Formation Of EXIM BANK 1ST Mutual Fund:

Over the last decade, Bangladesh equity (share) market has experienced rapid growth in size and volume and has been identified as one of the most promising frontier markets in the globe. Yet the nature and composition of this growth has given rise to serious structural challenges, such as retail heavy investor base, speculation prone investing, and unusually high churn. Such characteristics expose the Bangladeshi share market to excessive volatility, often decoupled from fundamentals. Among est such volatility, the small retail investor lacking unbiased research and proper risk management is often left “holding the bag”suffering large losses. However, this dynamic is not unique to Bangladesh but symptomatic of most early stage share markets. Also, there is a proven and time-tested solution.

For over 300 years, almost as long as the history of commercial banks, Mutual Funds have been protecting the interests of small retail investors. Mutual Funds are highly regulated structures that pool investment capital from thousands of retail investors and institutions and the cumulative assets are then invested by professional fund managers, such as Bangladesh RACE Management PCL. It is rare to find examples of capital markets that have evolved from “frontier” to “developed” without the growth and dominance of the mutual fund sector. First, by virtue of being managed by professionals mutual funds invest on the basis of fundamental research and protect such investments from catastrophic loss through proper risk management. Second, as investment pools, mutual funds tend to be large in size and can act as a counterweight to manipulation in the market by informal syndicates. Third, as highly regulated, transparent entities, mutual funds are “investment institutions” in the most pure form and help institutionalize the capital market.

During the last two years, the Bangladesh mutual fund sector has been re-energized. RACE has successfully structured and launched nine mutual funds during this period, bringing in entirely new classes of sponsors, such as Banks and Insurance companies, and new group of retail investors under the umbrella of these funds. Yet, overall the mutual fund sector in Bangladesh is small and is far from attaining critical mass.

It is against this backdrop that EXIM Bank Ltd. has stepped into the mutual fund sector. Over the last two decades, EXIM Bank Ltd. has been at the forefront of financial innovation in the Bangladeshi capital markets through its subsidiary EXIM Islami Investment Ltd. The Bank has been promoting research based portfolio management for retail investors. Now, to further enhance the efficiency and transparency of the country’s capital markets the Bank has decided to sponsor its first mutual fund, EXIM BANK 1ST MUTUAL FUND.

In this endeavor, EXIM Bank Ltd. has appointed Bangladesh RACE Management PCL to be the Fund Manager. Bangladesh RACE Management PCL has already developed a successful track record as a successful Fund Manager in the Bangladeshi Capital Market. The Bank has also appointed Investment Corporation of Bangladesh (ICB) as the Trustee and the Custodian of the Fund.

Formation Of The Proposed Mutual Fund In The Context Of Present Market Scenario:

Since 2006, a number of factors have increased the popularity of stock market investing among Bangladeshi retail investors, including: rising income, low interest rates in traditional bank savings accounts, large stock investment gains, and increased media coverage. This exponential increase in demand is reflected in the 12x growth in average daily trading volume in the stock market during the last 3 years – from Tk. 200 crore in 2006-07 to its peak level of over Tk. 2,500 crore.

Despite this significant growth in investor participation in the Bangladeshi stock market, and the demand for professionally managed investment vehicles, the domestic mutual fund industry has not responded with adequate supply. With less than 40 individual funds to choose and over Tk. 3,500 crore in funds under management, the mutual fund industry has been slow to respond to current capital market realities and comprises only a small percentage of the total stock market investments. To meet this large unsatisfied demand for mutual fund investments in Bangladesh, EXIM Bank Limited is floating the EXIM BANK 1ST MUTUAL FUND.

It should also be mentioned that the EXIM BANK 1ST MUTUAL FUND will make its debut against the backdrop of a share market that has suffered a “crash” or large correction versus the peak. While media and conventional wisdom has characterized this period as a “crisis” phase of the share market, professional fund managers view such crisis as an opportunity. It is much more difficult to provide positive returns to investors when a Fund builds its investment portfolio at the peak of the market. While any capital market investment is fraught with risks, and no guarantees can be provided, the EXIM BANK 1ST MUTUAL FUND enters its investment phase at a period that is more amenable to providing long term healthy returns to its investors.

Advantages In Investing In EXIM BANK 1st Mutual Fund:

Generally, investment in mutual funds enjoys some additional advantages compared to investments made directly in other securities of the capital market. Investors of this mutual fund should be able to enjoy the following advantages:

  1. The Fund will maintain a diversified portfolio which will lower the investment risk for investors.
  2. The diversified portfolio will allow investors to gain a broad exposure to the overall stock market which may not be possible at the individual level.
  3. This Fund provides access to extensive local research and investment experience. The Fund Manager, Bangladesh RACE Management PCL has developed deep insight into the dynamics of the local capital markets. RACE’s research department consistently produces insightful research products on the Bangladeshi stock market which have been highly commended by both local stock market participants and foreign investors.
  4. As the management of the investments in the Fund is outsourced to a professional Asset Management Company, investors will be relieved from any emotional stress associated with day-to-day management of individual investment portfolio. In fact, investment management usually requires a significant amount of time-consuming research and analyses to identify the highest-quality securities which may not be doable for the general investor and is, therefore, best left to professional investment managers.
  5. The investors will be able to save transaction costs as he/she has access to a large number of
    securities by purchasing a single unit of EXIM BANK 1ST MUTUAL FUND.
  6. Income will be tax free up to certain level, which is permitted as per Finance Act.
  7. Investment in the Fund would qualify for investment tax credit under section 44(2) of the Income tax
    Ordinance 1984.
  8. Management and operation of Mutual Funds are subject to strict regulations from Bangladesh Bank, BSEC and the Trustee. BSEC regularly monitors the performance of such funds. The laws governing mutual funds require exhaustive disclosures to the regulator and general public and, as such mutual funds are one of the most transparent investment vehicles in Bangladesh.
  9. In Bangladesh, the mutual funds enjoy a 10% (ten percent) reserved quota in all Initial Public Offerings (IPOs). Given the lack of supply of high-quality scripts in the Bangladeshi stock market, IPOs have historically outperformed the general Bangladeshi market index significantly and, therefore, have been a major source of outperformance for the mutual fund industry in Bangladesh.

The Constitution Of The Fund:

EXIM Bank 1st Mutual Fund has been constituted through a Trust Deed entered into between EXIM Bank Limited, and Investment Corporation of Bangladesh (ICB) on November 29, 2010 under the Trust Act, 1882 and Registration Act, 1908. The Fund was registered by the BSEC on December 12, 2010 under the সিকিউরিটিজ ও এক্সচেঞ্জ কমিশন (মিউচ্যুয়াল ফান্ড) বিধিমালা, ২০০১।

Life Of The Fund:

The Fund will be a closed-end mutual fund of 10 (Ten) years. As per BSEC’s Directive No BSEC/CMRRCD/2006-157/210/Admin/83, dated October 02, 2018, the tenure of the fund may be increased up to another 10 years, established with a view to broaden the base of investment and develop the capital market.

The Trust Deed also provides the flexibility to the unit‐holders to extend the tenure of the fund beyond the initial 10 years.

Size, Face Value And Market Lot Of The Fund:

  • The initial Fund size is fixed at 100,000,000 (Ten crore) units of Tk. 10 each totaling Tk. 1,000,000,000 (One Hundred crore).
  • The Sponsor’s portion of the Fund is 20,000,000 (Two crore) units of Tk. 10 each totaling Tk. 200,000,000 (Twenty crore).
  • Size of the Pre-IPO Private Placement is 30,000,000 (Three crore) units of Tk. 10 each totaling Tk. 300,000,000 (Thirty crore).
  • Size of the Initial Public Offering (IPO) is 50,000,000 (Five crore) units, of Tk. 10 each totaling Tk. 500,000,000 (Fifty crore) available as public offering to general public, NRBs, Mutual Funds, Affected small investors and collective investment schemes.