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Frequently Asked Questions (FAQ) regarding Mutual Funds

What is Mutual Fund?

Mutual fund is an investment fund that has independent legal entity and the fund is managed by the asset management company. The fund collects money from individual and institutional investors and use that pool of money to invest in a portfolio consists of IPOs, stocks, bonds, money market instruments and other kinds of permissible investments across a wide range of industries and sectors. The fund is managed by expert fund managers to generate investment return and minimize risk over time. The return is distributed to the investors in the form of dividend and capital gain or loss.

Who can invest in Mutual Fund?

Any Individual (singly or joint) and any Institution (local and foreign) can invest in mutual funds. Moreover, other mutual funds and collective investment schemes can also invest in a mutual fund.

What are the types of Mutual Fund?

There are two types of Mutual funds:

Open-end Mutual Funds: A type of fund that remain open to take new capital from investors over its operation time. These funds don’t have a fixed tenure or finite life; however, an investor or unit holder can surrender or sell his or her units anytime through the asset manager at prevailing net asset value (NAV).

Closed-end Mutual Funds: Closed end mutual funds have a limited life of 10 years and are listed in the stock exchange of Bangladesh. These kind of fund takes capital from investors only at the time of fund inception (or IPO) and gives the capital back to its investors at the end of the fixed tenure. Since closed-end funds are listed in the stock exchange at limited quantity, their investors can only buy or sell within those quantities in the stock market at prevailing market prices, which can be significantly different from net asset value.

What are Units?

Shares that represent the portion of ownership in a mutual fund is called a unit. Investors can purchase or redeem units of an open-end mutual fund at the fund’s current Net Asset Value (NAV) per unit.

How does a mutual fund and the unit holders of fund make profits?

The fund managers in the asset management company take very diligent approaches for generating profit and for the investors in the mutual.

The team sets an investment strategy and asset allocation for fund considering associated risk. Then they undertake a rigorous investment research on the sectors, companies, stocks and bonds to invest the suitable securities to generate price gain by holding them for specific time. When the market prices of these invested stocks, bonds and securities goes up and down in value as the market prices change, the mutual fund makes money by buying and selling securities. Mutual fund also earns from dividend and interest income from the invested capitals in companies and securities.

All these gains and incomes increase the value of the fund as a whole and as the unit holders are the owners of the fund, their value of investments in the mutual fund also increases automatically. The return on investments for the unit holders will always be the: return on the Mutual Fund’s portfolio minus the management fees of fund and the income taxes of unit holders. The net income of the fund is distributed to unit holders in form of dividend from the fund. Unit holders also gain from the capital gain of NAV.

There is no guarantee that Mutual Fund investment portfolio will always generate profit or gain. There can be losses too, nevertheless the fund is managed very diligently to maximize profits by managing downside risks and losses.

What do you mean by expert Fund Manager or professional Portfolio Manager?

The expert personnel who manages the investment functions of mutual funds is called Fund Manager or Portfolio Manager. An expert fund manager is a skilled professional capable of generating healthy returns and managing risks through dynamic asset allocation and active investment strategy.

What are the common benefits of investing in a Mutual Fund?

The common benefits of investing in a Mutual Fund are:-

Professional Investment Expertise: The funds are managed by portfolio managers (sometimes also called Fund Managers) who have excellent expertise and experience in selecting stocks, bonds and instruments to build a well-balanced portfolio with appropriate risk management to generate investment return.

Access to diversified investment options: The fund has a large variety of investment options to invest in private placements, IPOs, treasurer instruments, stocks, bonds, FDRs, Real estates, alternative assets that fit into the goal of fund. Access to such options is sometimes not available for individual investors.

Reserved IPO Quota: In Bangladesh, mutual funds enjoy a 10% (ten percent) reserved quota for all Initial Public Offerings (IPOs). IPOs in Bangladesh have historically generated much better time-weighted-returns to subscribers. Therefore, unit holders’ access to the reserved IPO subscription quota through mutual fund investments might not be available individually.

Economics of Scale in Trading: Since mutual funds buy and sell securities in large volumes, transaction costs on a per unit basis is much lower than what retail investors may incur, if they buy or sell shares through stock brokers.

Tax Benefits: Investors are eligible for tax rebate depending on the amount invested. Asset Management Companies are required to distribute a percentage of the mutual fund’s earning as dividends to investors, out of which up to BDT 25,000 is tax-free. In addition, profits generated by the mutual fund are also tax exempted. In addition, investments in mutual funds qualify for investment allowance and therefore, lowers tax liability for individual investors.

Liquidity: Investors can buy and sell units of open-end fund at prevailing NAV at their convenient time. In other words, open-end funds are liquid investment alternative.

What is the Return I can expect?

Although there is no guaranteed rate of return, but historically it has been observed that mutual funds can generate higher return than that of all other asset classes in the long run. The generation of return depends on two things:

  1. Investment Strategy and portfolio composition in regards to risk profile
  2. Quality of Fund Managers and the asset management company

Historically, well-managed mutual funds in Bangladesh have been generating more than 15% annualized return over long-term but such historical performance may not sustain and does not provide any guarantee on return expectation from any mutual funds.

What is Net Asset Value (NAV)?

Net Asset Value (NAV) is defined as: the market value of all assets less all the liabilities in the fund. NAV is generally declared on per unit basis- dividing the total Net Asset Value by the outstanding number of units of the fund.

How often the NAV of mutual funds is declared?

The NAV of all mutual funds of the AMC is declared on week basis. The AMC publish NAV on last business-day of the each week (which is mostly Thursday) on the company’s website and in any other designated online medium. The NAV is also reported in a designated newspaper on every Sunday.

For how long do I need to remain invested in the Open-end Mutual Fund?

Open-end Mutual Funds generally do not have any lock-in period which means an investor can buy and sell anytime he wants. Depending on the goal, investors need to periodically review investment status and progress; during such reviews, the decisions to redeem, switch, invest or leave alone are usually made. It is advised to remain invested for middle to long term duration in mutual funds generally yield better investment return than short term.

For how I long do I need to remain invested in the fund?

Investment in Mutual Funds are generally for long terms. The decision on how long one needs to stay invested, depends on investment objective of the investors.

How can you guarantee profit when the market in Bangladesh is volatile?

Profit is not guaranteed when investing in Mutual Fund. However, mutual funds can generate better returns in the long-run, even in volatile markets by leveraging professional fund management skills.

How is investor interest protected in a mutual fund?

Each Mutual fund is registered with the Bangladesh Securities & Exchange Commission (BSEC) as a independent legal entity (as Trust). Apart from BSEC, there is a Trustee, mostly chosen from renowned financial institutions, to look after the interest of the fund investors. Also, there is a Custodian to ensures that all the assets under the mutual fund is kept safe all the time. The asset manager reports detail information regarding fund activities along with rationale with both the BSEC and the Trustee under the rigorous regulatory framework, defined by Mutual Fund Rules 2001 of BSEC, the Trust Deed of the fund and other regulatory directives that come out from time to time. The financial performance and the integrity of the accounts is audited by an independent auditor annually. The AMC also submit Portfolio Statement to the Trustee fortnightly and publish Financial Statements quarterly.

All of these activities and performances are fully transparent and verified because there are several independent professional service providers such as auditor, Trustee and Custodian are actively associated with the fund.

Who is the Regulatory body or Government authority for mutual fund?

Bangladesh Securities and Exchange Commission (BSEC) is the regulatory body of Mutual Funds in Bangladesh.

What are the Key Parties related to mutual fund?

Asset Management Company (AMC): The AMC is responsible for floating and managing mutual funds in accordance with BSEC regulations and guidelines provided by the Trustee.

Trustees: The board of trustees are responsible for protecting the interests of the unit holders. It is an independent body having received the trusteeship license from the regulator and is not associated with the AMC or Sponsor.

Custodian: The custodian is responsible for physical handling and safe keeping of fund’s assets managed by the AMC. They received Custodian license from the regulator and are independent of the AMC or Sponsor.

Sponsor: The sponsor initiates the mutual fund by subscribing minimum 10% of the total fund size. The Sponsor appoints the Trustee, Asset Management Company, and Custodian.

 

Can the NAV below the face value of my investment?

The NAV of fund goes up or down depending on change in market value of the assets held by the fund. Therefore, if the market value of the assets falls substantially, there is a chance of the NAV going below the face value of the fund. However, such events are expected to be temporary as NAV is projected to grow in the long term with expert asset management.

What is the minimum amount one can invest?

Eligible individual investor can become unit holder by investing minimum of BDT 5,000 or equivalent BDT of 500 units at buy price. For Institution the minimum amount is BDT 50,000 or equivalent BDT of 5,000 units at buy price. In terms of taka, the amount is equivalent to 500 or 5000 units x Investor’s Buy Price. Investors must also purchase units in increments of 500.

For example: If the Investor’s Buy Price is BDT 10.15, the minimum amount one can invest = BDT 10.15 x 500 units = BDT 5,075.

Please note there is no maximum purchase amount as investors can purchase infinite units in multiples of 500.

What is an investor’s buy price?

At the last business day of each week (mostly on Thursday), the AMC calculate NAV of the fund and determine buy price and sale price for the investors. An investor can buy/ repurchase/or sell the units of an open-ended mutual fund at the determined price. The prices are declared by AMC in online on the last business-day of each week (mostly on Thursday) and reported in a publicly available newspaper on every Sunday. The price mentioned on Thursday will be the effective buy price from Sunday through Wednesday (during the business days) in the following week. Units are not bought or sold on last business day/Thursday.

Do I receive proof of purchase after my investment?

Investors receive an Acknowledgement slip authorized by at least one of the signatories of the company. The purchased unit will be credited in investor’s BO account. After CDBL transfers those to investor’s brokers, only then you can see the units in your BO statement.

Can we subscribe without coming to your office?

Yes, subscription can be done through an online form the AMC website. Investors needs to fill the form and upload required documents to start the subscription process.

What is the list of required documents for Mutual Fund application?

Required documents for Mutual Fund Application are as follows:

Documents                                                                                                            Quantity

Applicant’s NID / Passport copy                                                                                 1

Nominee’s NID / Passport copy                                                                                  1

Applicant’s passport-size Photo                                                                                  2

Nominee’s passport-size Photo                                                                                   1

Applicant’s Bank Statement (last 6 months)                                                            1

OR Photocopy of a blank cheque leaf                                                                        1

Applicant’s ETIN Certificate copy                                                                              1

Account Payee Cheque in favor of the Fund                                                            1

Please note, all documents / photos should be signed by the applicant.

Is it mandatory to have an eTIN certificate?

It is not mandatory to have an eTIN certificate. However, the unit holder having eTIN Certificate will have to pay only 10% tax (Advance Income Tax or AIT) against dividend income. On the other hand, the unit holder who doesn’t have any eTIN will have to pay 15% tax against dividend income.

How do I deposit my money to invest in a mutual fund?

Investor can submit the money (cheque/pay order/demand draft) to the head office of Asset Management Company or any selling agent as appointed by the AMC. The investor can also directly deposit/BEFTN the fund in the designated bank account of the mutual fund.

Do I need a BO account to invest in a mutual fund?

It is mandatory to have a BO account. The units of mutual fund will be credited to the BO account of the unit holder.

How can I open a BO Account?

A BO account can be opened by contacting and obtaining the associated forms from any of the brokerage houses in country. The AMC might also carry out this process on behalf of the investor, if he or she provides the required documents. Brokerage houses charges a maintenance fee per year.

How do I know whether my money has been invested or not?

The mutual fund invests in stocks, bonds and other securities to generate maximum risk adjusted return. Full investment portfolio is disclosed on quarterly basis in which investor can see that money is being invested. Moreover, every unit holder is entitled to receive quarterly, half-yearly and yearly statements of accounts along with annual report, when published on the asset management company’s website. To view the reports, financial statements and portfolio of the mutual fund, please visit the website of AMC.

What are the different types of risk involved in investing in a mutual fund?

There are certain level of risks associated with mutual fund and its underlying securities or the portfolio. The type of risk includes, but not limited to, micro-economics risks, industry risks, political risks, business risks, liquidity risks, interest rate risks and various other risks involved in economic environment and factors affecting the securities. The Asset Management Company manage the risks by doing research on the economy, sector and securities as well as by managing an optimal portfolio allocation. 

How is NAV calculated?

The below formula is used to determine the Per Unit NAV:

Total NAV of the fund = Net Value of Assets – Liabilities

NAV per unit = Total NAV of the fund / Number of units outstanding

Net Value of Assets = Value of all securities in vault + Value of all securities placed in lien + Cash in hand and at bank + Value of all securities receivables + Receivables of proceeds of sale of investments + Dividend receivables net of tax + Interest/Profit receivables deposits net of tax + Issue expenses net of amortization expense as on date + Printing, publication and stationery expenses amortized as on date

Liabilities= Value of all securities payable + Payable against purchase of investments + Payable as brokerage and custodial charges + Payable as Trustee fees + All other payable related to printing, publication and stationery + Accrued deferred expenses with regard to management fee, annual fee, audit fee and safe keeping fee.

 

How much is the management fee?

Asset management companies earn an annual management fees which is denominated as a percentage (%) of total asset under management (or fund size) of the mutual fund. BSEC’s Mutual Fund Rules, 2001 defines the asset management fees structure as given below:

Fund Size (in BDT Crore)                                               Highest Allowable Management Fee

Less than 5                                                          2.5%

5 < 25                                                                    2.0%

25 < 50                                                                  1.5%

> 50                                                                        1.0%

Source: Page 601-602, Chapter 9, Section: Securities & Exchange Commission (Mutual Fund) Rules 2001.

What is the dividend policy of the mutual fund?

Mutual Fund shall distribute minimum 70% of annual realized earnings as dividends and also offers investors the opportunity to select between receiving cash dividends and cumulative investment plan (CIP) to compound investment balance by minimizing transaction costs. The latter allows the fund manager to reinvest the dividend in the prevailing investment opportunities.

How long do I have to wait to receive dividend against my investment?

The dividend, Cash or Reinvestment Unit, will be credited to the respective Bank or BO account of the unit holder within 45 days after declaration of dividend in the trustee meeting.

 

What is the process for surrender/redemption or cash out investments in the Mutual Fund?

An investor should duly filled up and submit the Unit Repurchase Form to the AMC and the CDBL Transfer Request Form to his/her respective brokerage house. The brokerage house will then contact CDBL and wait for confirmation. Upon receiving confirmation, the AMC will disburse the payment to the redeeming investor through account payee cheque or BEFTN transfer, as per his/her request, within minimum 3 working days.

How long do I have to wait to receive my money against sales proceeds?

The sale proceeds will be credited to the bank account of the unit holder within 7 (seven) working days after surrendering the units.

What is entry load and exit load?

Entry load refers to an additional fee charged on the initial investment of an investor. Exit load is a fee charged when an investor withdraws his or her investment. For example: Units surrendered within 60 calendar days from the date of subscription will get 2.0% less than the published NAV per unit.

How much do the AMC charge as an entry or exit fee?

At present, the AMC do not charge any fees for surrendering or redeeming units unless and until declared otherwise at a given point of time.

Is there any transferability option for my investment?

The units can be transferred from one unit holder to another by way of inheritance, gift and/or by specific operation of the law through the AMC.

What about the other costs? Repurchase/Redemption/Transfer?

At present, the AMC do not charge such fees. Fund units are bought and sold at the published buy or sale price per unit unless declared otherwise at a given point of time.

What is the IPO of a mutual fund?

IPO is the first selling of unit of a mutual fund. At IPO, the investors get to buy shares at face value.

What is the minimum investment amount during IPO?

During IPO, investors must purchase at face value of BDT 10.0. For example:

Individuals investor minimum units: 1 lot = 500 units

Face Value: BDT 10.00

Minimum Investment: 500 units x BDT 10.00 = BDT 5,000

Can I buy mutual fund units after the IPO?

Yes, investors can buy units after IPO. The difference is that during IPO investors purchase units at face value, which is BDT 10.0. After the IPO closing, investors purchase units at the investor’s buy price declared by the AMC.

What is the minimum investment amount after IPO?

After IPO, investors must purchase at the declared buy price by AMC or at the NAV, which can be higher or lower than face value. For example:

Individuals investor minimum units: 1 lot = 500 units

Net Asset Value: BDT 10.25 (for example)

Minimum Investment: 500 units x BDT 10.20 = BDT 5,125

or

Net Asset Value: BDT 9.90 (for example)

Minimum Investment: 500 units x BDT 9.80 = BDT 4,950

What is a closed period?

The fund units are not traded during the closed period. No buying or selling takes place as this period is used for the preparation and audit of the fund’s financial statements. The dividend distribution process is also initiated during this time.

Is there a monthly deposit scheme?

There is a monthly deposit scheme for the mutual funds managed by AMC which is known as Systematic Investment Plan (SIP).

What is a Systematic Investment Plan (SIP)?

Systematic Investment Plan (SIP) allows investors to invest a certain pre-determined amount at a regular interval (monthly, quarterly, yearly etc.). A SIP is a planned approach towards investments and helps to inculcate the habit of savings and building wealth for the future by minimizing market time related risks. Any investor can start a SIP with a very small amount that is minimum BDT 1,000.

Is SIP available for investing in the Mutual Fund?

The AMC offers SIP for investing in the Mutual Fund. To invest through SIP, investor needs to make the installment payments on 10th of each month.

What are the benefits of SIP?

  • Create a habit of disciplined investing
  • Get benefit from the compounding return over time
  • Lower the level of risk by cost averaging
  • Enable market timing risk irrelevant for unit holders
  • Bring convenience for the investors by automatic transfer from bank account to Mutual Fund transfer facilities
  • Offers flexibility by ensuring liquidity and breaking big investment goal into small investment installment size (of BDT 1,000)
  • Works as a tool for achieving long-term financial goals

How to invest in SIP?

Step 1: Deciding the regular installment size.

Step 2: Selecting the target Mutual Fund(s) given the long term risk return objective of investor.

Step 3: Fill-in registration form with AMC by submitting all relevant documents.

Step 4: Issue initial cheque in the name of the Mutual Fund. The AMC also assists unit holders to set-up an auto-debit bank account facility to facilitate the recurring fund subscription process. The unit holder needs to submit the duly filled and signed BEFTN/Auto Debit/General Instruction form to his or her respective bank.

Step 5: Confirmation on unit issuance will be sent to unit holders in three (3) business days from each payment date and units of the Mutual Fund will be automatically credited to the BO account of unit holders thereafter.

Moreover, unit holders can get update regarding investment status and transaction history from the AMC anytime in the office or through website or email.

Is there a minimum investment amount for SIP?

Minimum investment under SIP registration is BDT 1,000.

Does SIP allow investments from institutional investors?

Yes. Minimum installment for institutional investors is BDT 10,000.

What is the maximum amount of SIP installment?

Individuals are allowed to invest BDT 1,000,000 per installment under one registration number. There is no such limitations for institutions.

Is there a minimum lot size for SIP?

There is no minimum lot size of units for SIP. Any fraction amount remaining will be converted when it sums up to one unit. While surrendering, if remaining amount does not sum up to one unit then the remaining amount will be transferred via BEFTN.

Does SIP allow investments from Joint investors?

Unit holders can jointly invest through SIP by following the same procedures.

What are the payment options for SIP?

Payment in respect of the first installment can be made using a cheque/pay order/demand draft. Further payments will be made through Direct Debit facility/Auto-Debit/BEFTN transfer.

What happens after SIP maturity?

Auto-Renewal: Investors can easily renew the SIP after the maturity period and it will be continued until further notice from the investors.

Surrender: As per investor’s decision, the matured amount will be kept as it is in his or her BO account or it can also be transferred to his or her bank account as per choice.

No Auto-renewal and No encashment: Investors can still remain invested after the maturity of SIP if they want. In this case, the matured investment will be count as non-SIP scheme till surrender. Investors themselves take the decision when to surrender the fund units.

Does the SIP allow partial surrender?

Investors can surrender mutual fund units partially and continue the SIP till maturity.

What happens if the 10th of the month is a weekend or holiday?

In this case, the auto debit will take place on the following working day on that week’s purchasing price.

Can the investor pay a lump sum amount in advance for SIP?

The investor cannot pay any lump sum amount in advance for SIP. Investors are allowed only to make installment payments every month on 10th.

Can the investors change his/her bank account information before the maturity of the SIP?

Yes. Investor must change the bank details at least 5 working days before the maturity date.

What if investor wants to top-up his/her installment?

Investors can top-up installment amount; however frequent and big-ticket top-ups are not recommended in a SIP account as doing so can significantly distort the salient features in terms of risk-return balance of SIP.

Will there be any fees or penalties for discontinuing the SIP before maturity?

For discontinuing SIP before maturity, no additional fees is charged.

What if investor defaults on their on their auto debit payment?

There are no penalties for such defaults. The default of three (3) consecutive installments will result in discontinuation of SIP. If the investor needs to continue the SIP again, she/he has to re-enroll into a SIP.

How to discontinue the SIP?

Investors need to provide an application to the Asset Manager regarding discontinuation of SIP at least five (5) working days before the next installment date.

What is Cumulative Investment Plan (CIP)?

An investor can opt for the Cumulative Investment Plan (CIP) as an alternative to receiving cash dividends. The dividend proceeds (less tax) will then be used to purchase additional fund units, thereby increasing the total number units owned by the investor. In a nutshell, unit holders subscribing to CIP, receives additional proportionate number of Mutual Fund units instead of cash every time the Mutual Fund declares cash dividend.