explicitly explained in the ICB Regulation-1977. The main features of this regulatory set-up are mentioned below:

• The Corporation may from constitute of ICB mutual funds of such denominations and securities in such each case as the board may determine.
• ICB mutual fund certificates will be listed and quoted in the stock exchange in Bangladesh and the board may determine subject to the permission of the stock exchange.
• ICB mutual funds certificate shall be movable property and freely transferable.
• ICB Mutual Fund certificate will be sold or offered for subscription with the prior consent of the government.

There is a decision making board in order to manage different Mutual Funds. As per board’s decision securities are bought under different Mutual Funds. At the same way securities are sold. In case of new Mutual Fund subscribes for public issue.

ICB authority is made portfolio earlier by its own finance and given it name. After that it is published on any newspaper as prospectus. By studying this prospectus public response whether they will buy the Mutual Fund or not.

FLOATATION OF NEW MUTUAL FUNDS:

When ICB floats a new mutual fund, it is announced through publication of prospectus in two widely circulated newspapers. An investor has to apply for the shares of new mutual fund by filling in prescribed application form that can be collected from ICB officers and other attorney banks. Sometimes allotment is done by lottery draw.10% of any new mutual fund is served for non-Bangladeshi. Any Bangladeshi living abroad can collect from Bangladesh mission abroad or from authorized bank branches or from web site.

HOW TO BUY EXISTING MUTUAL FUNDS

An investor can purchase any of the existing eight ICB Mutual Funds certificates through the Stock Exchanges at the prevailing Market Price. However, if an investor buys Mutual Fund certificates through the Stock Exchanges he/she must be careful to submit the certificates along with duly filled-in transfer deed at ICB Head Office to ensure that the certificates are registered in his/her name.

 ADVANCES AGAINST MUTUAL FUND CERTIFICATES SCHEME:

Advance against ICB Mutual Fund certificates Scheme was introduced in 2003, designed for the ICB Mutual Fund Certificate holders to meet their emergency fund requirement. One can borrow maximum of 50% value of last one year’s weighted average market price of certificates at time of borrowing by depositing his/her certificates under lien arrangement from any of the ICB offices. The rate of interest on the loan is reasonable and also competitive.

MANAGEMENT FEE, CHARGE ETC.:    

At present management fee @ 1% on the paid up capital of the Fund is charged annually. No amount is charged on account of custodial and trust services. Part of operating expenses are charged to the respective Mutual Funds on pro rata basis

 ASSETS OF ICB MUTUAL FUNDS:

ICB Mutual Funds Certificates holders shall have unfettered ownership in the assets of the Fund to which they are related. In case of winding up of the Corporation the assets belonging to any ICB Mutual Fund shall not be treated as the assets of the Corporation.

TAX CONCESSIONS:

• Ø Investment in Certificates provides the same tax exemptions as an investment qualifying under Section 44 of the Income Tax Ordinance, 1984.
• Ø Capital gains received on investment in the Fund Certificates shall not be included in the total income of a Certificate holder within the limits specified in the Income Tax Ordinance, 1984.
• Ø  Dividends received on investment in the Fund will be treated as dividend income under Income Tax Act, and will be exempted from tax with the limits specified in the Act.
• Ø The Fund incomes are to be exempted from all taxes as granted by the Government as per SRO No 80-L/80 dated April, 1980.

 DECLARATION OF DIVIDEND:

The net income received on investments of Funds on account of dividend, bonus, interest, capital gain etc. are distributed amongst the Certificate holders as per decision of the Board of Directors of ICB. Board declares such income in the form of dividend at the end of July each year. Dividends declared by ICB in the past on the Mutual Funds were very attractive. The year-wise per certificate dividend performance of the Funds is given below.

Rate of the Dividend per Certificate (Taka):

Dividend Performance:                                                              (Tk. per Certificate)

Here we see that, all Mutual Funds’ in every year increases the dividend. It is a good sign for a company and may be growth day by day. It’s very important things for investors. Sometimes it shows the future growth, and the investors are confident on the fund. In every year 1^st ICB Mutual Fund declared the maximum dividend for the share holders.

 DETAILS DESCRIPTION OF ICB’S EIGHT MUTUAL FUND:

First ICB Mutual Fund:

The 1^st ICB Mutual Fund was floated at 25^th April, 1980. It is the most attractive mutual fund among the others.

Dividend and Interest income:

The Fund had earned dividend of Tk. 85.70 lac from 47 securities during 2009-2010 of which a sum of Tk. 74.69 lac (87.15 percent) was received in cash within 30June 2010.

Capital Gains on Sale of Investments:

During 2009-10, the Fund earned Tk. 375.65 lac as capital gains by securities of 78 companies as shown in the following table:

Here we see that, the maximum capital gain came from the company of Grameen Phone Ltd. Total no. of securities 19400 and the amount is Tk. 3,274,820.00

Income, Expenses and Distributable Income:

Dividend:

The Fund declared dividend at the rate of 400 percent per certificate including 310 percent for the previous year. After making provision of Tk. 300 lac for payment of dividend the Fund had an undistributed income of Tk 454.90 lac. The Year –wise dividend performance of the Fund is shown in the following table:

Year –wise dividend Performance

Portfolio:

During 2009-10, the fund made investments of Tk. 168.43 lac in securities of 24 companies. As on 30 June 2010 the Fund had securities of 122 companies in its portfolio with a total cost of Tk. 887.70 lac, the market value of which was Tk. 7791.87 lac. Details of the portfolio of the Fund as on 30 June 2009 were Tk. 770,047,230.70

The ex-dividend net asset value per certificate of Tk. 100.00 each of First Mutual Fund stood at Tk. 9877.68 as on 30 June 2010.

The opening and closing market price per certificate of First ICB Mutual Fund of Tk. 100.00 each of the fund was Tk.5783.00 and Tk. 8701.00 as respectively in 2009-10.

The number of certificate holders of the fund was 1105 as on 30 June 2010.

Second ICB Mutual Fund:

The 2^nd ICB Mutual Fund was floated at 17 June 1984.

Dividend and Interest income:

The Fund had earned an amount of Tk. 29.67 lac as dividend and interest from 44 securities during 2009-2010 of which, Tk. 26.81 lac (90.50 percent) was received in cash within 30June 2010.

Capital Gains on Sale of Investments:

During 2009-10, the Fund earned Tk. 247.65 lac as capital gains by securities of 79 companies and total capital gain is Tk. 24,765,105.64.

Here, the maximum capital gain came from the company of Grameen Phone Ltd. Total no. of securities 14600 and the amount is Tk. 2,494,140.00

Income, Expenses and Distributable Income:

Dividend:

The Fund declared dividend at the rate of Tk. 200 per certificate of Tk. 100.00 each for the year 2009-10, which was Tk. 95.00 per certificate in the previous year. After making provision of Tk. 100.00 lac for payment of dividend the Fund had an undistributed income of Tk. 159.89 lac .The Year –wise dividend performance of the Fund is shown in the following table

Year –wise dividend Performance

Portfolio:

During 2009-10, the fund made investments of Tk. 119.06 lac in securities of 24 companies. As on 30 June 2010 the Fund had securities of 120 companies in its portfolio with a total cost of Tk. 612.98 lac, the market value of which was Tk. 1782.44 lac. Details of the portfolio of the Fund as on 30 June 2010 were Tk. 174510768.45

The ex-dividend net asset value per certificate of Tk. 100.00 each of First Mutual Fund stood at Tk. 2788.41 as on 30 June 2010.

The opening and closing market price per certificate of First ICB Mutual Fund of Tk. 100.00 each of the fund was Tk.2244.75 and Tk. 2578.75 as respectively in 2009-10.

The number of certificate holders of the fund was 1093 as on 30 June 2010.

Third ICB Mutual Fund:

The 3^rd ICB Mutual Fund was floated at 19 May 1985.

Dividend and Interest income:

The Fund had earned dividend of Tk. 36.41 lac from 53 securities during 2009-2010 of which a sum of Tk. 32.46 lac (89.15 percent) was received in cash within 30June 2010.

Capital Gains on Sale of Investments:

During 2009-10, the Fund earned Tk. 261.02 lac as capital gains by securities of 76 companies and total capital gain is Tk. 26,102,001.85

Here, the maximum capital gain came from the company of Jamuna Oil Co. Ltd. Total no. of securities 15800 and the amount is Tk. 2,544,718.3

Income, Expenses and Distributable Income:

Dividend:

The Fund declared dividend at the rate of Tk. 114.00 per certificate of Tk. 100.00 each for the year 2009-10, which was Tk. 85.00 per certificate in the previous year. After making provision of Tk 140.00 lac for payment of dividend the Fund had an undistributed income of Tk. 236.89 .The Year –wise dividend performance of the Fund is shown in the following table

Year –wise dividend Performance:

Portfolio:

During 2009-10, the fund made investments of Tk. 121.36 lac in securities of 23 companies. As on 30 June 2010 the Fund had securities of 140 companies in its portfolio with a total cost of Tk. 698.25 lac, the market value of which was Tk. 2547.87 lac.

The ex-dividend net asset value per certificate of Tk. 100.00 each of First Mutual Fund stood at Tk. 2190.38 as on 30 June 2010.

During 2009-10, the opening and closing market price per certificate of First ICB Mutual Fund of Tk. 100.00 each of the fund was Tk.921.22 and Tk. 1972.50. The number of certificate holders of the fund was 1502 as on 30 June 2010.

Fourth ICB Mutual Fund:

The 4^th ICB Mutual Fund was floated at 06 June1986.

Dividend and Interest income:

The Fund had earned dividend of Tk. 45.89 lac from 59 securities during 2009-2010 of which a sum of Tk. 38.43 lac (8374 percent) was received in cash within 30June 2010.

Capital Gains on Sale of Investments:

During 2009-10, the Fund earned Tk. 339.80 lac as capital gains by securities of 75 companies and the total capital gain is Tk. 33,980,324.19

Here, the maximum capital gain came from the company of Jamuna Oil Co. Ltd. Total no. of securities 16200 and the amount is Tk. 2,929,054.91

Income, Expenses and Distributable Income:

Dividend:

The Fund declared dividend at the rate of Tk. 125.00 per certificate of Tk. 100.00 each for the year 2009-10, which was Tk. 80.00 per certificate in the previous year. After making provision of Tk. 125.00 lac for payment of dividend the Fund had an undistributed income of Tk. 243.20 lac .The Year –wise dividend performance of the Fund is shown in the following table:

Year –wise dividend Performance:

Portfolio:

During 2009-10, the fund made investments of Tk. 121.32 lac in securities of 23 companies. As on 30 June 2010 the Fund had securities of 141 companies in its portfolio with a total cost of Tk. 748.52 lac, the market value of which was Tk. 2784.04 lac.

The ex-dividend net asset value per certificate of Tk. 100.00 each of First Mutual Fund stood at Tk. 2387.84 as on 30 June 2010.

The opening and closing market price per certificate of First ICB Mutual Fund of Tk. 100.00 each of the fund was Tk.1236.25 and Tk. 2139.75 as respectively in 2009-10. The number of certificate holders of the fund was 1253 as on 30 June 2010.

Fifth ICB Mutual Fund:

The 5^th ICB Mutual Fund was floated at 08 June 1987.

Dividend and Interest income:

The Fund had earned dividend of Tk. 59.84 lac from 58 securities during 2009-2010 of which a sum of Tk. 51.34 lac (85.80 percent) was received in cash within 30June 2010.

Capital Gains on Sale of Investments:

During 2009-10, the Fund earned Tk. 386.03 lac as capital gains by securities of 78 companies and the total capital gain is Tk. 38,602,780.47

Here, the maximum capital gain came from the company of Jamuna Oil Co. Ltd. Total no. of securities 16800 and the amount is Tk. 2,899,439.4

Income, Expenses and Distributable Income:

Dividend:

The Fund declared dividend at the rate of Tk. 100.00 per certificate of Tk. 100.00 each for the year 2009-10, which was Tk. 56.00 per certificate in the previous year. After making provision of Tk. 150.00 for payment of dividend the Fund had an undistributed income of Tk. 181.06 .The Year –wise dividend performance of the Fund is shown in the following table:

Year –wise dividend Performance

Portfolio:

During 2009-10, the fund made investments of Tk. 159.93 lac in securities of 20 companies. As on 30 June 2010 the Fund had securities of 153 companies in its portfolio with a total cost of Tk. 952.61 lac, the market value of which was Tk. 3662.00 lac.

The ex-dividend net asset value per certificate of Tk. 100.00 each of First Mutual Fund stood at Tk. 2036.43 as on 30 June 2010.

The opening and closing market price per certificate of First ICB Mutual Fund of Tk. 100.00 each of the fund was Tk.1230.00 and Tk. 1763.00 as respectively in 2009-10. The number of certificate holders of the fund was 2560 as on 30 June 2010.

Sixth ICB Mutual Fund:

The 6^th ICB Mutual Fund was floated at 16 May 1988.

Dividend and Interest income:

The Fund had earned dividend of Tk. 59.70 lac from 69 securities during 2009-2010 of which a sum of Tk. 55.69 lac (93.28 percent) was received in cash within 30June 2010.

Capital Gains on Sale of Investments:

During 2009-10, the Fund earned Tk. 501.23 lac as capital gains by securities of 83 companies and the total capital gain is Tk. 50,122,888.36

Here, the maximum capital gain came from the company of Grameen Phone Ltd. Total no. of securities 23200 and the amount is Tk. 3,961,700.00

Income, Expenses and Distributable Income:

Dividend:

The Fund declared dividend at the rate of Tk. 75.00 per certificate of Tk. 100.00 each for the year 2009-10, which was Tk. 37.00 per certificate in the previous year. After making provision of Tk. 375.00 lac for payment of dividend the Fund had an undistributed income of Tk. 298.98 .The Year –wise dividend performance of the Fund is shown in the following table:

Year –wise dividend Performance:

Portfolio:

During 2009-10, the fund made investments of Tk. 291.08 lac in securities of 23 companies. As on 30 June 2010 the Fund had securities of 187 companies in its portfolio with a total cost of Tk. 1225.85 lac, the market value of which was Tk. 4162.39 lac.

The ex-dividend net asset value per certificate of Tk. 100.00 each of First Mutual Fund stood at Tk. 748.85 as on 30 June 2010.

The opening and closing market price per certificate of First ICB Mutual Fund of Tk. 100.00 each of the fund was Tk.679.25 and Tk. 647.75 as respectively in 2009-10. The number of certificate holders of the fund was 6385 as on 30 June 2010.

  Seventh ICB Mutual Fund:

The 7^th ICB Mutual Fund was floated at 30 June 1995.

Dividend and Interest income:

The Fund had earned dividend of Tk. 72.05 lac from 70 securities during 2009-2010 of which a sum of Tk. 63.27 lac (87.81 percent) was received in cash within 30June 2010.

Capital Gains on Sale of Investments:

During 2009-10, the Fund earned Tk. 607.87 as capital gains by securities of 89 companies and total capital gain is Tk. 61,787,212.57

Here, the maximum capital gain came from the company of Sonargaon Textiles Ltd. Total no. of securities 16350 and the amount is Tk. 5,790,725.00

Income, Expenses and Distributable Income:

Dividend:

The Fund declared dividend at the rate of Tk. 70.00 per certificate of Tk. 100.00 each for the year 2009-10, which was Tk. 35.00 per certificate in the previous year. After making provision of Tk. 210.00 lac for payment of dividend the Fund had an undistributed income of Tk. 257.31 lac. The Year –wise dividend performance of the Fund is shown in the following table:

Year –wise dividend Performance

Portfolio:

During 2009-10, the fund made investments of Tk. 218.46 lac in securities of 24 companies. As on 30 June 2010 the Fund had securities of 181 companies in its portfolio with a total cost of Tk. 1341.95 lac, the market value of which was Tk. 4324.86 lac.

The ex-dividend net asset value per certificate of Tk. 100.00 each of First Mutual Fund stood at Tk. 1180.13 as on 30 June 2010.

The opening and closing market price per certificate of First ICB Mutual Fund of Tk. 100.00 each of the fund was Tk. 892.50 and Tk. 1063.00 as respectively in 2009-10. The number of certificate holders of the fund was 2383 as on 30 June 2010.

Eighth ICB Mutual Fund:

The 8^th ICB Mutual Fund was floated at 23 July 1996.

Dividend and Interest income:

The Fund had earned dividend of Tk. 75.41 lac from 66 securities during 2009-2010 of which a sum of Tk. 68.63 lac (91.01 percent) was received in cash within 30June 2010.

Capital Gains on Sale of Investments:

During 2009-10, the Fund earned Tk. 670.68 lac as capital gains by securities of 87 companies and the total capital gain is Tk. 67,067,600.98

Here, the maximum capital gain came from the company of United Leasing Co. Ltd. Total no. of securities 5960 and the amount is Tk. 7,329,581.64

Income, Expenses and Distributable Income:

Dividend:

The Fund declared dividend at the rate of Tk. 65.00 per certificate of Tk. 100.00 each for the year 2009-10, which was Tk. 32.00 per certificate in the previous year. After making provision of Tk. 325.00 lac for payment of dividend the Fund had an undistributed income of Tk. 360.87 lac .The Year –wise dividend performance of the Fund is shown in the following table:

Year –wise dividend Performance

Portfolio:

During 2009-10, the fund made investments of Tk. 249.19 lac in securities of 21 companies. As on 30 June 2010 the Fund had securities of 175 companies in its portfolio with a total cost of Tk. 1538.86 lac, the market value of which was Tk. 5002.74 lac.

The ex-dividend net asset value per certificate of Tk. 100.00 each of First Mutual Fund stood at Tk. 864.95 as on 30 June 2010.

The opening and closing market price per certificate of First ICB Mutual Fund of Tk. 100.00 each of the fund was Tk. 632.76 and Tk. 755.50 as respectively in 2009-10. The number of certificate holders of the fund was 6735 as on 30 June 2010.