Launch of mutual funds hits snag

The launch of new mutual funds worth around Tk 3,000 crore now grapples with uncertainty, as the government has directed the market regulator to go slow on allowing such new funds.

Some 30 proposals for mutual fund formation have been awaiting approval from the Securities and Exchange Commission (SEC) for months, while many are in the pipeline, people close to the issue said.

The finance ministry at a meeting on November 5 decided that the SEC will have to allow mutual funds in phases, saying that too many mutual funds would saturate and heat up the market.

But fund managers said the slow approval process will hinder the growth of the mutual fund segment.

The delay may also force many asset managers to shut their businesses, as 'no approval means no business' for them, they said.

It is the government's 'wrong perception' that many a mutual fund would cast a negative impact on the market, rather these will stabilise the market, creating demand and supply, the fund managers said.

However SEC Chairman Ziaul Haque Khondker told The Daily Star: “We will take initiative on how fast we can give the approvals.”

“The mutual funds are needed to stabilise the market, as these can create both supply and demand,” Moin Al Kashem, managing director of Prime Finance Asset Management Company, said yesterday.

Prime Finance has submitted five mutual fund proposals.

Kashem said: “Some argue that the mutual funds trade far higher than their net asset value (NAV), which shows an overvalued situation. But the situation will change if more mutual funds are allowed.”

The market trend shows the funds now trade 200 percent to 300 percent higher than their NAV, he said, adding that more mutual funds will bring down the ratio near to their NAV.

When the market heads towards volatility due to supply crises, new mutual funds are considered as investment securities, experts said.

On the other hand, they said, when the market witnesses a bearish trend, the funds go into buying mood and thus create a demand for shares in the market.

But in a heated situation, the mutual funds offload shares from their portfolios that cool down the market.

Yawer Sayeed, managing director of AIMS of Bangladesh, another asset management company, said more mutual funds will bring diversity and stabilise the market.

“More importantly, the investors will get a comparatively less risky investment vehicle,” he said.