Private Mutual Funds-Sadek

7/28/2019 Private Mutual Funds-Sadek

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Chapter-1

Introduction

1.1 Introduction

This report is part of my academic program. To obtain the degree of MBA, you will

have to fulfill all of your credit hours available in your course. For this reason behind,

you need to complete your internship of three months subsequently producing a report

addressing all of the issues you achieve in your intern period. I believed that this study

helped me to applying my five years acquired knowledge in Business environment of

Mutual Funds like Grameen Mutual Fund One, AIMS First Guaranteed Mutual Fund,

ICB AMCL Islamic Mutual Fund. This internship program helped me to understand

the organizational environment and behavior also. This program helped us for getting

practical work and giving me the opportunity to adjust the theoretical knowledge and

practical experience. So, I want to give my heartiest thanks to my supervisor to givesuch opportunity to show my capability and aptitude in this relevant area.

1.2 Motivation of the Study

Internship is a compulsory part of completing the MBA program in our department.

For selecting the Mutual Funds as my potential employer as an intern is that Mutual

Funds contributes heavily for the retail investors. Since I am a student of finance

background, I am interested to apply my acquired knowledge to mutual funds.

1.3 Objective of the Study

The objective of this study is to acquire the practical knowledge. As a business

graduate, this institution is one of the others to know all its function subsequently

apply my bookish knowledge. In brief the objectives can be narrated as follows-

To apply acquired knowledge.

To acquaint myself with the practical aspect of the mutual funds.

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1.4 Rational of the Study

This study is important for knowing the overall performance of Mutual Funds. Mutual

Funds play a vital role for the retail investor s in Bangaldesh. Because Mutual Funds

act as an intender by which it collects funds from the retail investors to acquire huge

amount of capital for making investment in diversified portfolio. By this investment

Mutual Funds can avoid all sorts of unsystematic risk pertaining to the investment and

can achieve the diversified return. Generally retail investors are risk averse investors.

They always want to invest in low risk project. But for minimizing the risk it is needle

to invest in a large scale of various types of securities. Since it is not possible for the

individual investor to collect huge capital, Mutual Funds act on be half of them to

collect capital by issuing share and invest that proceed.

This study is important for me in academic point of view. Performance measurement

is an important aspect for a Financial Analyst which is a dream for every finance

student. Since I am a student of Finance, it is undoubtedly true that the internship in

Mutual Funds will enhance my proficiency.

I have tried my best to measure the performance for Mutual Funds.

1.5 Limitations

Everything has its own limitation. My report is not beyond that. Though I try my best

to present myself in this report as a laborious one, there is some ambiguity for

preparing my report because of various factors.

Factors include the followings:a. Three months time is not available to know a giant organization.

b. Unavailability of information to run the mathematical tools.

c. The management of Mutual Funds was reluctant to disclose their confidential

information because of retaining their privacy.

d. Business of the head of the division is also a reason for not the availability of

information.

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Chapter: 2

Methodology of the Study

2.1 Data collection Procedure

This report is mainly based on exploratory research and secondary data. Different

books L& journals such as the annual reports published by the mutual funds,

companys websites, preceding studies have been used to get an insight; Primary

information regarding mutual funds has been gathered through personal interviews of

some of the officials of the organization. The head of every department helps me for

this regard. Financial performance analysis of mutual funds has been done using the

annual reports of the organization. Personal interview is the main way of collecting

data.

2.2 Procedure for Data Analysis

In preparing this report I tried my best to follow some methodology for comments &

evaluation in any area. These analyses are very root for the research based analysis.

I have not considered the chi-square test, t-test, z-test to make this report simple and

lack of practical knowledge of using statistical software is one of the bars for

preparing this report as like as think tank.

My considered tools are as follows:

1Ratio analysis

2Earning per share analyze

3Dividend yield

4Growth rate analyze

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To prepare this report I have gone through all the depts. of the Mutual Funds. Getting

information from the in- charge of every dept. & using library, journals, annual reports

enrich my report. Methodology can be divided into broad categories:

2.3 Data Collection procedure

Primary Sources:

Data which are collected directly can be also described as raw data. For this, all the

members of the Mutual Funds were very helpful to provide information.

Secondary Sources:

Secondary sources of data are the followings:

1 Annual reports of the Mutual Funds

2 Various books of the library of Mutual Funds

3 Business Journals

4 Mutual Funds ordinance

5 General information

6 Others

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Chapter: 3

Asset & Investment Management Services of

Bangladesh Limited (AIMS) First Guaranteed Mutual

Fund

3.1 Introduction

There are two types of mutual funds in Bangladesh one is owned & managed by

Investment Corporation of Bangladesh (ICB) which is completely Govt. owned & the

other is the private mutual funds. They act mainly an investment bank which focuses

individual investment. This acts as an underwriter. They collect fund from individual

by issuing shares subsequently invest that fund in shares making portfolio of

securities to mitigate the risk. One of the private mutual funds is AIMS First

Guaranteed Mutual Fund.

3.2 Background of AIMS First Guaranteed Mutual Fund

The Trust Deed of the Fund was registered on January 02, 2000 under the Trust Act

1882 and Registration Act 1908. The SEC registered the Fund on January 27, 2000

under the Securities and Exchange Commission (Mutual Fund) Regulations 1997. The

team-managed all-weather Fund is a 'close-ended capital guaranteed balanced mutual

fund' established to enable both institutional and private investors to invest in the

Bangladesh capital market. The Fund will be providing investment incentives and

opportunities in order to help broaden the investment base in Bangladesh. The life of

the Fund is five years, although there are circumstances set out in the Trust Deed

where the unit holders can extend the life of the Fund.

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Close-ended Policy

The Fund will adopt a closed-ended policy in its operation. In compliance with the

policy, the Fund will not change the initial capital position by issuing any additional

shares or repurchasing existing shares during the life of the fund.

Guarantee Policy

The investors, including the sponsors, of the Fund are guaranteed with respect to their

initial capital investment on redemption. The initial subscription amount, i.e., the face

value will be paid back at maturity (redemption) even if the per share NAV falls

below par at that point of time.

The capital of the Fund is fully underwritten at redemption only at the end of the fifth

year from the date of listing by IDLC of Bangladesh Limited and AIMS of

Bangladesh Limited up to a maximum fund size of Tk 100 million. Under the

Scheme, the Fund shall place with IDLC an irrevocable margin deposit with a validity

of five years, amounting to 30 percent of the final fund size, where IDLC will pay

interest @ 13.5% p.a. compounded semi-annually. The net exposure, representing the

final Fund size less future value of margin deposit at maturity, will be shared on a

pro-rata basis by IDLC and AIMS and there will be an underwriting commission of

1.25% p.a. on 50% of the net exposure amount, paid semiannually in advance to

IDLC.AIMS will not charge any commission on theirportion of the exposure.

Additionally, the Fund has incorporated hedging mechanism by which there will be a

trigger sale by the Fund as and when market price of any security in the portfolio of

the Fund falls by 25 percent of acquisition cost, provided that at no point of time the

portfolio value, excluding the margin deposit value at maturity, shall be below the net

exposure of the Capital Guarantee Scheme of the Fund.

Face Value and Market Lot

For the benefit of small investors, the Face Value of the share of the Fund is fixed at

Tk 1 (one) and the market lot constitutes 2,500 (two thousand five hundred) shares.

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3.3 Investment Objectives and Policy

The primary objective of the balanced fund is to achieve capital appreciation as well

as earn dividend and interest income through investment in the capital markets of

Bangladesh. It mostly will focus on preservation of principal and at the same time

earn moderate return for the shareholders. The assets of the Fund will be invested

principally in equity securities and, if available, equity related hybrid instruments like

convertible bonds and warrants. Most of the investments will be made in the

companies listed on the DSE and/or CSE. The Fund may also invest in unlisted equity

securities directly from the issuers (IPO and pre-IPO placement) at the primary

market. The Fund may also invest in listed and/or unlisted debt instruments, including

government notes and bonds.

The principal investment objective and policies of the Fund as set out above will, in

the absence of unforeseen circumstances, be adhered to during the life of the Fund.

The Fund will always adopt the investment policy that will ensure the balanced

nature.

The details of the investment policies are as follows:

(a) The Fund expects to be fully (with an insignificant cash margin) invested within120 days from the date of listing.

(b) The Fund shall invest only in securities and investments approved by the

Securities & Exchange Commission, the Bangladesh Bank and/or the Controller of

Insurance of Bangladesh.

(c) The Fund may underwrite public issue of debt or equity securities.

(d) All Money collected under the Fund, except the margin deposit against Capital

Guarantee Scheme, shall be invested only in transferable securities whether in money

market or equity market or privately placed debentures or securitized debts.

(e) Not less than 30 percent of the total assets will be invested in fixed income

securities (FIS), including the capital guarantee margin.

(f) Maximum of 15 percent of the NAV of the Fund may be invested in unlisted

equity and/or debt securities purchased directly from issuers (IPO and Pre-IPO

placement) at any point of time. It is the intention of the Fund that where investments

are made in unlisted securities, such investments shall be in securities where a listing

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can reasonably be expected within a reasonable period of time. It is not the intention

of the Fund to be a provider of 'venture' capital.

(g) FIS investment will be made mostly in privately placed unquoted debt or

depository instruments of different terms.

(h) The equity portfolio will be a growth-value blend basket of large-cap as well as

small-cap stocks.

(i) In order to increase the profit potential, the manager will have the flexibility to use

market timing to move between stocks and FIS in any percentage them deem prudent

when investment conditions change.

(j) 40 percent of the total equity investment will be invested in large-cap blue-chip

companies. The manager will take a long-term position on such strategic holdings.

(k) 60 percent of the total equity investment will be invested in small-cap growth

companies. The manager will take a short-term position on such tactical holdings.

(l) In order to protect the capital and increase the profit potential, the manager will

have the flexibility to use market timing to move between tactical and strategic

holdings in any percentage they deem prudent, when investment conditions change.

(m) The Fund will seek to invest in companies, which it considers to exhibit good

growth potential and have sound management.

(n) Dividend and interest income will be the primary consideration and capital

appreciation will be the secondary consideration in making strategic investments.

(o) Capital appreciation will be the primary consideration and dividend and interest

income will be the secondary consideration in making tactical investments.

(p) During periods in which the Investment Manager believes changes in economic,

financial or political conditions will adversely affect the Fund's portfolio, the Fund

may, for temporary defensive purposes, reduce holdings in equity and other securities

and invest in short and/or medium-term debt securities or hold cash.

The investment objective of the Fund is not fundamental and so may be changed by

the AMC and the Trustee. However, shareholders would be notified of any material

change in the Fund's objective. There is, however, no assurance or pretence that the

Fund will achieve the stated objective.

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3.4 Nature & Style

This team-managed all-weather Fund is a closed-end capital guaranteed balanced

mutual fund. It mostly will focus on preservation of principal and at the same time

earn moderate return for the shareholders. Because of the balanced nature, the Fund is

less risky than the existing all-equity mutual funds available in the market.

The portfolio will be a growth-value blend basket of large-cap as well as small-cap

stocks and a mix of fixed income securities.

In order to increase the profit potential, the management company will have the

flexibility to use market timing to move between stocks and Fixed Income Securities

in any percentage they deem prudent when investment conditions change.

The management company will adopt both fundamental and quantitative investing

approach for the Fund. All investment decisions will be backed by thorough in-house

fundamental and technical research.

3.5 Manager

AIMS of Bangladesh Limited

Asset & Investment Management Services of Bangladesh Limited, the initiator of the

concept, is the Manager of the Fund. Mr. Monzurul Haque is the Chairman and Mr.

Yawer Sayeed is the Managing Director & CEO of the company.

3.6 Sponsors

1. IPDC of Bangladesh Limited

IPDC is the premier joint venture private sector development finance institution

operating since 1981. Mr. K. M. Ejazul Huq, Secretary, Ministry of Industries is the

Chairman and Mr. C. M. Alam FCA the Managing Director. The company is owned

by IFC, CDC, DEG, AKFED and Government of Bangladesh.

2. Sandhani Life Insurance Company Limited

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Sandhani Life is a leading private life insurance company of the country, operating

since 1993. It is chaired by Al-Haj Mockbul Hossain MP. Mr. Ahasanul Islam Titu

MBA is the Vice Chairman and Mr. M. A. Karim the Managing Director.

3. Pangaea Partners (BD) Limited

Pangaea is a joint venture merchant bank with a US investment banking and

consulting institution. Mr. Eric G. Postel is the Chairman and Mr. Irshadul Islam the

Managing Director.

4. IDLC of Bangladesh Limited

IDLC, operating since 1986, is the pioneer in leasing business in Bangladesh

sponsored by IFC, DEG, AKFED, KDLC, KLB, IPDC, CBL and SBC. Mr. C. M.

Alam FCA is the Chairman and Mr. Aminul Islam is the Managing Director.

5. Southeast Bank Limited

Southeast is engaged in commercial banking since 1995. Mr. Yussuf Abdullah Harun

is the Chairman and Mr. Syed Anisul Huq is the Managing Director of the Bank.

6. Uttara Finance & Investments Limited

Uttara, a leasing and financing company, is a joint venture between Uttara Group and

Singapore based investors. Mr. Rashid-ul Hasan is the Chairman and Mr. Sayyed

Husain Jamal is the Managing Director.

7. Sandhani Credit Cooperative Society Limited

Sandhani Credit operating since 1998 has established their name in mobilizing and

lending funds to the small and medium enterprises. It is chaired by Al-Haj Mockbul

Hossain MP.

8. Bangladesh Industrial Finance Co. Ltd

BIFC is a newly established finance and leasing company under joint venture with

Hong Kong. Mr. Golam Kabir is the Chairman and Mr. Khalilur Rahman is the

Managing Director. Major (Retd) Abdul Mannan is an Alternate Director.

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3.7 Trustee

Bangladesh General Insurance Company Limited (BGIC)

BGIC is the first general insurance company of Bangladesh in the private sector

operating for the last fifteen years. Mr. Towhid Samad is the Chairman & Managing

Director of the company. He along with Mr. Khorshed Alam, former Governor of

Bangladesh Bank, is in the Board of Trustees.

3.8 Custodian

Standard Chartered Bank

SCB is a British Bank operating in Bangladesh for over 50 years. They have been

providing custodial services to foreign institutional investors. They are experienced

and skilled in this line of service.

3.9 Investment Restrictions

The following restrictions are fundamental policies of the Fund that may not be

changed without the approval of majority of the Fund's outstanding voting securities.

If a percentage restriction on investment or use of assets set forth below is adhered to

at the time a transaction is effected, later changes of holding value due to changes in

market price movement will not be considered a violation of the restrictions.

(a) The Fund shall not invest in securities having unlimited liability.

(b) The Fund shall not buy its own shares.

(c) Investments by way of privately placed debentures, securitized debts and other

unquoted debt instruments shall not exceed 40% of the total assets of the Fund.

(d) The Fund shall not invest more than 10% of its assets in any one particular

company shares.

(e) The Fund shall not own more than 15% of any companys paid-up capital at any

point of time.

(f) The Fund shall not invest more than 20% of the funds in shares, debentures orother securities of a single company.

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(g) The Fund shall not invest more than 25% of its funds in shares, debentures or

other securities in any one industry.

(h) The Fund shall not involve in option trading or short selling or carry forward

transactions.

(i) The Fund shall not invest in or lend to another scheme under the same Asset

Management Company.

3.10 Capital Structure

Share Issue

The Fund has issued 50,000,000 shares of Tk 1 each at par totaling Tk 50,000,000.

The total issue has been distributed as follows:

Subscribers No. of Shares Taka

Sponsors 20,000,000 20,000,000

Pre-IPO Placement 20,000,000 20,000,000

General Investors 10,000,000 10,000,000

Total Size of the Fund 50,000,000 50,000,000

Subscription from the Sponsors

20,000,000 shares at Tk 1 each have been subscribed and paid in full by the sponsors.

The respective holdings of the sponsors are as follows:

Sponsors No. of Shares Taka

IPDC of Bangladesh Limited 2,500,000 2,500,000

Sandhani Life Insurance Company Limited 4,000,000 4,000,000

Pangaea Partners (BD) Limited 4,500,000 4,500,000

IDLC of Bangladesh Limited 2,500,000 2,500,000

Southeast Bank Limited 3,000,000 3,000,000

Uttara Finance and Investments Limited 2,000,000 2,000,000

Sandhani Credit Co-operative Society Limited 1,000,000 1,000,000

Bangladesh Industrial Finance Company Ltd. 500,000 500,000

Total Sponsorship 20,000,000 20,000,000

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Pre-IPO Placement

20,000,000 shares at Tk 1 each have been privately placed with the following

institutions, as follows:

Pre-IPO Investors No. of Shares Taka

Consortium of Exchange Members & Clients7 14,000,000 14,000,000

Pangaea Partners (BD) Limited 5,000,000 5,000,000

Investment Corporation of Bangladesh (ICB) 500,000 500,000

Green Delta Insurance Company Limited 500,000 500,000

Total Private Placement 20,000,000 20,000,000

Public Offer

10,000,000 shares at Tk 1 each are being offered to the public for subscription in cash

in full on application. Certificates will be allocated in the manner placed alongside.

NRBs 1,000,000

General Public 9,000,000

Total Public Offer 10,000,000

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Chapter: 4

Grameen Mutual Fund One

4.1 Introduction

Grameen One is the first scheme of Grameen Mutual Fund One, a trust property

registered on May 09, 2001 under the Trust Act, 1882, and Registration Act, 1908.

The SEC has registered the Trust as a Mutual Fund on August 28, 2001 under the

Securities and Exchange Commission (Mutual Fund) Rules, 2001. The SEC has also

approved the Scheme and provided consent on June 27, 2005 to raise subscription

from the general investors through public offer.

The life of the Scheme is 10 (ten) years from the date of first listing, although there is

circumstances set out in the Trust Deed where the unit holders can extend the life on

maturity of the tenure.

4.2 Background of initiating a close-end mutual fund

The mutual fund is sponsored by the Grameen Bank principally to facilitate micro

savers to invest in the countrys capital market instruments. Although this Fund has

been launched primarily for the benefit of the 4.3 million borrowers of Grameen

Bank, 96% of whom are women, other micro- and small savers of the country may

also find this team-managed, close-ended balanced Fund a dependable investment

vehicle. AIMS of Bangladesh Limited, the first SEC-approved asset management

company in Bangladesh, pioneered mutual fund under private initiative. It has gained

valuable experience and confidence in managing a mutual fund efficiently. This

encouraged Grameen Bank to give responsibility to AIMS to manage this mutual fund

sponsored by the Bank. The SEC has already approved and registered the Trust as

Mutual Fund and provided consent to raise subscription from the investors through

Public Offer.

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The vision of Professor Mohammad Yunus, founder of Grameen Bank, was to create

a dependable financial instrument for the poor clients of Grameen Bank, as well as the

poor people of the country, to connect them with the macro economy, give them

ownership in the leading enterprises, and take advantage of the growth of the

economy. Not only the poor borrowers of Grameen Bank would be investing in their

own income-generating activities, they may also be part of owners of the promising

enterprises of the country. By owning units of the Mutual Fund, they can also build

their own old-age protection. Grameen Mutual Fund has been created to fulfill this

dream. This Fund would enhance the earning potential of the savings of the poor

savers by linking them with the national capital market in a structured and transparent

way. It would also encourage other rural savers to take advantage of this new

financial opportunity.

4.3 Nature & Style

This team-managed all-weather Fund is a closed-end capital guaranteed balanced

mutual fund. It mostly will focus on preservation of principal and at the same time

earn moderate return for the shareholders. Because of the balanced nature, the Fund is

less risky than the existing all-equity mutual funds available in the market.

The portfolio will be a growth-value blend basket of large-cap as well as small-cap

stocks and a mix of fixed income securities.

In order to increase the profit potential, the management company will have the

flexibility to use market timing to move between stocks and Fixed Income Securities

in any percentage they deem prudent when investment conditions change.

The management company will adopt both fundamental and quantitative investing

approach for the Fund. All investment decisions will be backed by thorough in-house

fundamental and technical research.

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Close-end policy

The Scheme will adopt a close-end policy in its operation. In compliance with the

policy, the Scheme will not change the capital position by issuing any additional units

or repurchasing existing units during the life (i.e. 10 years) of the Scheme.

Face value and market lot

The face value of the units of the Scheme is fixed at Tk10 (taka ten) and since there

would be no paper scrip issued against any holding, no market lot is necessary and,

therefore, for trading at the Stock Exchanges under the CDS mechanism one unit of

Tk10 each shall comprise the tradable market lot. However, minimum application

amount for Public Offer application shall be for 500 (five hundred) units amounting

Tk5, 000 (taka five thousand) and its multiples on a single BO account of the CDS.

4.4 Competitive Advantages in investing in Grameen One

Mutual funds substantially lower the investment risk of small investors

through diversification in which funds are spread out into various sectors,

companies, securities as well as entirely different markets. It is always the

objective of a fund manager to maximize a fund's return for a given level of

risk through tolerable risk-return tradeoff.

Mutual funds mobilize the fund and channel them into profitable investment

opportunities. As a result, mutual funds add liquidity to the market. Moreover,

given that the funds are long-term investment vehicles, they reduce market

volatility by extending support to scrip prices.

Mutual funds provide the institutional investors an 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 of the

emotional strain associated with the day-to-day management of the fund.

Moreover, the amounts of analytical research and study that go into selecting

the best securities for a fund portfolio can prove to be overwhelming for the

general investor, and is best left to the experts.

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The investor saves a good deal of transaction costs given that s/he has access

to a larger number of securities by purchasing a single unit of a mutual fund.

The investor can pick and choose a mutual fund to match his/her particular

needs.

Mutual fund is the only vehicle that operates simultaneously both at the

demand as well as the supply side of the market. On the supply side, mutual

funds, being itself a listed security in the Stock Exchanges, introduces a good

and reliable instrument in the capital market for the small but astute investors.

Mutual fund units have been one of the most sought-after scrips. On the

demand side, since mutual fund investments are primarily in the secondary

market stock and bonds bought at the Stock Exchanges, the demand for bluechip shares thus increases with the operation of the mutual funds.

Mutual funds are one of the most strictly-regulated investment vehicles. The

laws governing mutual funds require exhaustive disclosure to the SEC as well

as the general public. The laws also entail continuous regulation of fund

operations by the Trustee.

Professional fund managers search for the attractive assets and securities.

They do all the footwork to uncover opportunities and research them to makesure that the investment is appropriate for the fund. The funds stated goal, or

investment objective influences the choice of securities.

Another benefit of mutual fund is liquidity, the ability to move money in and

out of the investment. Unlike fixed deposits or CDs, where money is tied up

for a period of time, mutual funds are designed so that access or exit is easy.

4.5 Investment objectives and policy

The primary objective of the Scheme is to achieve capital appreciation as well as earn

dividend and interest income through investment in the capital market of Bangladesh.

It mostly shall focus on generating cash earning and at the same time preservation of

capital. The assets of the Scheme will be invested both in equity securities and fixed-

income securities (FIS). Most of the equity investments will be made in the

companies listed on the DSE and/or CSE. The Scheme may also invest in unlistedequity securities directly from the issuers (IPO and pre-IPO placement) at the primary

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market. The Scheme may also invest in the listed and/or unlisted debt instruments,

including government notes and bonds.

The principal investment objective and policies of the Scheme as set out above will,

in the absence of unforeseen circumstances, be adhered to during the life of the

Scheme. The Scheme will always adopt the investment policy that will ensure the

balancednature that is being contemplated.

The details of the investment policies are as follows:

a) The Scheme shall invest only in securities and investments approved by the SEC,

the Bangladesh Bank and/or the Controller of Insurance of Bangladesh or any other

competent authority in this regard.

b) All money collected under the Scheme, except FIS investments, shall be invested

only in transferable securities whether in money market or equity market or privately

placed debentures or securitized debts.

c) Generally not more than 25% of the assets will be invested in the fixed-income

securities (FIS).

d) FIS investment may be made in privately placed unquoted debt or depository

instruments of different terms.

e) The equity portfolio will be a growth-value blend basket of large-cap as well as

small-cap stocks.

f) In order to increase the profit potential, the manager will have the flexibility to use

market timing to move between stocks and FIS in any percentage they deem prudent

when investment conditions change.

g) The Scheme will seek to invest in companies, which it considers to exhibit good

growth potential and have sound management.

h) The AMC shall categorize the investments either as Trading Securities or as

Available-for-Sale Securities as they deem prudent, as per provisions of IAS- 39

corresponding to the Statement of Financial Accounting Standard (SFAS) No. 115 of

Financial Accounting Standard Board, USA.

i) Capital appreciation will be the primary consideration and dividend and interest

income will be the secondary consideration for the trading-security investments.

j) Dividend and interest income will be the primary consideration and capital

appreciation will be the secondary consideration for the available-for-sale security

investments.

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k) During periods in which the Investment Manager believes changes in economic,

financial or political conditions will adversely affect the Scheme's portfolio, the

Scheme may, for temporary defensive purposes, reduce holdings in equity and other

securities and invest in short and/or medium-term debt securities or hold cash.

The investment objective of the Scheme may be changed by the Trustee and the AMC.

However, unit holders would be notified of any material change in the Scheme's

objective.

4.6 Mission & Vision Statement

Our Mission: To be a household name in Bangladesh and be recognized as a reliable

companion in the pursuit of wealth creation.

Our Goal: To take the extra mile to meet the customers needs through continuous

innovation of suitable financial products and offering the best solutions.

Our Values: To strive for achieving and maintaining the highest ethical and moral

standards to earn the trust of our clients and patrons.

Capabilities: AIMS is experienced in conceiving, developing, structuring, launchingand marketing appropriate financial instruments for raising and managing capital,

suiting specific needs.

AIMS is also experienced in devising alternative non-traditional corporate

finance instruments like asset and mortgage backed securitization.

AIMS is experienced in corporate and financial advisory services, including

debt and equity valuation, credit analysis, feasibility studies and conducting

due diligence exercise. AIMS is experienced in establishing and managing Trust Funds, including

Venture Capital and Mutual Funds, and also capable of constructing and

managing portfolios of diverse nature and characteristics.

AIMS is capable of independently carrying out diagnostic research including

micro as well as macro-economic and sectoral research studies.

AIMS has the capabilities for delivering corporate restructuring and

management solutions and services.

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AIMS also has the capabilities of advising and arranging cross-border joint

venture undertakings and on mergers and acquisitions as well as strategic

holdings and privatization

4.7 Major Achievements

AIMS has the rare distinction of being the first approved asset management

company in Bangladesh under private initiative and remains so far the only one

such institution in the country.

AIMS has brought about qualitative changes in the finance sector in general

and the capital market in particular through introducing innovative products

and new approaches to investment finance in Bangladesh.

AIMS has floated and managing the Tk 70 million first privately managed

usual fund in Bangladesh sponsored by top-ranked institutions representing all

he sub-sectors of the finance industry, which played a pioneering role in

enveloping a matured investment culture. The five-year closed-end Fund

features capital guarantees characteristics, unique in Bangladesh (2000).

AIMS is the SEC registered Asset Manager of the Grameen Mutual Fund One

sponsored by the internationally reputed Grameen Bank founded by Professor

Mhammad Yunus. The Tk 150 million first scheme of the Fund features a

minimum assured yield, a new concept in Bangladesh (2001).

AIMS is engaged as Financial Advisor for the Asian Development Bank

ADB) financed Technical Assistance to the Privatization Commission. Task

included, among others, due diligence and valuation of pilot enterprise,

independent review & privatization plan and documentation, in collaboration

with International Consultants (2004).

We are engaged as Consultant Financial Analyst & Process Coordinator of the

Asian Development Bank (ADB) for the Project Preparatory Technical

Assistance (PPTA) for Small & Medium Enterprises Development and Export

Expansion Program (SME DEEP) Loan, where major task among others,

included conducting international standard due diligence of participating

financial institutions with international consultants (2003).

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AIMS is first to introduce the concept of asset securitization by financing

institutions in Bangladesh. We advised the securitization of micro-credit

receivables by BRAC, the largest NGO in the world.

AIMS was the 'Consultative Process Coordinator' of the Asian Development

and (ADB) for the Finance, Industry & Trade Sector (FITS) Integrated

Strategy Formulation of the Bank in Bangladesh for coordination and dialogue

with the government, donors and stakeholder groups to discuss issues and

potential interventions (2002).

AIMS was the Consultant of the World Bank for the regional study and report

on Asset Securitization of Financial Institutions in Bangladesh for the Credit,

Bridge & Standby Facility (CBSF) at Bangladesh Bank under the Financial

Institutions Development Project (FIDP) of the Bank (2002).

AIMS is a Consultant for a study Comparative Analysis of Corporate

Governance in South Asia: Charting a Road Map for Bangladesh

commissioned by the Department for International Development (DFID) of the

United Kingdom (2002). Currently engaged in the second phase as a Member

of the Core Working Group of the national task force with Bangladesh

Enterprise Institute (BEI) in drafting a Code of Corporate Governance for

Bangladesh (2002-4)

AIMS is the Advisor to the Asian Development Bank (ADB) and holder of

Power of Attorney for their strategic divestment of equity holding in the joint

venture United Leasing Company Limited (ULC), a leading non-bank financial

institution in Bangladesh. Conducted valuation of the company stocks and

initiated negotiations with prospective strategic buyers (2002-4).

AIMS conducted for the Netherlands Development Finance Company (FMO)

a due diligence on Dutch-Bangla Bank Limited, the only joint-venture

commercial bank in Bangladesh, for pricing and eventual public float of the

Bank at a premium (2000).

Carried out a diagnostic study for the Asian Development Bank (ADB) and

co-authored with the International Financial Specialist a report on Strategic

Issues and Potential Response Initiatives in the Finance Industry & Trade

Sector (FITS) of Bangladesh for them (2001)

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The Managing Director of AIMS attended the 4th and the 5th Asian Workshop

on Corporate Governance at Mumbai (2002) and Kuala Lumpur (2003), as an

official delegate sponsored by the OECD, DFID and the Commonwealth

Secretariat and also attended the publication ceremony of the Asian WhitePaper on Corporate Governance held at the ADB institute, Tokyo (2003).

The Managing Director of AIMS attended the Asian Pension Fund Roundtable

sponsored by the Asia Foundation and The Pacific Pension Institute, to initiate

a region network (Bangkok, 2003) and also attended a workshop on Pension

Management and Corporate Governance in residence at the Asian Institute of

Corporate Governance (AICG), Seoul sponsored by the Asia Foundation

(2004).

4.8 Strength

At AIMS we have adopted the AIMR (Association for Investment Management and

Research) code of ethics and professional standards as a corporate policy.

We believe in professionalism and therefore maintain firm distinction between

ownership and management. Consequently as a matter of policy, no director or

shareholder of the company or any of their relations are engaged in running the

business operation of or are employed with the company.

We have set very high and clear objectives before us and a goal to venture in

to untested grounds.

AIMS is run by a team of expert analysts and capital market & investment

banking professionals and is equipped with state-of-the-art computerized

automated system.

AIMS ensures smooth operation through synergy with other reputed service

providers including researchers, financiers, brokers/dealers, lawyers,

accountants and bankers as well as international fund managers.

AIMS maintains a full-time channel of communication and collaborative

interaction with multilateral funding agencies, donors and technical assistance

providers.

AIMS has developed a highly resourceful research base and all decisions and

recommendations are made on the basis of thorough independent fundamental

and technical analysis and research findings.

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The Managing Director acts as 'Compliance Officer' of the company ensuring

the moral and professional standard among the practitioners within the

company.

A 'Chinese Wall' has been developed among different departments for

effectively controlling information flow and checking unfair practices like

insider trading and protect proprietary interests.

AIMS is a career oriented equal opportunity employer and is regarded as a

knowledge based institution.

4.9 Community Contribution AIMS has contributed to the community through mobilizing the untapped

resources to the mainstream economy through indigenously developing

appropriate financial products and corporate solutions.

AIMS has extended the investment opportunities for the people suiting their

own risk tolerances.

AIMS regularly bring out various research publications to keep the general

investors informed and updated. The 'Weekly Market Review' is one of such

regular complimentary publication. Over two hundred thousand recipients

worldwide receive the 'Review' every week via e-mail. Besides, we publish

various other periodic reports, sector researches and commentaries from time to

time.

In order to develop a vibrant debt market in the country, AIMS is closely

collaborating with leading local and multilateral institutions, including the

World Bank, International Finance Corporation and the Asian DevelopmentBank, apart from our own independent and pioneering efforts in this regard.

AIMS has conducted various seminars, workshops and training sessions on

equity and debt market as well as asset securitization issues to educate and

assist the issuers and the investors.

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4.10 Sponsor of the Fund

Grameen Bank

Grameen Bank is the Sponsor of the Grameen Mutual Fund One. As the Sponsor,

Grameen Bank has provided an initial capital of Tk16.5 million to the first Scheme of

the Fund, the Bank has also set the objectives and policy guidelines of the Fund

through authoring and executing the Trust Deed and the Investment Management

Agreement.

Grameen Bank was established under the Grameen Bank Ordinance, 1983, operating

with an objective to alleviate poverty through financial services, especially by

providing micro credit. Empowering poor people is the ultimate objective of theBank. The Government of Bangladesh owns 5% of the Bank and the rest 95% is held

by the borrowers of the Bank. Mr. Tobarak Hossain is the Chairman and Professor

Muhammad Yunus is the founder Managing Director of the Bank. The Government

nominates three directors including the Chairman and nine other directors are elected

representatives from among the Grameen borrowers.

4.11 Trustee of the SchemeGrameen Fund

Grameen Fund, a venture capital undertaking of the Grameen family limited by

guarantee is the Trustee of the Fund. Established in 1994, Grameen Fund dedicated

itself in promoting, managing and financing various enterprises, which aims to create

wealth for ultimate poverty alleviation. Professor Muhammad Yunus is the Chairman

and Mr. Faizur Razzaque is the Managing Director of this nonprofit company. As the

Trustee Grameen Fund, for all practical purposes, is the guardian of the Fund andshall be responsible for ensuring compliance as well as the protection of the properties

of the Fund solely for the beneficiaries. In order to properly carry out their

responsibilities, Grameen Fund has formed a Trustee Committee, with Mr. M. Faizur

Razzaque, Mr. Giasuddin Ahmed, Mr. M. Hafizuddin Khan and Mr. Quazi Sultan

Ahmed.

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4.12 Custodian of the Scheme

Standard Chartered Bank (SCB)

SCB is a UK-based commercial bank operating in Bangladesh for over fifty years.

They have been providing the custodial services to the foreign institutional portfolio

investors in Bangladesh for the last several years. They are experienced and skilled in

this line of business and enjoy a reputation for confidentiality, timely settlement,

reporting, and collecting corporate announcements for their clients. They are also

providing custodial service to AIMS First Guaranteed Mutual Fund, the first local

private-sector mutual fund.

4.13 Investment Manager of the SchemeAIMS (Asset & Investment Management Services) of Bangladesh Limited

AIMS of Bangladesh Limited is the Asset Management Company (AMC) or Manager

of the Fund. They are responsible for designing, structuring, registration, floatation

and day-to-day management of the Fund. AIMS is also responsible for recurring

investment activities, including portfolio construction and rebalancing, under the

guidelines set in the Trust Deed and the Investment Management Agreement of the

Fund.

AIMS has the distinction of conceiving and floating AIMS First Guaranteed Mutual

Fund, the first and so far the only private sector mutual fund in Bangladesh. AIMS is

actively involved in developing with the debt market and contractual savings sectors,

and has also been rendering services in various financial sector development projects

of different multilateral and donor agencies.

AIMS is the first investment and fund management company of its kind under private

initiative in Bangladesh. The shareholders of the company are all practicing

professionals, highly qualified in their professed vocation and a majority of them are

either returned or expatriate Bangladeshis. It is equipped with a team of expert capital

market professionals, research analysts and economists to run the outfit. The core

management team has been recruited with experienced managers formerly with

leading institutions at home and abroad. Mr. M. Monzurul Haque is the Chairman of

the Company.

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4.14 Investment restrictions

The following restrictions are fundamental policies of the Scheme that may not be

changed without approval of majority of the Scheme's outstanding voting securities.

These are also in line with the Section-56 and the Schedule-V of the Securities and

Exchange Commission (Mutual Fund) Rules, 2001. If a percentage restriction on

investment or use of assets set forth below is adhered to at the time a transaction is

effected, later changes of holding value due to changes in market price movement or

accrued gain in value over time will not be considered a violation of the restrictions.

a) The Scheme shall not invest in securities having unlimited liability.

b) The Scheme shall not buy its own units.

c) Investments by way of privately placed debentures, securitized debts and other

unquoted debt instruments shall not exceed 25% (twenty five percent) of the total

assets of the Scheme.

d) The Scheme shall not invest more than 10% (ten percent) of its assets in any one

particular company shares.

e) The Scheme shall not own more than 15% (fifteen percent) of any companys paid-up capital at any point of time.

f) The Scheme shall not invest more than 20% (twenty percent) of its total assets in

the shares, debentures or other securities of a single company.

g) The Scheme shall not invest more than 25% (twenty five percent) of its total assets

in shares, debentures or other securities in any one industry.

h) The Scheme shall not involve in option trading or short selling or carry forward

transactions.

i) The Scheme shall not invest in or lend to another scheme under the same AMC.

j) The Scheme shall not provide term loan or advance to any entity.

k) The Scheme shall not borrow fund for investing unless authorized by the SEC.

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4.15 RISK PARAMETERS

Risk Factors

The prospective investors should appreciate that investment in the Scheme involves

certain special considerations and risk factors, including those set forth below, which

are not necessarily exhaustive or mutually exclusive:

(a) Performance of the Scheme is significantly dependent on the macroeconomic

situation and the capital market in particular.

(b) Since the capital market of Bangladesh is extremely fluctuating, there is no firm

assurance that the Scheme will achieve all its stated objectives.

(c) Stock market activity in Bangladesh focuses on a small number of companies

representing a limited number of industries, resulting in a potential lack of liquidityand price volatility. In addition, a high proportion of the equity securities listed on the

DSE and CSE are closely held and the number of shares currently available for

acquisition by the Scheme may be very limited. It may, therefore, be difficult to invest

the Scheme's assets, to obtain a desired diversification of the portfolio or to realize the

Scheme's investments at the prices and times that it would wish to do so.

(d) The recent stock market trends portray that price of almost all the listed securities

move in tandem with the market in the similar direction, causing difficulty to the

Manager to diversify the assets.

(e) Since Bangladesh lack secondary bond market or product variation as it would

have been ideal, the Manager might not be able to swap between different asset lasses,

as they might desire.

(f) Money market instruments are also not readily available, which may narrow the

opportunity of short term or temporary investments of the Scheme.

(g) If maturity of the Scheme is extended by the unit holders at the closing meeting,

investment in fixed income securities will be subject to reinvestment risk, i.e., the risk

of non-availability of investment opportunity at the current rate at that time.

(h) The value of the units of the Scheme may, in direct correlation with other listed

securities, fluctuate. In addition, there is no guarantee that the market price of units of

the Scheme will fully reflect their underlying net asset values.

(i) Since the Scheme is a balanced fund, i.e., the Scheme shall invest in both equity

and FIS, the credit risk of the FIS issuers is also associated with the Scheme.

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(j) Despite careful selection of stocks, the companies may fail to provide expected

dividend or make timely disbursements, which may affect the return of the Scheme.

(k) The value of the Scheme's assets may be affected by uncertainties such as

political or social instability, or changes in any law or regulations of the territory.

(l) Since unlike the older mutual funds in the market, mutual funds under the SEC

(Mutual Fund) Rules, 2001 are not allowed to have access to short-term borrowing,

the Fund may have to meet its cash needs including dividend payments or meeting

pre-IPO placement investment commitments through disposing off its investments,

even at unfavorable market conditions. This may greatly curtail the earnings as well

as future reinvestment capabilities of the Fund, translating to lower profit.

(m) Qualitative and quantitative investment restrictions imposed through the Rules,

have restricted the operational leeway of the Fund Manager, in the event of only a

handful of securities qualifying as Category-A at the stock exchanges. Since the older

mutual funds in the market do not have such qualitative and quantitative restrictions,

ceiling of all these restrictions have created an uneven playing field.

(n) Although application will be made to the DSE and CSE for the units for listing,

there is no assurance that the units will be listed with the bourses. In the unlikely

event of non-listing by both the exchanges, the Scheme will be redeemed prematurely

causing opportunity cost to the investors.

4.16 Capital Structure

Share Issue

The Scheme has issued 17,000,000 (seventeen million) units of Tk10 (taka ten) each

at par totaling Tk170, 000,000 (taka one hundred seventy million), distributed as

follows:

Subscribers No. of Units Taka

Sponsors 1,650,000 16,500,000

Pre-Public Offer Institutional Placement 10,350,000 103,500,000

Public subscription 5,000,000 50,000,000

Total Size of the Scheme 17,000,000 170,000,000

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Pre-Public Offer Institutional Placement

10,350,000 (ten million three hundred fifty thousand) units at Tk10 (taka ten) each,

totaling Tk103, 500,000 (taka one hundred three million five hundred thousand) have

been privately placed with the following financial institutions including banks,

insurance companies, non-banking financial institutions and merchant banks:

Pre-Public Offer Investors No. of Units Taka

Bangladesh Mutual Securities Ltd. (Portfolio) 400,000 4,000,000

Bangladesh Shilpa Rin Sangstha 150,000 1,500,000

EC Securities Ltd. 100,000 1,000,000

Equity Partners Ltd. 50,000 500,000

Equity Partners Ltd. (Portfolio) 1,000,000 10,000,000

First BSRS Mutual Fund 50,000 500,000

Grameen Capital Management Ltd. 300,000 3,000,000

Grameen Capital Management Ltd. (Portfolio) 500,000 5,000,000

Green Delta Insurance Ltd. 250,000 2,500,000

IDLC of Bangladesh Ltd. 250,000 2,500,000

Investment Corporation of Bangladesh 200,000 2,000,000

Karnaphuli Insurance Company Ltd. 50,000 500,000

Meghna Life Insurance Ltd. 100,000 1,000,000

Midas Financing Ltd. 250,000 2,500,000

National Housing Finance and Investment Ltd. 400,000 4,000,000

Pangaea Partners (BD) Ltd. 800,000 8,000,000

Pragati Insurance Ltd. 200,000 2,000,000

Prime Bank Ltd. 500,000 5,000,000

Prime Finance and Investment Ltd. 400,000 4,000,000

Reliance Insurance Ltd. 500,000 5,000,000

Sandhani Life Insurance Company Ltd. 150,000 1,500,000

South Asia Capital Ltd. (Portfolio) 500,000 5,000,000

Swadesh Investment Management Ltd. (Portfolio) 1,200,000 12,000,000

The City Bank Ltd. 1,000,000 10,000,000

The Trust Bank Ltd. 800,000 8,000,000

Vanik Bangladesh Ltd. 250,000 2,500,000

Total Private Placement 10,350,000 103,500,000

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Public Offer

5,000,000 (five million) units at Tk10 (taka ten) each are being offered for public

subscription in cash in full on application. Units will be allocated in the manner

placed alongside.

Units

Non Residential Bangladeshis (NRBs) 500,000

General Public 4,500,000

Total Public Offer 5,000,000

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Chapter: 5

ICB Islamic Mutual Fund

5.1 Introduction

Mutual Fund presently is one of the fastest growing sectors through out the world. In

Bangladesh ICB is the harbinger of Mutual Funds. Out of the total 13 Mutual Funds,

ICB and its subsidiary alone floated 11 Mutual Funds in the market. These Mutual

Funds are basically conventional fund which invest their funds both in equity and debt

securities. Islam's prohibition against and charging interest prevent Muslims from

investing in securities that draw their income from those activities. In Islam, interest is

viewed as usury or riba because of its potential for exploitation of the borrower by the

lender. In addition, the Islamic Shariah Law forbids any involvement in or ties to

gambling, pornography, tobacco, weapons, alcohol etc. As the conventional Funds

invest and draw their income, among others, from the above mentioned companies

and debt securities, ICB Asset Management Company Ltd. has decided to float a fund

which will invest its funds according to the Shariah Law. It may be mentioned herethat there are over 100 Islamic mutual funds in the global equity markets of which

half originated in the Middle East. These funds are managed according to Islamic

principles.

With keeping in view of Islamic sentiment, ICB capital Management Ltd. has come

forward with the proposal to act as sponsor of the ICB AMCL Islamic Mutual Fund.

ICB itself will be the Trustee and Custodian of the fund whereas ICB Asset

Management Company Ltd. will act as the Fund Manager of the said Mutual Fund.

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5.2 Advantages in investing in ICB AMCL Islamic Mutual Fund

Generally investment in mutual funds enjoys some advantages compared to

investment made directly in other securities of the capital market. Investors of this

mutual fund will be able to enjoy the following advantages:-

(i) As the Fund will be invested in Sharia compatible securities, there shall be no

scope of haram earnings and as a result the income in the hand of the investors will

totally be halal.

(ii) As the sale proceeds will be invested in the diversified portfolio, there will be a

minimum risk in investment.

(iii) Diversified portfolio of the fund help the small investor access to the whole

market which is difficult at individual level.

(iv) By channel zing small investors saving, this mutual fund will add liquidity to the

market.

(v) As the fund will be professionally managed under prudent guidelines, the Fund is

accepted to be able to achieve the targeted objectives.

(vi) The investors can save a great deal in transaction cost as he/she has access to a

larger number of securities by purchasing a single unit of mutual fund.

(vii) Investment in the Fund would qualify for investment tax credit under section44(2) of the Income Tax Ordinance 1984.

(viii) Management and operation of mutual funds are subject to prudential guidelines.

SEC regularly monitors the performance of such funds. The laws governing mutual

funds require exhaustive disclosure to the regulator and general public. As a result,

the investors will be able to know the performance of the fund and accordingly they

can be able to take convenient entry and exit options.

(ix) Income will be exempted from tax to a certain level in the hand of the individual

investors.

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5.3 Investment Objective & Policies

The scheme has been designed for a specific sectoral objective i.e. to provide interest

free return to the investors by investing the fund only in Shariah compliant

instruments.

1) The fund shall invest both in listed and non listed securities. While investing in

securities the following criteria are to be observed:

(i) Primary Selection of Companies

The basic business of the company should be in consistence with the Sharia Law.

Although no universal consensus exists among contemporary Sharia scholars on the

prohibition of companies, most Sharia boards have advised against investment incompanies involved in the activities of:

a) Conventional Banks, Insurance and Leasing Companies

b) Alcohol

c) Pork related products

d) Tobacco

e) Weapons and Defense

f) Entertainment (Hotels, Casinos/Gambling, Cinema, Pornography, Music etc.)

(ii) Screening of Acceptable Companies

After removing companies with unacceptable primary business activities, the Fund

may invest in the remaining companies if:

o The total debt of the investee company is equal to or less than 33% of

the trailing 12 month average market capitalization of the Company.

o The sum of cash or interest bearing securities of the investee

companies is less than or equal to 33% of the trailing 12 month

average market capitalization of the company.

o The Accounts Receivable is less than or equal to 45% of the Total

Assets of the Company.

2) The Fund may also invest in other Shariah Compliant instruments as and when they

are available for investment. Specifically:

i) In Participation Term Certificates, Modaraba Certificates, Musharika, Murabaha,

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Term Finance Certificates and all other asset backed securities;

ii) In contracts, securities or instruments of companies, organizations, and

establishments issued on the principles of Bai' Mu'ajjal, Bai' Salam, Istisna'a,

Mudaraba, Murabaha and Musharika.

iii) In the form of Riba-free cash deposits with Islamic Banks or financial institutions

with the object of maintaining sufficient liquidity to meet the day to day requirement

and to take advantage of suitable investment opportunities as and when they arise.

iv) In other instruments that may be allowed by the Rules and confirmed as Shariah

Compliant by the Fund's Shariah Advisor from time to time.

3). The Fund will adopt a conservative strategy and will try to out-perform the index

through market timing and security selection. A part of the fund will also be used to

take advantage of the short term trading opportunities that may arise from time to

time.

4) The AMC will make the investment decisions based on best judgment supported by

documents and analysis.

5). the fund shall get the securities purchased or transferred in the name of the mutual

fund.

6). only the AMC will make the investment decisions and place orders for securities

to be purchased or sold by the Fund.

7). AMC will choose broker(s) for the purchase and sale of securities for the Funds

portfolio.

8). Settlement of transaction will take place as per the customs and practice of the

stock exchanges in the country.

9) The ownership of the certificates will be changed by CDBL under electronic book

entry system and there will be no physical movement or endorsement of certificates.

5.4 Investment Restrictions

In making investment decision the following restrictions should be taken due

consideration:

(i) The Fund shall not buy its own unit;

(ii) The Fund shall not involve in option trading or short selling or carry forward

transactions.

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(iii) The Fund shall not invest in or lend to another scheme under the same Asset

Management Company. However, the inter fund transactions can be made through

stock exchanges.

(iv)The Fund shall not acquire any asset out of the Trust property, which involves the

assumption of any liability that is unlimited or shall result in encumbrance of the

Trust property in any way.

(v) The Fund or the ICB Asset Management Company Ltd. on behalf of the Fund

shall not give or guarantee term loans for any purpose or take up any activity in

contravention of the Rules.

5.5 Sponsor of the Fund

ICB Capital Management Ltd. (ICML), a subsidiary of ICB will be the sponsor of the

Fund. ICB Capital Management Ltd. (ICML) was created as part of the restructuring

program of ICB under Capital Market Development Program (CMDP) initiated by the

Government of Bangladesh (GOB) and the Asian Development Bank (ADB). The

company was incorporated as a public Ltd. company under the companies Act, 1994

with the Registrar of Joint Stock Companies and Firms on 05 December, 2000.

Registration of the company with the SEC was also obtained on 16 October, 2001 and

the gazette notification of Govt. of Bangladesh has been issued with a view to carry

out the merchant banking activities. Although it is a newly created company, it has

enormous scope of expansion and growth in the field of merchant banking as ICB

shall not undertake any new business in this area rather these functions will be carried

out by this company.

The present authorized and paid up capital of the company are Tk. 100.00 crore and

Tk. 8.00crore respectively. The company is being managed by high caliber

professional people mostly taken from ICB. An independent board consisting

members from private and public sectors provides guidance in framing objectives &

policies of the company. Besides, ICB as holding company, also supervise and control

the performance of the company.

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5.6 Trustee and Custodian of the Fund

In order for maximum trust and confidence of the investors, supervisory bodies and

persons concerned towards the fund, the Investment Corporation of Bangladesh (ICB)

itself will act as the trustee and custodian of the Fund. The Investment Corporation of

Bangladesh (ICB) was established on 1 October 1976, under The Investment

Corporation of Bangladesh Ordinance, 1976 (No. XL of 1976) with a view to

encouraging and broadening the base of investment, develop the capital market,

mobilize savings, promote and establish subsidiaries for business development &

provide for matters ancillary thereto. Over the years, the activities of ICB have grown

manifold, particularly in Merchant Banking, Mutual Funds operations and stock

brokerage activities. ICB is the biggest investment bank and the harbinger of mutualfunds in the country. Out of countrys eleven (11) closed-end mutual funds, ICB

manages eight funds. ICB also manages the only open-end fund in the country. ICB is

the trustee and custodian of the ICB AMCL Mutual Fund and ICB AMCL Unit Fund

floated recently by the ICB Asset Management Company Ltd.

ICB has acted as trustee to debentures amounting TK.1.42 billion in aggregate out of

total Tk.2.93 billion publicly traded debentures. ICB also acted as underwriter/

manager to the issue to more than 370 companies of which 101 companies are

publicly traded companies. Besides portfolios of over 51,000 investors (margin

accounts), institutional portfolios including mutual funds and unit fund were also

being managed by ICB. The Corporation has long and proven experience in advisory

function, particularly in buying and selling of shares, corporate restructuring and

engineering, off loading of govt. shares and hosts of other merchant bank related

activities for the benefit of its clients. ICB has been playing a unique role in the

development of countrys capital market.

5.7 Investment Manager of the Fund

ICB Asset Management Company Ltd. (ICB AMCL) a subsidiary of ICB will act as

the investment manager of the Fund. ICB Asset Management Company Ltd. (ICB

AMCL) was created as part of the restructuring program of ICB under Capital Market

Development Program (CMDP) initiated by the Government of Bangladesh and

ADB. The company was incorporated as a public limited company with an authorized

capital of Tk. 100.00 crore and a paid-up capital of Tk. 5.00 crore under the

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Companies Act, 1994 with the Registrar of Joint Stock Companies & Firms on 5

December, 2000. Registration of the company with the SEC was obtained on 14

October, 2001. Necessary Government Gazette Notification has also been obtained on

1st July, 2002 to carry out the Mutual Fund operations. At present, the Company is

managing one open-end Mutual Fund and one Closed-end Mutual Fund.

As per relevant provision of the ICB Ordinance, ICB shall hold all or majority shares

of the company and may review business objectives, supervise and control its

performance. The CEO and other key personnel have been deputed to the company

from ICB. An independent Board consisting 50 per cent directors from ICB and the

rest from private sector, has been created.

5.8 CAPITAL STRUCTURE

Issuance of unit

The paid up capital of the Fund shall be Tk. 100,000,000.00 divided into 1,000,000

units of Tk.100.00 each. The total distribution of units shall be as follows:

PRE-IPO PLACEMENT

Subscription from sponsor

ICB Capital Management Ltd., the sponsor, has already subscribed Tk. 100,

00,000.00 for 100,000 units of Tk. 100.00 each at par.

Pre-IPO Placement to Institutional Investors:

The following institutions have been subscribed Tk. 20,000,000/- for 200,000 units of

Tk. 100.00 each at par:

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Public Offer

10% of the Public Offer i.e. 70,000 units of Tk. 100.00 each totaling Tk. 7,000,000.00

are being offered to the Non-Resident Bangladeshis (NRBs) and the rest 630,000

units of Tk. 100.00 each amounting to Tk. 63,000,000.00 are being offered to the

general public for subscription in cash in full on application. The distribution is as

under:

Chapter-6

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Performance Analysis of Private Mutual Funds in Bangladesh

6.1 Introduction

To analyze the performance of Mutual Funds, Ratio analysis is my first preference to

measure the performance of the organization. Ratios are highly important tools in

financial analysis that help financial analyst implement plans that improve

profitability , liquidity, financial structure , recording , leverage and interest coverage.

Although ratios report mostly on the past performances they can be predictive too,

and provide lead indication of potential problem areas.

Ratio analysis is primarily used to compare the companys financial figures over a

period of time, a method sometimes called trend analysis. Through trend analysis, we

can identify trends, good & bad, and adjust the business practice accordingly. We can

also compare how ratios stack up against other business, both in & out of the industry.

Ratios can be analyzed in different ways:

Comparison within one fiscal year.

Comparison in different fiscal years.

Comparison within the industry with one fiscal year

Comparison within the industry with different fiscal year.

To analyze the performance of Mutual Funds, we followed second category of

comparison. Our considerable years are mostly from 2003 to 2005. Sometime on the

basis of availability and suitability we consider the year of 2006.

6.2 Profitability Ratio

Profitability ratio allows us to measure the ability of the firm to earn an adequate

return on sales, total asset and invested capital. Many of the problem s related to

profitability can be explained, in or in part, by the firms ability to effectively employ

its resources.

A. Profit Margin Ratio

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The profit margin measures the relationship between profit & sales. The net profit

margin is the indication to the managements ability to operate the business with

sufficient success not only to cover from revenues of the period, the cost of

merchandise or services, the expenses of operating the business (including

depreciation) and the cost of borrowing fund but also to leave a margin of reasonable

compensation to the owners for providing the capital at risk.

1. AIMS First Guaranteed Mutual Fund:

Sales

IncomeNetinMofit

argPr =

Year 2003 2004 2005

Net Profit 6,848,298 17,162,394 21037998

Income 10946040 19821496 21193095

Profit Margin 62.56% 86.58% 99.27%

0.00%

25.00%

50.00%

75.00%

100.00%

125.00%

2003 2004 2005Year

Prof it Margin

Figure: Net Income & sales comparison.

The above graph states that the profit margin of AIMS First Guaranteed Mutual Fund

is increasing successively. It is a good signal for the investors because it will increase

the wealth of the shareholders.

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2. Grameen Mutual Fund One:

Sales

IncomeNetinMofit

argPr =

Year 15-02-2005 31-12-2005 30-06-2006

Net Profit 4500000 11949628 10298

Income 6142267 14334396 4875501

Ratio 73.26% 83.36% 0.21%

0.00%

25.00%

50.00%

75.00%

100.00%

15-02-2005 31-12-2005 30-06-2006

Period of Time

Ratio


Though the above graph reveals the decreasing trends of the profit margin but it is not

certain that will it be decreasing or increasing.

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3. ICB Islamic Mutual Fund:

SalesIncomeNetinMofit argPr =

Year 2005 2006

Net Profit 5,684,992 6,101,311

Income 7,961,690 9,815,580

Profit Margin 71.40% 62.16%

55.00%

60.00%

65.00%

70.00%

75.00%

2005 2006Year

Profit Margin


The above graph reveals that the profit margin of ICB Islamic Mutual Fund is

decreasing successively.

B. Return on Asset

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Return on asset ratio measures the efficiency with which total assets are employed

within the firm.


assetTotal

IncomeNetAssetonturn

Re =

Year 2003 2004 2005

Net Profit 6,848,298 17,162,394 21037998

Total assets 77566848 90322847 93648989

Ratio 8.83% 19.00% 22.46%

Return on Asset

0.00%

5.00%10.00%15.00%

20.00%

25.00%

2003 2004 2005Year

Figure: Return on Equity.

From the above table we see that the return on asset is increasing from 2003 to 2005.


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assetTotal


Re =

Year 15-02-2005 31-12-2005 30-06-2006

Net Profit 4500000 11949628 10298

Total assets 17671388 184308124 174274275

Ratio 25.46% 6.48% 0.01%

0.00%

8.00%

16.00%

24.00%

32.00%

15-02-2005 31-12-2005 30-06-2006

Period of Time

Ratio


From the above table we see that the return on asset is decreasing trend but it is not

certain that will the return on asset be decreased or increased. And this is happened

because the information of Grameen Mutual Fund One is not available.


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assetTotal


Re =

Year 2005 2006

Net Profit 5,684,992 6,101,311

Total assets 107,564,434 111,118,402

Ratio 5.29% 5.49%

Return on Asset

5.10%

5.20%

5.30%

5.40%

5.50%

5.60%

2005 2006Year


From the above table we see that the return on asset is increasing. Definitely this is a

good signal for the investors because it will increase their assets.

C. Return on Equity:

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Return on equity measures the efficiency with which common shareholders equity is

being employed within the firm.


Equity

IncomeNetEquityonturn

Re =

Year 2003 2004 2005

Net Profit 6,848,298 17,162,394 21037998

Equity 75089482 87162394 91037998

Ratio 9.12% 19.69% 23.11%

Return on Equity

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2003 2004 2005

Year

Figure: Return on Equity

It is recommended from the above graph that the return on equity is increasing from

2003 to 2005.


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Equity


Re =

Year 15-02-2005 31-12-2005 30-06-2006Net Profit 4500000 11949628 10298

Equity 16500000 181949628 170010298

Ratio 27.27% 6.57% 0.01%

0.00%

8.00%

16.00%

24.00%

32.00%

15-02-2005 31-12-2005 30-06-2006

Period of Time

Ratio


It is recommended from the above graph that the return on equity is decreasing

successively from 15th February 2005 to 30th June 2006.


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Equity


Re =

Year 2005 2006

Net Profit 5,684,992 6,101,311

Equity 100000000 100000000

ROE 5.68% 6.10%

5.40%

5.60%

5.80%

6.00%

6.20%

2005 2006Year

ROE


It is recommended from the above graph that the return on equity is increasing

successively from 2005 to 2006.

6.3 Capital Structure Ratio

Capital structure ratio provides insight into the extent to which non- equity capital is

used to finance the assets of the firm.

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Equity

sLiabilitieTotalRatioStructureCapital

=

Year 2003 2004 2005

Total Liabilities 2477366 3160453 2646991

Equity 75089482 87162394 91037998Ratio 3.30% 3.63% 2.91%

Capital Structure Ratio

0.00%

1.00%

2.00%

3.00%

4.00%

2003 2004 2005Year

Figure: Capital Structure ratio

The above graph reveals that the AIMS First Guaranteed Mutual Fund increases from2003 to 2004 then it is decreasing.


EquitysLiabilitieTotalRatioStructureCapital =

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Year 15-02-2005 31-12-2005 30-06-2006

Total Liabilities 1171388 2358496 4263977

Equity 16500000 181949628 170010298

Ratio 0.070993 0.0129624 0.025080698

0

0.02

0.040.06

0.08

15-02-2005 31-12-2005 30-06-2006Period of Time

Ratio


The above graph reveals that the Grameen Mutual Fund One increases its non equity

capital which is 158000000 Tk.


EquitysLiabilitieTotalRatioStructureCapital =

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Year 2005 2006

Total Liabilities 7564434 11118402

Equity 100000000 100000000

Ratio 7.56% 11.12%

Capital Structure Ratio

0.00%

3.00%

6.00%

9.00%

12.00%

2005 2006Year


The above graph reveals that the ICB Islamic Mutual Fund increases its non equity

capital from 2005 to 2006.

6.4 Working Capital / Cash Flow Ratio

The higher of this ratio, the higher the working capital or cash flow generated by thefirm in its operations.

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Year 15-02-2005 30-06-2006

Cash flow from operation 5448587 10282353

Incomes 6142267 4875501

Ratio 0.887064 2.1089839

0

1

2

3

4

2005 2006Year

Ratio

Figure:Working Capital / Cash Flow Ratio

We can state by using the above graph that the working capital to cash flow ratio is

increasing from 2005 to 2006. So it is clear that the ICB Islamic Mutual Funds ability

to generate cash from its operations is increasing.


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Year 15-02-2005 30-06-2006

Cash flow from operation 5448587 10282353

Incomes 6142267 4875501

Ratio 0.887064 2.1089839

00.5

1

1.5

2

2.5

15-02-2005 30-06-2006Period of Time

Ratio



increasing from 15th February 2005 to 30th June 2006. So it is clear that the Grameen

Mutual Fund Ones ability to generate cash from its operations is increasing.


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Year 2003 2004 2005

Cash flow from operation 4318411 7224785 652589

Incomes 10946040 19821496 21193095

Ratio 39.45% 36.45% 3.08%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

2003 2004 2005

Year

Ratio



decreasing from 2003 to 2004 slightly but it is decreasing heavily from 2004 to 2005.

6.5 Earning Per Share


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Year 2003 2004 2005

Net Profit 6,848,298 17,162,394 21037998

No of shares outstanding 70000000 70000000 70000000

Earning Per Share(EPS) 0.097833 0.24517706 0.300543

0.00

0.10

0.20

0.30

0.40

in2003 in2004 in2005

Year

Earning Per Share(EPS)

Figure: Earning Per Share

The above graph reveals that the earning per share is increasing from 2003 to 2005

successively.


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Year 15-02-2005 31-12-2005 30-06-2006

Net Profit 4500000 11949628 10298

No of shares outstanding 1200000 17000000 17000000

Earning Per Share 3.75 0.7029193 0.000605765

The earning per share is 3.75 Tk at 15 th February2005 though it is Tk.0.000605765 in

30th June 2006. It is happened because the number of share outstanding is increasing

form 1200000 to 17000000 in 30th June 2006.

0

1

2

3

4

15-02-2005 31-12-2005 30-06-2006

Period of Time

Earning Per Share


We can state that the Earning per Share of Grameen Mutual Fund One shows the

higher earning per share for the first 2005 then it is gradually decreasing.


Year 2005 2006

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Net Profit 5,684,992 6,101,311

No of shares outstanding 1000000 1000000

Earning Per Share(EPS) 5.684992 6.101311

The earning per share is Tk. 5.68 in 2005 though it is Tk.6.10 in 2006. It is happened

because the net profit increases from 2005 to 2006.

5.405.505.605.705.805.906.006.106.20

2005 2006Year

Earning Per Share(EPS)


The earning per share of the ICB Islamic Mutual Fund in the above graph shows the

increasing trend from 2005 to 2006. This sends a positive signal to the investors

because it increases the earnings of them.

6.6 Retention Ratio

This ratio is very important for the fund because this is used for the further expansion

of the fund. This indicates how much amount a fund retains in proportion to its total

earnings.


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YearThisEarnings

YearThisEarningstainRatiotention

ReRe =

Year 2005 2006

Retain earnings 684,992 786,303

Earnings this year 5,684,992 6,101,311

Retention Ratio 12.05% 12.89%

The above table represents that the retention ratio for the ICB Islamic Mutual Fund is

about same for both the year which is 12.05% & 12.89% in 2005 & 2006 respectively.


YearThisEarnings


ReRe =

Year 15-02-2005 31-12-2005 30-06-2006

Retain earnings 4500000 11949628 10298

Earnings this year 4500000 11949628 10298

Retention Ratio 100.00% 100.00% 100.00%

The above table represents that the retention ratio for the Grameen Mutual Fund One

is hundred percent that means the Grameen Mutual Fund One does not any dividend

to its shareholders.


YearThisEarnings


ReRe =

Year 2003 2004Retain earnings 5350661 6662394

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Earnings this year 6,848,298 17,162,394

Retention Ratio 78.13% 38.82%

The above table represents that the retention ratio for the AIMS First GuaranteedMutual Fund is 78.13% for 2003 which can be said as very high but it is decreasing

the following year in 2004.

6.7 Growth Rate

Growth rate indicates how much a fund will grow over the coming year. And growthis denoted by g.


Year 2003 2004

Net Profit 6,848,298 17,162,394

Equity 70000000 70000000

ROE 9.78% 24.52%

g = Retention Ratio * ROE 7.64% 9.52%

From the above table we see that the growth rate of the AIMS First Guaranteed

Mutual Fund is 7.64

Documents

Private Mutual Funds-Sadek