Internship report

PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDSINBANGLADESH OCTOBER31,2011

2

PERFORMANCEEVALUATIONOFSELECTEDMUTUALFUNDS

INBANGLADESH

SUBMITTEDTODR.MAHMOODOSMANIMAM

PROFESSORDEPARTMENTOFFINANCEUNIVERSITYOFDHAKA

SUBMITTEDBYKAWSERAHMEDSHIBLUBBA13THBATCH,SECTION:B

IDNO.:13008

DEPARTMENTOFFINANCEUNIVERSITYOFDHAKA

OCTOBER31,2011


3

LETTEROFTRANSMITTAL

October31,2011.

Dr.MahmoodOsmanImamProfessor,DepartmentofFinanceUniversityofDhakaDearSir,

IamverygladtosubmityoutheinternshipreportonPerformanceEvaluationofSelectedMutual Funds in Bangladesh. Iwould like to say that this reportwas helpful forme toapplyourbookishknowledgeaboutdifferentstrategiestoevaluateportfolioperformanceinpractical case. I amvery thankful toyou forgivingmesucha fantasticopportunity tomakeareportonthistopicaccordingtoyourguideline.

Analyzingthemutualfunds,Ihavealsogatheredknowledgeabouttheconditionofmutualmarketsectorofthestockexchange.Wehavetriedtoshowourfindingsinthisreport.

Iwillbehonoredifyoufindthissubmissioninappropriatemanner.Ifyouhaveanyqueryregardingmyanalysis,hopethatyouwillcalluponme.YoursSincerely.KAWSERAHMEDSHIBLUIDNo.:13008SectionB,13thBatchB.B.A.Dept.ofFinanceUniversityofDhaka


4

DECLARATION

IamverythankfulandgratefultoalmightyAllahwhohasgivenmethestrengthandabilitytocompletethisreport.IamalsogratefultomyhonorableteacherDr.MahmoodOsmanImam.

I also do sincerely declare that this internship report has been submitted, in partial

fulfillment of the requirement for the fulfillment ofmy graduation degree. The report iswrittenfrommy knowledge; but it ismentionable that I have gathered ideas from some articles, reportwhich is mentioned in the reference part. I understand that the paper may be cancelled ifsubsequently it is discovered that this is not ourprimevalwork and that it consists ofmaterialscopiedorplagiarizedorborrowedwithoutproperacknowledgement.

I,atlast,expressspecialthanksfromthebottomofmyheart toallwhohelpmedirectly&indirectlytocompletethisreport.


5

TABLEOFCONTENTSExecutiveSummary..................................................................................................................................................................................071.0Introduction.........................................................................................................................................................................................09

1.1ObjectiveoftheStudy.............................................................................................................................................................................101.2Methodology...............................................................................................................................................................................................10

1.2.1ResearchApproach...........................................................................................................................................................101.2.2SamplingPlan......................................................................................................................................................................101.2.3SelectionofIndex..............................................................................................................................................................101.2.4Sourcesofdata.....................................................................................................................................................................101.2.5SoftwareUsed.....................................................................................................................................................................101.2.6MeasuresUsed.....................................................................................................................................................................111.2.7proceduresofDataAnalysis........................................................................................................................................11

1.3ResearchTimeHorizon..........................................................................................................................................................................111.4Limitations..................................................................................................................................................................................................11

2.0LiteratureReviewonPerformanceEvaluationofMutualFunds......................................................................................122.1Concepts&Terminology:..........................................................................................................................................................1314

2.1.1MutualFund.........................................................................................................................................................................132.1.2TheRiskFreeRate............................................................................................................................................................132.1.3SystematicRisk.................................................................................................................................................................132.1.4UnsystematicRisk............................................................................................................................................................132.1.5CapitalMarketLine...........................................................................................................................................................132.1.6SecurityMarketLine........................................................................................................................................................14

2.2PerformanceEvaluationTools:..............................................................................................................................................15192.2.1TheTreynorMeasure(1965).......................................................................................................................................152.2.2TheSharpeMeasure(1966).........................................................................................................................................162.2.3Mmeasure:ModiglianiandModigliani(1997).................................................................................................162.2.4MarketadjustedRiskPerformance(MRAP)..........................................................................................................172.2.5JensenAlpha(1968).........................................................................................................................................................172.2.6HighermomentmeasureofHwangandSatchell(1998)................................................................................182.2.7InformationRatio..............................................................................................................................................................192.2.8EfficiencyRatio..................................................................................................................................................................192.2.9CoEfficientofDetermination(R2).............................................................................................................................19

2.3FamaDecompositionofMutualFundsReturns:...........................................................................................................20212.3.1RiskpremiumDuetoRisk............................................................................................................................................202.3.2InvestorsRisk....................................................................................................................................................................202.3.3Managers;Risk.....................................................................................................................................................................202.3.4RiskpremiumDuetoGrossSelectivity...................................................................................................................202.3.5ImpactofImperfectDiversification...........................................................................................................................202.3.6NetSuperiorReturnforSelectivity............................................................................................................................21

2.4TimingSkill:......................................................................................................................................................................................22232.4.1TheTreynor&MazuyModel(1966)........................................................................................................................222.4.2HenrikssonandMerton.......................................................................................................................................2223

3.0MutualFundsinBangladesh:AnOverview...............................................................................................................................243.1BangladeshEconomy,CapitalMarket&MutualFunds:...........................................................................................2529

3.1.1BangladeshEconomy.................................................................................................................................................25263.1.2CapitalMarket...............................................................................................................................................................27283.1.3MutualFunds.......................................................................................................................................................................29

3.2SelectionofMutualFund(M.F.):Profile............................................................................................................................30363.2.1ICBM.F.................................................................................................................................................................................31

3.2.1.14thICBM.F....................................................................................................................................................313.2.1.26thICBM.F...................................................................................................................................................313.2.1.38thICBM.F...................................................................................................................................................31

3.2.2ICBAMCL..............................................................................................................................................................................323.2.2.1ICBAMCL1stM.F......................................................................................................................................323.2.2.2ICBAMCLIslamicM.F.............................................................................................................................32

3.2.3AIMSM.F.............................................................................................................................................................................333.2.3.1AIMS1stM.F................................................................................................................................................333.2.3.2GrameenOneM.F.....................................................................................................................................33


6

3.2.4RaceM.F..............................................................................................................................................................................343.2.4.1EBL1stM.F...................................................................................................................................................343.2.4.2TrustBank1stM.F....................................................................................................................................34

3.2.5LRGlobalM.F....................................................................................................................................................................353.2.5.1DBH1stMutualM.F..................................................................................................................................353.2.5.2GreenDeltaM.F.........................................................................................................................................35

3.2.3BSRSM.F..............................................................................................................................................................................36 3.2.3.11stBSRSM.F................................................................................................................................................36

4.0DataAdjustment&Calculations:..................................................................................................................................................374.1AdjustmentofPrice.................................................................................................................................................................................384.2PreparingReturnSeries(UsingClosingPrice&NAV).............................................................................................................394.3CalculatingTBillRate(Monthly&Weekly)................................................................................................................................394.4CalculatingMarketReturn...................................................................................................................................................................394.5CalculatingMeanReturnforMarket&MutualFunds.............................................................................................................404.6CalculatingRiskforMarket&MutualFunds...............................................................................................................................40 4.6.1StandardDeviation...........................................................................................................................................................40 4.6.2Historical&AdjustedBeta.............................................................................................................................................41

5.0PerformanceEvaluationofM.F..............................................................................................................................................42555.1PerformanceEvaluations:...............................................................................................................................................................43

5.1.1TheTreynorMeasure(1965).................................................................................................................................43445.1.2TheSharpeMeasure(1966)...................................................................................................................................45465.1.3Mmeasure:ModiglianiandModigliani(1997).................................................................................................475.1.4Marketriskadjustedperformance(MRAP)measure.......................................................................................485.1.5JensenAlpha(1968)...................................................................................................................................................49505.1.6HighermomentmeasureofHwangandSatchell(1998)..........................................................................51525.1.7InformationRatio..............................................................................................................................................................535.1.8EfficiencyRatio...................................................................................................................................................................545.1.9CoEfficientofDetermination(R2).............................................................................................................................55

5.3TimingSkill:............................................................................................................................................................................................565.3.1TheTreynor&MazuyModel(1966)..................................................................................................................57575.3.2HenrikssonandMerton......................................................................................................................................5859

5.2FamaDecompositionofMutualFundsReturns:...........................................................................................................60615.2.1Selectivity5.2.2Diversification5.2.3NetSelectivity

6.0Correlation,Comparison&Justification..............................................................................................................................62666.1ComparisonbetweenMarketReturn&ReturnofMutualFunds........................................................................................636.2CorrelationbetweenClosePrice&NAV,ClosePrice&DGEN..............................................................................................646.3JustifyingPrice:OverpricedorUnderpriced........................................................................................................................6566

7.0Summary.......................................................................................................................................................................................67688.0AppendedPart.............................................................................................................................................................................6974


7

EXECUTIVESUMMARY

Even as the stock markets have started maturing of age over the past one decade, thegrowthofmutual fundinBangladeshhasbeenslow.Onlyrecentlytherehasbeenarushfornewfunds.Manybanksandfinancialinstitutionscontinuetointhequeuewithproposalsfortheirfunds.Mutual fund isa fundundera trust. Investment inmutual fund is ideal for investorswhodonotwant to take risk because the fund is managed professionally and the collective investment isdiversified. The price of a closedend fund share is normally determined by the value of theinvestmentinthefund.Therefore,themarketpriceofafundshareisoftenclosetopershareNAV.However,thematurityofmutualfundsistakingitssweettimeandNAVsofmutualfundsarestillnotclosetotheirmarketvalueofsuchfunds.ItisseenthatmarketpriceofamutualfundsharecanattimesbemuchhigherthantheirNAVjustify.So,forsmallinvestorschoosingasuitableoneisacomplexdecision.

Theobjectiveofthemystudyistofindoutthefactsandfiguresregardingtheperformanceof the selectedmutual fundswhich canbenefit the investor and fundmanger in selecting betterinvestmentbyconsidering theriskreturn factor. Insuchacontext,anattempthasbeenmade tostudytheperformanceofselectedmutualfundbasedontheriskandreturnrelationship.Soinmystudy,Itriedtofindtheansweroftheabovequestionswhetherthenmutualfundsharesareovervaluedorundervalueor rightlypriced.Here I also triedshowwhether thereturnof themutualfundonthebasisclosepriceishigherornotthanthatonthebasisofNAV,whetherthemutualfundisoverorunderperformingthemarket,whetherthepriceofmutualfundisstronglycorrelatedtotheNAV or to themarket index,DGEN etc. For this analysis purpose, I have selected 12mutualfundsunder6differentAssetManagementCompanies.

In completingmy study onmutual fund, at first I have calculated themean returnof themutual funds using the both price and NAV data. Then I have compared themeanmutual fundreturnthemeanmarketreturntoseewhetherthemutualfundsareoverorunderperformingthemarket.HereIhavefoundthatincaseofthepricereturn7mutualfundsareoverperformingandincaseoftheNAVreturn,thereareonlytwomutualfundsoverperformingthemarket.

AftercalculatingtheTmeasure,8mutualfundsareoverperformingonpricereturnbasisandincaseoftheNAVreturn;thereareonlytwomutualfundsoverperformingthemarket,whereoneofthesegeneratednegativereturn.Inthesameway,Smeasureshowsthatthereareonlytwomutual funds over performing themarket onprice returnbasis and three over performonNAVreturnbasis,whereoneofthesegeneratednegativereturn.

JensenalphashowedthatthisnofundmanagerwhocanearnsuperiorreturnonthebasisofbothpriceandNAV.Ontheotherhand,rsquareisthemeasurementofdegreeofdiversificationson the mutual fund. So the higher the higher value of r square, the better the mutual fund isdiversified.Hereonthebasisofprice,onlyonemutualfundiswelldiversifiedandonthebasisofNAV,thereisonelowdiversifiedmutualfund.

I also try to evaluate the fundmangers timing skill by using TreynorMazuymodel andHenriksson&Mertonmodel.BothTreynorMazuyandHenriksson&Mertonmodel shows threefundmanagers have significant negative timing skill. That is the fundmanagers are not efficientenoughtohandlethemutualfundefficientlywhichisalsovalidatedbylowerreturnperunitofrisk.Themanagerswhohavenegativetimingskillhavethelowerreturnperunitofrisk.By decomposing the actualmutual fund excess return, I determine the fundmanagers selectionskill.Onthebasisofthepricereturn,twofundmanagershavetheselectionskillandonthebasisoftheNAV,threefundmanagershavetimingskill.


8

Inthefollowingtabletheabovementionresultsareprovided.

Tratio Sratio Rsquare Jesenalpha TimingSkill SelectionSkill

CP NAV CP NAV CP NAV CP NAV CP NAV CP NAV

4thICB Over(+) Undr() Over(+) Undr() low High insg(+) Insg() Insg() insg(+) Supr Infr*

6thICB Over(+) Undr() Undr(+) Undr() low High insg(+) Insg() Sig() insg(+) infr infr

8thICB Over(+) Undr() Undr(+) Undr() low High insg(+) Insg() Insg() insg(+) infr infr

AMCL1st Over(+) Undr(+) Undr(+) Undr() low High insg(+) Insg() Insg() inig(+) infr infrAMCLIslmc

Over(+) Undr() Undr(+) Undr() low low insg(+) Insg() Insg() insg(+) infr infr

AIMS1st Over(+) Undr(+) Undr(+) Undr(+) low High insg(+) Insg() Insg() insg(+) infr infr

Gramn1 Over(+) Undr(+) Undr(+) Undr(+) low High insg(+) Insg() Sig() insg(+) infr infr

1stBSRS Over(+) Rm;(+) Over(+) Over(+) low High insg(+) insg(+) Sig() Insg() Supr Supr

EBL1st Undr() Undr() Undr() Over() low High Insg() Insg() Insg() insg(+) infr infr

Trust1st Undr() Over(+) Undr() Over(+) low High Insg() insg(+) Insg() insg(+) infr Supr*

DBH Undr() Over() Undr() Undr() low High Insg() insg(+) Insg() Insg() infr Supr

GrnDlta Undr() Undr() Undr() Undr() High High Insg() Insg() Insg() insg(+) infr infr

**Suprindicatesuperiorskillandinfrisinferiorskill.

By looking into the ratio of close price to NAV,we see that there are five fund are overperforming. By calculating the correlation coefficient between price andNAV; price andDGEN, Ihave learnt thatmutual fundprice is highlypositively correlatedwithDGEN,not toNAV.,whichindicate themarket inefficiency.That is thepriceofmutual fundsharewill increase if theDGENincreaseswhethertheNAVisincreasingordecreasingisnotanymatter.

Inconcludingwords lackofskilled investor,weak institutional frameworks,asymmetricregulation,smallamountofacademicresearcharemovingthisprudentialsectorofcapitalmarket,Bangladeshtoanunclearway.Alltherelatedpartiesshouldcomeforwardtodirectthissectortotherightway.Performanceanalysiswithlargersamplesize,persistenceofreturns,expensesandfee adjusted performance evaluation, validity of CAPM, Fama French three factormodel can beverygoodfutureresearchintheareaofactivefundmanagementinBangladesh.


9

INTRODUCTION


10

1.0INTRODUCTIONMutual fund is a trust that pools the savings,which are then invested in capitalmarket

instruments such as share, debentures and other securities. Recently the capital market ofBangladesh is featured by a plethora ofmutual fund scheme consisting of varying portfoliomix,investment objective and expertise of professional management. For small investors choosing asuitableone isa complexdecision.Theobjectiveof thepresent study is to findout the factsandfiguresregardingtheperformanceoftheselectedmutualfundswhichcanbenefittheinvestorandfundmangerinselectingbetterinvestmentbyconsideringtheriskreturnfactor.Insuchacontext,anattempthasbeenmadetostudytheperformanceofselectedmutualfundbasedontheriskandreturn relationship. Early studies onmutual fund included the several works of Jensen, Sharpe,Treynorwhousedcapitalassetpricingmodeltocompareriskadjustedreturnoffundwiththatofthebenchmarkmarketportfolio.ThefindingofSharpeandJensendemonstratedthatmutualfundsunderperformmarket indexesand suggest that the returnsarenot sufficient to compensate theinvestorfordiversemutualfundcharges.

The paper tries to present prominent performance evaluation models and examineempiricallythemarkettimingandselectivityofasampleofmutualfunds.1.1OBJECTIVEOFTHESTUDY

Thespecificobjectivesofthestudyare:

9 Tomeasurethereturnearnedbythesamplemutual fundsandtherebycomparedagainstthereturnofthemarketportfoliotodistinguishthebestperformerfromthelaggards.

9 Findoutthosemutualfundsofferingtheadvantageofdiversification,alongwithadequatesystematicriskcomparedtomarketbetarisk.

9 Toanalyze theexcess returnperunitof riskevidencedby themutual fundbelongings topublicsectorandprivatesectorandtodrawcomparisons

9 Toevaluatetheeffectivenessofthemutualfunds9 Tohelpthepotentialinvestorsforassessingtheinvestmentdecision9 Toevaluatethemutualfundsfortakinginvestmentdecision.

1.2METHODOLOGYOFTHESTUDY

Thestudyhasbeendesignedinthefollowingway

1.2.1 RESEARCH APPROACH: for convenience of the study, the explanatory researchapproachesappliedtoconductthestudyandpresentedtheresultsoon.

1.2.2 SAMPLING PLAN: Convenience sampling techniques were used to select therepresentativemutualfund.PresentlyalmostallmutualfundsareissuedandmanagedbytheICB.OthermutualfundsareoperatedbyAMCL,BSRS,AIMSandfinancialinstitutions.Altogetherthereare36mutualfundsareinoperationinthecapitalmarket.Thestudydoesnotfocustheentirefund;thisstudywasfocusedonly12mutualfundsfrom6AssetManagementCompany.

1.2.3SELECTIONOFINDEX:astherearethreeindexesinDSEi.e.DSI(DSEallshareindex),DSE20andDGEN(DSEgeneralindex).HereDGENisusedasabenchmark.

1.2.4SOURCESOFDATA:allthedatausedinthestudycollectedfromthesecondarysources.Secondary data were collected from DSE library, different websites, annual reports, journals,articlesetc.

1.2.5SOFTWAREUSED:MSExcel,SPSS(StatisticalPackageforSocialScience)wereusedforprocessingandanalyzingthedata.


11

1.2.6MEASURESUSED:Incompletingthestudyonmutualfunds,Ihaveusedthefollowingmeasures

9 TheTreynorMeasure(1965)9 TheSharpeMeasure(1966)9 Mmeasure:ModiglianiandModigliani(1997)9 Marketriskadjustedperformancemeasure9 JensenAlpha(1968)9 HighermomentmeasureofHwangandSatchell(1998)9 InformationRatio9 EfficiencyRatio9 CoEfficientofDetermination(R2)9 FamaDecompositionofMutualFundsReturns:9 TheTreynor&MazuyModel(1966)

1.2.7 PROCEDURE OF DATA ANALYSIS: several statistical tools were used to analyze and

evaluatethedata.Speciallymeanreturn,standarddeviation,coefficientofcorrelation,coefficientofdeterminationusedasbasictoolsofanalysisandevaluation.Thedataprocessthroughthesetoolsandinterpretedbythemeanofbetacoefficient,Treynorratio,Sharperatio.Jensenalphaandmanymorediscussedinthefollowingchapters.

1.3RESEARCHTIMEHORIZON:Thestudyanalyzedthemutual fundover thepast5years incaseofpricebasisanalysis.

ButincaseofNAVbasisanalysis,thestudyanalyzedthemutualfundonthebasisofavailabilityofNAVdataofmutualfunds.Buthereitismentionablethatinanytypeofanalysisatleast18monthsor65weeksanalysisisdone.

1.4LIMITATIONS:Insomecasesthereareonly18monthsdataareusedtoanalyze theperformancedueto

lackofdataavailability..Butasweknowthataverylongtimeintervalisneededinordertobeabletoobtainameasureofriskadjustedperformancethatcandistinguishskillfromluckonthepartoftheinvestmentmanager.


12

LITERATUREREVIEWONPERFORMANCEEVALUATION

OFMUTUALFUNDS


13

2.1CONCEPTS&TERMINOLOGY:Beforestartingourjourneytoevaluatethemutualfunds,heresomeofthebasicconceptand

terminologyareprovided.

2.1.1MUTUALFUNDAninvestmentvehiclethatismadeupofapooloffundscollectedfrommanyinvestorsforthe

purposeofinvestinginsecuritiessuchasstocks,bonds,moneymarketinstrumentsandsimilarassets.Mutual fundsareoperatedbymoneymanagers,who invest the fund'scapitalandattempttoproducecapitalgainsandincomeforthefund'sinvestors.Amutualfund'sportfolioisstructuredandmaintainedtomatchtheinvestmentobjectivesstatedinitsprospectus.

One of the main advantages ofmutual funds is that they givesmall investors accesstoprofessionallymanaged,diversifiedportfoliosofequities,bondsandothersecurities,whichwouldbequitedifficult(ifnotimpossible)tocreatewithasmallamountofcapital.Eachshareholderparticipatesproportionallyinthegainorlossofthefund.Mutualfundunits,orshares,areissuedandcantypicallybe purchased or redeemed as needed at the fund's current net asset value (NAV)per share,whichissometimesexpressedasNAVPS.

2.1.2THERISKFREERATEThe theoretical rate of return attributed to an investment with zero risk.The riskfree rate

representstheinterestonaninvestor'smoneythatheorshewouldexpectfromanabsolutelyriskfreeinvestmentoveraspecifiedperiodoftime.

In theory, the riskfree rate is the minimum return an investor should expect for anyinvestment,asanyamountofriskwouldnotbetoleratedunlesstheexpectedrateofreturnwasgreaterthantheriskfreerate.

Inpractice,however, the riskfree ratedoesnot technicallyexist; even the safest investmentscarryaverysmallamountofrisk.Thus,investorscommonlyusetheinterestrateonathreemonthU.S.Treasury bill as a proxy for the riskfree rate becauseshortterm governmentissued securities havevirtuallyzeroriskofdefault.

2.1.3SYSTEMATICRISKSystematic Risk is the risk inherent tothe entire market or entire market segment. It is

alsoknown as "undiversifiablerisk" or "market risk.. Interest rates, recession and wars allrepresentsources of systematic risk because they affect the entire market and cannot be avoidedthroughdiversification.Whereasthistypeofriskaffectsabroadrangeofsecurities,unsystematicriskaffectsaveryspecificgroupofsecuritiesoranindividualsecurity.Systematicriskcanbemitigatedonlybybeinghedged.Evenaportfolioofwelldiversifiedassetscannotescapeallrisk

2.1.4UNSYSTEMATICRISKUnsystematic Risk is the Company or industryspecific risk that is inherent in each

investment.Theamountofunsystematic risk canbe reduced throughappropriatediversification.It isalsoknownas"specificrisk","diversifiablerisk"or"residualrisk".Forexample,newsthatisspecifictoasmallnumberofstocks,suchasasuddenstrikebytheemployeesofacompanyyouhavesharesin, isconsideredtobeunsystematicrisk.

2.1.5CAPITALMARKETLINECapitalmarketline(CML)isthetangentlinedrawnfromthepointoftheriskfreeassettothe

feasibleregionforriskyassets.ThetangencypointMrepresentsthemarketportfolio,sonamedsinceallrationalinvestors(minimumvariancecriterion)shouldholdtheirriskyassetsinthesameproportionsastheirweightsinthemarketportfolio.


14

TheCMLresultsfromthecombinationofthemarketportfolioandtheriskfreeasset(thepointL).AllpointsalongtheCMLhavesuperiorriskreturnprofilestoanyportfolioontheefficientfrontier,with theexceptionof theMarketPortfolio, thepointon theefficient frontier towhich theCML is thetangent.FromaCMLperspective,thisportfolioiscomposedentirelyoftheriskyasset,themarket,andhasnoholdingof therisk free asset, i.e.,money isneither invested in,norborrowed fromthemoneymarketaccount.

2.1.6SECURITYMARKETLINESecurityMarketLine is a line thatgraphs the systematic, ormarket,riskversus returnof the

wholemarketat a certain timeandshowsall riskymarketable securities. It is also referred toas the"characteristicline".

The SMLessentially graphs the results from thecapital asset pricingmodel (CAPM) formula.Thexaxis represents the risk (beta), and the yaxis represents the expected return. Themarket riskpremiumisdeterminedfromtheslopeoftheSML.

Thesecuritymarketlineisausefultoolindeterminingwhetheranassetbeingconsideredforaportfoliooffersareasonableexpectedreturnforrisk.IndividualsecuritiesareplottedontheSMLgraph.If the security's risk versus expected return is plotted above the SML, it is undervaluedbecause theinvestor can expect a greater return for the inherent risk.A security plotted below the SMLisovervaluedbecausetheinvestorwouldbeacceptinglessreturnfortheamountofriskassumed.


15

2.2PERFORMANCEEVALUATIONTOOLS:

Portfolioperformanceevaluationisakeyaspectoftheinvestmentdecisionprocess.Sometoolsofportfolioperformanceevaluationprovidethenecessaryinformationforinvestorstoassesshoweffectively theirmoneyhasbeen invested (ormaybe invested).One thing is important thatportfolio returnsareonlypartof thestory.Withoutevaluatingriskadjustedreturns,an investorcannot possibly see the whole investment picture, which may inadvertently lead to cloudedinvestmentdecisions.

Many investors mistakenly base the success of their portfolios on returns alone. Fewconsider therisk that they took toachieve thosereturns.Since the1960s, investorshaveknownhow to quantify andmeasure riskwith the variability of returns, but no singlemeasure actuallylookedatbothriskandreturntogether.Today,wehaveeightsetsofperformanceevaluationtoolstoassistuswithourportfolioevaluations.TheTreynor,SharpeandJensenratiosetc.combineriskandreturnperformanceintoasinglevalue,buteachisslightlydifferent.

2.2.1THETREYNORMEASURE(1965)

Jack L. Treynorwas the first to provide investorswith a compositemeasure of portfolioperformancethatincludedrisk.Treynorsobjectivewastofindaperformancemeasurethatcouldapplytoall investors,regardlessof theirpersonalriskpreferences.Hesuggestedthattherewerereallytwocomponentsofrisk:theriskproducedbyfluctuationsinthemarketandtheriskarisingfromthefluctuationsofindividualsecurities.

Treynorintroducedtheconceptofthesecuritymarketline,whichdefinestherelationshipbetweenportfolioreturnsandmarketreturns,wherebytheslopeofthelinemeasurestherelativevolatility between the portfolio and themarket (as represented by beta). The beta coefficient issimplythevolatilitymeasureofastock,portfolioorthemarketitself.Thegreatertheline'sslope,thebettertheriskreturntradeoff.

TheTreynormeasurecanbeeasilydefinedas:

Where:

E(RP)denotestheexpectedreturnoftheportfolio;RFdenotesthereturnontheriskfreeasset;BPdenotesthebetaoftheportfolio.

Thenumeratoridentifiestheriskpremiumandthedenominatorcorrespondswiththeriskoftheportfolio.Theresultingvaluerepresentstheportfolio'sreturnperunitrisk.ThehighertheTreynormeasure,thebettertheportfolio.

Becausethismeasureonlyusessystematicrisk,itassumesthattheinvestoralreadyhasanadequatelydiversifiedportfolioand,therefore,unsystematicrisk(alsoknownasdiversifiablerisk)isnot considered.As a result, thisperformancemeasure should reallyonlybeusedby investorswhoholddiversifiedportfolios.


16

2.2.2THESHARPEMEASURE(1966)TheSharperatioisalmostidenticaltotheTreynormeasure,exceptthattheriskmeasureis

the standard deviation of the portfolio instead of considering only the systematic risk, asrepresented by beta. Conceived by Bill Sharpe, This ratio measures the return of a portfolio inexcessoftheriskfreerate,alsocalledtheriskpremium,comparedtothetotalriskoftheportfolio,measuredby its standarddeviation. It isdrawn from the capitalmarket line, andnot theCapitalAssetPricingModel(CAPM).Thisratio,initiallycalledtherewardtovariabilityratio,isdefinedby:

Where:

E(RP)denotestheexpectedreturnoftheportfolio;RFdenotesthereturnontheriskfreeasset;(RP)denotesthestandarddeviationoftheportfolioreturns.

Sincethismeasureisbasedonthetotalriskoftheportfolio,madeupofthemarketriskandtheunsystematicrisktakenbythemanager, itenablestheperformanceofportfoliosthatarenotverydiversifiedtobeevaluated.Thismeasureisalsosuitableforevaluatingtheperformanceofaportfolio that represents an individuals total investment. The higher the Sharpe measure, thebettertheportfolio.

2.2.3MMEASURE:MODIGLIANIANDMODIGLIANI(1997)ModiglianiandModigliani(1997)showedthattheportfolioanditsbenchmarkmusthave

the same risk to be compared in terms of basis points of riskadjusted performance. So theyproposethattheportfoliobeleveragedordeleveragedusingtheriskfreeasset.Theydefinedthefollowingmeasure:

Where,

(M/P)istheleveragefactor.Mdenotestheannualizedstandarddeviationofthemarketreturns;PdenotestheannualizedstandarddeviationofthereturnsoffundP;RPdenotestheannualizedreturnoffundP;RFdenotestheriskfreerate.

Thismeasure evaluates the annualized risk adjusted performance (RAP) of a portfolio in

relation to the market benchmark, expressed in percentage terms. According to Modigliani andModigliani,thismeasureiseasiertounderstandbytheaverageinvestorthantheSharperatio.

Modigliani and Modigliani propose the use of the standard deviation of a broadbasedmarket index,suchastheS&P500,asthebenchmarkforriskcomparison,butotherbenchmarkscouldalsobeused.Forafundwithanygivenriskandreturn,theModiglianimeasureisequivalentto the return the fund would have achieved if it had the same risk as the market index. Therelationship therefore allows us to situate the performance of the fund in relation to that of themarket.ThemostinterestingfundsarethosewiththehighestRAPvalue.

TheModiglianimeasureisdrawndirectlyfromthecapitalmarketline.Itcanbeexpressedas the Sharpe ratio times the standard deviation of the benchmark index: the twomeasures aredirectlyproportional.SoSharperatioandModiglianimeasureleadtothesamerankingoffunds.


17

2.2.4MARKETRISKADJUSTEDPERFORMANCE(MRAP)MEASURE:SCHOLTZANDWILKENSScholtz andWilkens (2005) note that, as theRAPmeasure developed byModigliani and

Modigliani(1997)usesthestandarddeviationasriskmeasure,itisrelevantonlytoinvestorswhoinvesttheirentiresavingsinasinglefund.Sotheyproposeameasurecalledmarketriskadjustedperformance (MRAP), following the same principle as Modigliani and Modiglianis measure, butmeasuringreturnsrelativetomarketriskinsteadoftotalrisk.Asaresult,theMRAPissuitableforinvestorswhoinvestinmanydifferentassets.

Theideaistocomparefundsonthebasisofmeasureofmarketriskthatisidenticalforallfunds.Thenaturalchoice is thebeta factorof themarket index,M=1.Themarket riskadjustedperformanceforfundiisobtainedby(de)leveringitinordertoachieveabetaequaltoone.Ifthefundssystematicriskexceedsthatofthemarket(i>1),thisprocedurecanbeinterpretedasafictitioussaleofsomefractiondioffundholdingsandthenaninvestmentoftheproceedsattheriskfreerate(di


18

2.2.6HIGHERMOMENTMEASUREOFHWANGANDSATCHELL(1998)Whenportfoliosreturnsarenotnormallydistributed,highermomentssuchasskewness

andkurtosisneedtobeconsideredtoadjustforthenonnormalityandtoaccountforthefailureofvariancetomeasureriskaccurately.

In these cases, a highermoment CAPM should prove more suitable than the traditionalCAPM and so a performance measure based on higher moments may also be more accurate.AssumingthevalidityofthethreemomentCAPMandaquadraticreturngeneratingprocessoftheform:

WecandefineaperformancemeasureofaportfoliounderthethreemomentCAPMas:

Where,

With:

And,

mandmare theskewnessandkurtosisof themarketreturns,andandpmarebetaandcoskewnessrespectively.Ifthemarketreturnsarenormal,thenpm1=pmand2=0andthealphameasureisthereforeequivalenttoJensensalpha.


19

2.2.7INFORMATIONRATIOTheinformationratio,whichissometimescalledtheappraisalratio,isdefinedbytheresidual

returnoftheportfoliocomparedtoitsresidualrisk.Theresidualreturnofaportfoliocorrespondstotheshare of the return that is not explained by the benchmark. It results from the choicesmade by themanagertooverweightsecuritiesthathehopeswillhaveareturngreaterthanthatofthebenchmark.Theresidual,ordiversifiable,riskmeasurestheresidualreturnvariations.Itisthetrackingerroroftheportfolioandisdefinedbythestandarddeviationofthedifferenceinreturnbetweentheportfolioanditsbenchmark.Theloweritsvalueis,theclosertheriskoftheportfoliototheriskofitsbenchmark.

Sharpe(1994)presentstheinformationratioasageneralizationofhisratio, inwhichtherisk

freeassetisreplacedbyabenchmarkportfolio.Theinformationratioisdefinedthroughthefollowingrelationship:

Where,

RBdenotesthereturnonthebenchmarkportfolio.

Managersseektomaximizeitsvalue,i.e.toreconcileahighresidualreturnandalowtrackingerror.Thisratioallowsustocheckthattherisktakenbythemanager,indeviatingfromthebenchmark,issufficientlyrewarded.

The information ratio is an indicator that allows us to evaluate the managers level ofinformation compared to the public information available, together with his skill in achieving aperformancethatisbetterthanthatoftheaveragemanager.Asthisratiodoesnottakethesystematicportfolio risk into account, it is not appropriate for comparing the performance of awelldiversifiedportfoliowiththatofaportfoliowithalowdegreeofdiversification.

2.2.8EFFICIENCYRATIOToexplainhowthismeasureworks,weconsidertheaveragemeanreturnofamutualfund

and its standard deviation. Thenwe calculate the return per unit of risk for themutual fund bydividing themeanreturnby its standarddeviation. In thesameway,wecalculate thereturnperunitofriskformarket.Thenbycomparingthereturnperunitofriskofthemutualfundwiththereturnperunitofriskofmarket,wecandeterminewhetherthemutualfundisefficientlymanagedornot.

Again, we can rank themutual funds in accordance of their return per unit of risk. Thehigherthereturnperunitofriskis,thebetterthemutualfundis.

2.2.9COEFFICIENTOFDETERMINATION(R2)Coefficient of Determination (R2) explains the percentage of a portfolio's performance

explainablebytheperformanceofabenchmarkindex.ThatisCoefficientofDetermination(R2)isameasureofdiversification.Itissimplythesquareofthecorrelationcoefficientbetweenthemarketreturnsandportfolioreturns.

TheRsquareismeasuredonascaleof0to100,withameasurementof100indicatingthattheportfolio'sperformanceisentirelydeterminedbythebenchmarkindex..TheclosertheR2isto100, themore completely diversified the portfolio is. A low R square indicates that there is nosignificantrelationshipbetweentheportfolioandtheindex.

PERFORMA

2.3FAMF

andRiskrisk andwhichha

2.3.1RIIt

givenits

Ifdecompo

2.3.2INVIn

wasexactoriskth

2.3.3MAIf

actualbeextraristoriskth

Triskiness

2.3.4RIT

and theexplaine

InSinceitc

2.3.5IMT

the CMLDiversifi

ANCEEVALUAT

MADECOMFamadecomk.SelectivityInvestors rasbeenearn

SKPREMIUMt indicates tsbeta,mark

faninvestoosetheriskVESTOR'SRInvestorsrisctlyequaltohatisexplai

ANAGER'SRIf themanagetawasdiffskthatthemhatisexplai

Target betasoftheportSKPREMIUMThis is thepmarket ris

edbythepo

notherworcannotbeexMPACTOFIMThisisthedL and the rication is th

TIONOFSELECT

POSITIONO

mposedExcyconsistsofrisk.Excessnedinexces

MDUETORItheamountketreturn,a

rspecifiesakpremiumdISK:skistheriskothetargetinedbythe

ISK:geractuallyferentthantmanagerstoinedbythe

Ris used totfoliotothaMDUETOGRportionof tsk premiumrtfolio'sbetRPSelectivit

rds, this isxplainedbyPERFECTDIVdifferencebereturn thathe differen

TEDMUTUALF

OFMUTUALess returnfDiversificas return is dssofriskfre

ISK:tof theriskndriskfree

RPRiskaparticularduetoriskin

kpremiumtbeta.Thatinvestor'stRPInvestor

ytakesadifthetargetbook.ThatisdifferencebRPManagerRisevaluate th

atdesiredbyROSSSELECTtheexcess rm. That is ita,marketrty=RPTotaltheportionyrisk,itmusVERSIFICATI

etweenthet should hance between

FUNDSINBANG

20

LFUNDSAinto twomtionandNedefined aseereturn.

kpremiumerate.Thatk=P(RMRtargetleventoinvestor

thatwouldisitexplaintargetbeta.rRisk=T(RM

fferent levebeta)thenpsitexpressebetweenthesk=(PT)he how cloytheclient.TIVITY:return thatit indicatesreturn,andrRPRisk=RPnof the retustbeduetoONreturnthatave been ean the retur

GLADESH

CTUALEXCmain compoetSelectivitythat portio

that thepois,RF)lofrisk(i.ersriskand

havebeennstheamou

MRF)

elofriskthaartoftheriestheportioeactualbeta(RMRF)ose the man

isnotexplas the risk priskfreeratPTotalP(RMurn that issuperiorse

shouldhavarned accorn explaine

CESSRETURnentswhicy.Riskconsin of that po

ortfolioshou

e.,beta)thenmanagers

earnedifthuntoftheris

anthetargeiskpremiumonoftherisaandtheta

nager was

ainedby thpremium inte.MRF)due to theecurityselec

vebeenearnrding to thd by the t

OCTOBER31,

RNSh areSelecistsofManaortion of re

uldhaveea

nwecanfurrisk.

heportfolioskpremium

et level(i.emwasduetskpremiumargetbeta.

in targeting

heportfolion excess of

manager'sction.

nedaccordihe SML. Thotal risk o

2011

tivityagerseturn

arned

rther

betamdue

., theothe

mdue

g the

betaf that

skill.

ngtohat isf the


21

portfolioandthesystematicriskoftheportfolio.Thiswillbezeroforperfectlydiversifiedportfolios.Thatis,

RPDiversification={(P/M)*(RMRF)P(RMRF)}2.3.6NETSUPERIORRETURNDUETOSELECTIVITY

We can determine how much of the risk premium comes from ability to selectstocks(netselectivity)bysubtractingdiversificationfromselectivity.ThatisNetSelectivityisthedifferencebetweentheriskpremiumduetoselectivityanddiversification.Thatis

RPNetSelectivity=RPSelectivityRPDiversification


22

2.4TIMINGSKILLTimingskillimpliesthathowwellafundmanagermatcheshisorherdecisionwiththe

movementofthemarket.Ifthetimingisperfectthenportfolioreturnwouldbeequaltomarketreturn.Heretimingskillcanbeexaminedbyusingthefollowingmodel.

2.4.1THETREYNOR&MAZUYMODEL(1966)ThismodelusedaquadraticversionoftheCAPM,whichprovidesuswithabetter

frameworkfortakingtheadjustmentsmadetotheportfoliosbetaintoaccount,andthusfor evaluating a managers market timing capacity. Managers who anticipate marketevolutionscorrectlywilllowertheirportfoliosbetawhenthemarketfalls.Theirportfoliowill thusdepreciate less than if theyhadnotmade the adjustment. Similarly,when theyanticipateariseinthemarket,theyincreasetheirportfoliosbeta,whichenablesthemtomakehigherprofits.Therelationshipbetweentheportfolioreturnandthemarketreturn,inexcessoftheriskfreerate,shouldthereforebebetterapproximatedbyacurvethanbyastraightline.Themodelisformulatedasfollows:

Where:RPtdenotestheportfolioreturnvectorfortheperiodstudied;RMtdenotesthevectorofthemarketreturnsforthesameperiod,measuredwiththesamefrequencyastheportfolioreturns;RFtdenotestherateoftheriskfreeassetoverthesameperiod.

TheP,PandPcoefficientsintheequationareestimatedthroughregression.IfPis positive and significantly different from zero, we can conclude that the manager hassuccessfullypracticedamarkettimingstrategy.

TreynorandMazuy(1966)usingannualreturnsfor57openendmutualfunds,findthatthehypothesis of nomarket timing ability can be rejectedwith 95% confidence for only one of thefunds.Thismodelwas formulatedempiricallybyTreynorandMazuy (1966). Itwas thentheoreticallyvalidatedbyJensen(1972)andBhattacharyaandPfleiderer(1983).

2.4.2THEHENRIKSSONMERTONMODELHenriksson andMerton (1981) derive the statistical framework for bothparametric and

nonparametric testsofmarkettimingability. If themanagers forecastsareobservable, then thenonparametric test can be usedwithout further assumptions about the distribution of securityreturns.

If the forecasts are not observable, then the parametric test can be used under theassumptionofeitheraCAPMoramultifactorreturnstructure.ItconsistsofamodifiedversionoftheCAPMwhich takes themanagers two riskobjectives into account, dependingonwhetherheforecaststhatthemarketreturnwillorwillnotbebetterthantheriskfreeassetreturn.Themodelispresentedinthefollowingform:

RMFtRFt=+(RMtRFt)+Max[(RMt RFt),0]+t

The , and coefficients in the equation are estimated through regression. The coefficient allows us to evaluate the managers capacity to anticipate market evolution. If ispositiveandsignificantlydifferentfromzero,themanagerhasagoodtimingcapacity.


23

Herethenewterm,,representsaninformationaladvantagerepresentedbyanocostputoptiononthemarketportfolio.HenrikssonandMertonarguethatifissignificantlypositive,weidentifyselectionskills,and forapositiveandsignificant, themutual fundmanagerpossessestimingability.

While the above multiple regression methods are easy to apply, statistical inferencerequirescare.AspointedoutbyHenrikssonandMerton(1981)themanagedportfoliosreturnwillexhibit conditional heteroscedasticity because of the fundmanagers attempt to time themarket,evenwhenstockreturnsareseriallyuncorrelatedandidenticallydistributedthroughtime.


24

MUTUALFUNDSINBANGLADESH:ANOVERVIEW


25

3.1BANGLADESHECONOMY,CAPITALMARKET&MUTUALFUNDS:

3.1.1BANGLADESHECONOMY:Beforegoingthroughmaintopicofmyreport,PerformanceEvaluationofSelectedMutual

FundinDSE,letshaveabrieflookonthecurrenteconomyofBangladesh.Bangladeshhasafairlygood and expanding stock of both physical and human capital, and with favorable policies, theupgradingpotentialofbothcapitalisbright.Theremittances fromoverseasworkershavealreadybecomeagreatsourceofstrengthandthiscanbeincreasedmanifoldwithrightpolicies.Relativestability of the country's economic fundamentals has created a fairly good macroeconomicenvironment.ThekeymacroeconomicindicatorsofBangladesharegivenbelow:

TherecenteconomicoutlookofBangladesheconomybecomesclearwhenwewillconsiderthefollowingeconomiceventsorfactors.Theseeconomiceventsorfactorsare

RealGDPisprojectedtogrowataround6.2percentinFY11,upfrom5.8percentinFY10.At present GDP shows the upward trend which indicates better financial performance of thecountryandthisisthebesttimetoinvestindifferentpromisingindustryoftheeconomy.Again,TheincreaseinconsumerpricesthatstartedinFY10continuedthroughthefirstninemonthsofFY11,driven largely by a doubledigit rise in food prices. The recent trend in inflation rate (movingaverage)demonstratesadecreasingtrend.Theinflationratehasdecreasedfrom8.5percentintheendJuneofFY200910to6.9percentintheFY201011.Thedecreasingtrendintheinflationratealsoindicatesthesoundeconomicperformanceofthecountry.

BangladeshKeyMacroeconomicIndicatorsFiscalYear FY8 FY9 FY10 FY11(P.) FY12(P.)

RealGDPGrowth(%) 6.2 5.7 5.8 6.2 6.4CPIInflation(%,average) 9.9 6.7 7.3 8.8 7.4Investment(%ofGDP) 24.2 24.4 25 25.5 26.6Export(f.o.b)Growth(%) 17.4 10.1 4.2 27 19.6Import(f.o.b)Growth(%) 25.6 4.2 5.4 36.1 15CurrentAccountBalance(%ofGDP) 0.9 2.7 3.7 0.8 1.6Revenue(%ofGDP) 11.4 10.4 10.9 12.1 12.7Expenditure(%ofGDP) 15 14.3 14.6 16.7 18.2OverallBalance(%ofGDP) 3.6 3.9 3.7 4.6 5.5PublicDebt(%ofGDP) 46.8 45.4 41.5 41.6 41.2

0

2

4

6

8

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

GDPGR(%)

Year

GDP,constantprices

8.18.9

5.4

8.56.9

0

2

4

6

8

10

200607 0708 0809 0910 1011

Inflation(%)


26

Meanwhile, growth inmoneyandcredit isestimated to remainhigh inFY11,as itwas inFY10.Butas the global economy is yet to fully recover and struggling to attain the pre- recession growth level, investment climate in Bangladesh continues to stagger as reflected in the continuously high level of excess liquidity that piled up in the banking system from end-June 2007 to end-June 2009. Excess liquidity showed a decline since end-June 2010. It has further declined in end-Sept10, showing that Bangladesh economy is responding to the recovery taking place in developed countries. Again, both exports and imports rose in the first part of FY2011while remittance growth fell sharply, thus narrowing the external current account surplus.RemittancesfellsharplyinthefirsthalfofFY11buthavesincerecoveredslightly.

Atlast,wecansaythatBangladesheconomyhasgrownataround6%overthepast5years,despitenaturalshocksandexternalvolatility,andwebelievethatthebestyearsforthecountryareaheadofusandeconomyhasthepotentialtogrowbyaround8%duringthecomingyearsandforthattheinvestmentmustgrowfasterthanthepresentrate.Itovercomestheglobalfinancialcrisiswell,andhasconsequentlycomeoutof thecrisis inapositionofstrength,withrealGDPgrowthmodestly impacted.Tomaintaina stableeconomyand to reduce theeconomic fluctuationofourcountrythefollowingstepsaretakenbyregulatorybodies:

9 OnMarch9,2011,theBangladeshBankliftedthe13percentlendingratecaponbanksthatwas introduced inApril2009 in response to theworldeconomic crisisand increased theCRRandtheSRRby50basispointsinDecember2010.

9 InNovember2010, theMicrocredit RegulatoryAuthority (MRA)put a 27percent cap oninterest ratesandmade itmandatory toallowat least15days between thedatesof loanissuanceandfirstrepayment.

9 ThedraftVATlawandruleswereplacedontheNBRwebsiteforpublicdiscussion.Andthepublicprivatepartnerships(PPP)agendaismovingforwardslowly.

9 TheBangladeshEnergyRegulatoryCommissionraisedpowertariffsbyanaverage11percentforbulkconsumers,andissuedaninterimordertoraisetariffsforretailcustomersby5.0percent,witheffectfromFebruary1,2011.

Apart from the risks to the global economy, there are several short and longterm risksfacingtheBangladesheconomy.Shorttermrisksincluderising foodandfuelpricesplacingstresson fiscal and external balances deteriorating remittances and impact on the current account,leading to the possibility of increased reserve draw down; the growing quasifiscal deficit; andstockmarket volatility and its possible impact on thebanking sector. Themacroeconomicpolicyresponse will need to strike a balance between maintaining a comfortable level of reserves,containing inflation and allowing greater exchangerate flexibility. Longterm risks include theinabilitytosufficientlyalleviatepowershortages,raisepublicinvestment,andremovebottleneckstoprivateinvestment.Inaddition,theimpactofrisingfoodandfuelpricesonpovertywillneedtobecarefullymanaged.

0

0.05

0.1

0.15

2000 01 02 03 04 05 06 07 08 09 10

Growthrate(%

)

Year

GrowthInExcessLiquidity

10%0%

10%20%30%40%

Rem

ittanceGR

GrowthofRemittance

PERFORMA

3.1.2CAIn

DSE) is tstarted inwithatotheotherChittagon

Atheremalistingofoftradingtradingsof monthannounce

H**UptoSep

TMutualFuFuel andMiscellsa

Part

Ex.TurnFTTrunMcapSim.WgMarketYMarketPMCapto

ANCEEVALUAT

APITALMARKn Bangladesthe main ston1956.Priotalpaidupcr side,ChittangCitythrou

AsIhaveusedainingpartofCompanies,g,giftingofsystemofthehly review,ementofpric

HereIhavepr

ptember,2011hemarketcaund,IT,CeraPower, Jute

aneous.Here

ticulars

novernover

ghtAvgDiv.Yield WPE WoGDP

TIONOFSELECT

KETh, there areock exchangeor to indepencapitalofBDagongStockughthecryo

dtheDSEprfmyreportprovidingthshareorgraeexchange,mmonitoringcesensitiveo

rovidedaDS

apitalizationamic,Cemene, Textile, Phthesectorial

Unit 2

Tk.Crore 16Tk.CroreTk.Crore 47Percent

WghtdAvgWghtdAvg

Percent

Textile2.9%

Pharma.8.72%

Jute0.04%

Service0.83%

Tannery0.64%

Miscel3.52%

TEDMUTUALF

2 stock exce of Bangladndence in19DT.4billion.Exchange (Cuttradingsy

rice,NAV,DGIwilldiscushescreenbantingapprovmarketadmithe activiti

orotherinfo

SEmarketou

ofDSEisdisnt,InsuranceharmaceuticalMCapason

DSEMa00607 200

6467.46 54989.53 19

7585.54 93116.372.85

17.2810.18

P&0.04

%

Banks29.65%

l.%

FUNDSINBANG

27

changes. Dhadesh. Althou971, thenumThetotalnuCSE)began iystem.

GENIndexdasaboutDSE,asedautomatvaltothetrainistration&es of listedrmationabo

utlookasonS

stributedinte,Telecom,Tals, Paper annSeptember

arketOutlo0708 2008

323.9 893722.42 11802.52 1241319.34 21.9422.8 1

17.18 2

Bond0.31%

Telecom9.81%

1

Fuel&Power12.88

&P4%

GLADESH

aka Stock Exgh incorpormberof listedumberoflistits journey in

atainmymu,notCSE.Thtedtradingoansactionor&control,ma

companies,utlistedcom

September,2

twentysectoTraveandLeind printing,30,2011isg

ook09 20091

8.92 2563503.92 18693.89 270.0741.78 282.178.44 240.19 43

MF1.6%

IT0.18%

Ceramics1.53%

Insu.5.67%

T&0.3

FI10.34%

Engg.5.07%

xchange (Genated in 1954dcompaniesedcompanien10thOctob

utualfundanhemajorfunoflistedSecutransferof

arketsurveill, Investorsmpaniesthro

2011.

rs.Theseareisure,FIs,EnService, Tangiven:

10 20101

0.54 325914.9.85 2887.4.46 285389.8.72 34.1.7 3.

4.08 16.3.92 41

Cement3.61%

&L32%

Food2.36%

OCTOBER31,

nerally know4, formal tras inDSEwasesisnow44berof1995

nalysis,soinnctionsofDSurities,settleshareoutsidlance,publicProtection Fughonline.

eCorporateBngineering,Fnnery, Banks

11 201112

01 45739.417 933.522 283321.273 1502 3.155 15.51.1 35.9

2011

wn asadings1963.Onfrom

allofEareementdethecationFund,

Bond,Foods,s and

**

4156225.5115898


28

Currently sharemarket iswell known to all. It is known that the economic stability andprosperityofacountrydependontheconditionofhersharemarket.Manybrokeragehousesarenowoperatinginourcountrytohelpinvestors.WhenBangladesheconomylookslikeagoodshapebasedoncapital/sharemarket, that timeTradingon theDhakaStockExchange indexwashaltedafteritfellby660points,or9.25%,inlessthananhour.ChittagongStockMarketalsometasimilarfate. An abrupt crash of the market sparked violent protests from the Bangladeshi investors.Itwasthebiggestonedayfallinits55yearhistory.Itisestimatedthatoverthreemillionpeople,many of them smallscale individual investors, have lost money because of the plunging shareprices.Thebenchmarkindexhadclimbedby80%in2010buthaslostmorethan27%sinceearlyDecember.Theregulatorsefforts todealwith thestockprice surge thatbuiltupafter July2009,andthesubsequentreversalofthesepolicies,mayhaveincreasedvolatilityinthestockindexinthepastfewmonths.

As a result Investment in the share market is a popular business among the educatedmiddleclassofBangladeshwhowereleftfrustratedwiththesuddenlosstotheircapital.Theywerefinding ways and means to exit from the market in order to minimize the lossesWhythis ishappenourquestion israise, it isnotexpected forusmiracle indexupandsuddenlydown.Theexpertsgivetheircommentthattheimmediatereason forthiscrashwasthepolicyoftheregulatorsofthemarketwholaiddownalimitforinvestmentbythebanksandotherfinancialinstitutions in the stocks. Thiswas done in order to avoid themarket being overvalued. As thebanksandotherbiginvestorinstitutionswithdrewthecapitalfromthemarket,thepanicensued.

CurrentBangladeshsharemarketcanexperiencehugedeclinebecauseof:

9 Mostofthesharepricesareveryhigh(lacksupportoffundamentals).9 Peoplewhoare involved in themarkethaveegger tomakequickprofit by short trading

only.Mostofthemdonotwanttoholdsharesforlittlelong.9 Excess liquidity in the market also pushing share prices without solid reason (only

speculation).Manipulatorsareactive!9 Ourbankingandotherfinancialinstitutionshaveexposedtheirselvestoverymuchriskby

involvingspeculativesharetradingnow.Whenthemarketwilldownturnorcrashtheywillinserioustrouble.

Lastbutnotleast,seriousactwithprudencetostrengthenoursharemarketandbewareofmanipulators.AndthegovernmentofBangladeshmaybeunderpressuretointerveneinordertoprotectthehardearnedmoneyofthesmallinvestorsfrombeinglostduetothisunusualcrashofthestockmarket.So,thisistherighttimetoworktogether(Governmentaswellasotherfinancialinstitutes)todecidewhatactionstotaketosavethemarketfromfurtherfalls.

0.00

2000.00

4000.00

6000.00

8000.00

10000.00

Jan10

Mar

10

May

10

Jul1

0

Sep10

Nov

10

Jan11

Mar

11

May

11

Jul1

1

DGENIndex

PERFORMA

3.1.3MUE

growthofunds.MaMutual fuwant todiversifieinvestmeHowevernotcloseattimesb

Uintheopin Banglaauthorityended mHoweverto launchcloseden

Jumonth, uculture hlocal stocThe SECimpedimbeencouhelpredu

Mmoney anorganizedaresome

Bnext onemarketthnumbero

ANCEEVALUAT

UTUALFUNDEven as theofmutual funanybanksanund isa fundtake risk beed. The pricentinthefunr,thematurittotheirmarbemuchhigh

Unliketheothenendedmuadesh only oy,hasallowedmutual funds,r,whiletheoh in the coundedmutual

ust an aggreunlike theothhas really picckmarket repolicy of a

entsshouldnraged.Moreucerumorba

Mutualfundsnd are respdundertheoftheasset

angladeshm decade ashroughmutuofmutualfun

TIONOFSELECT

DSstock markendinBanglandfinancialindundera trecause the fe of a closend.Thereforetyofmutualrketvalueofherthanthei

herdevelopeutualfunds,tover the pasdfloatingof, which tendopenendedmuntry, the enfunds,floate

egate of 36 mherneighborcked up oveegulatory auallowing thenotbecreateinstitutionaasedinvestm

areusuallyonsible for mlawascompmanagemen

mutualfundsthe investorualfundsanndsissmallh

ICB

ICBAMCLBDBL

AIMS

LRGlobalRACE

VIPB

TEDMUTUALF

ets have stadeshhasbeenstitutionscrust. Investmfund is manaedend funde,themarketfundsistaksuchfunds.rNAVjustify

edanddeveltheconceptost three yeaopenendedd to maturemutualfundsntire mutualedmostlyby

mutual fundring countrir the past ththorities toese funds inedintheirnoalandprofesment.

managedbymanaging thpaniesorbuntcompanies

areexpectedrs continue tddirectlytohavinglowis

LRGlob12%

RACE31%

MFMarket

FUNDSINBANG

29

rted maturinenslow.Onlontinuetoin

ment inmutuaged professshare is notpriceofafukingitssweetItisseenthay.

lopingstockofopenendears, ever sincmutualfunde in 10 to 2sarestillinafunds sectobanksandin

ds were listees like Indiahree decadesallowprivatn phases inormalgrowtsionalinvest

yfundmanaghe portfoliousinesstrustss(AMCs)and

dtogrowfroto show mooovercometssuedcapital

ICB7%

AIM23%

al

VIPB2%

tcapitalizati

GLADESH

ng of age ovlyrecentlythnthequeuewual fund is idsionally andormally deteundshareisttimeandNatmarketpri

marketswhedmutualfuce the SEC,ds,apartfrom20 years froanascentstaor continuesnstitutions.

ed on the DhaandHongKs, ever sincete sector toBangladesh

handdevelotmentislike

gerswhounof holdings.sandmanagdtheirMCap.

omnascentsore interesttheinflation.

ICBAMCL23%

BDBL2%S

%

onunderAM

ver the pastherehasbeewithproposadeal for inve the collectiermined byoftencloset

NAVsofmutuiceofamutu

hereinvestorundshasstarthe stock m

mtheexistingom incorporaagesincetheto be heavi

haka Stock EKong,wheree the permiscomeoutwih seems toopmentofmelytostabilis

dertaketradGenerally, m

gedbysepar.

stagetoamotowards invproblems.In

MCs

OCTOBER31,

t one decadeenarushforalsfortheirfstorswhodive investmethe value otopershareualfundsareualfundshar

rsprefertoirtedcatchingmarket regulgformatofcation and liywerepermily dominate

Exchange tile themutualssion provideith new schebe rationalutualfundshsethemarke

dingofthepomutual fundrateentities.

orestageovevestment innBangladesh

2011

e, thernewfunds.onotent isof theNAV.estillrecan

nvestgpaceatorylosedsting.

mitteded by

ll lastfunded byemes.l. Buthouldetand

ooledds areHere

erthestockh,the


30

3.2SELECTIONOFMUTUALFUND(M.F.):PROFILEInBangladeshthemutualfundswereintroducedbythegovernmentinstituteInvestment

CorporationofBangladesh(ICB)in1980.Itlaunchedsomeeightclosedendmutualfundstill2002.AlongwiththismutualfundsICBissuedICB1stto3rdNRB,ICB1stand2ndAMCLmutualfund,ICBemployeemutualfund,ICBIslamicmutualfundsetc.

lateron, threesubsidiarieswerecreated, theyare ICBCapitalManagementLtd, ICBAssetManagementCompanyLtdandICBsecuritiesTradingCompaniesLtd.ICBCapitalManagementLtdismainlyconcernedwithunderwritingofshare,issuemanagement,placementofshare,investmentcounseling,managinginvestmentaccounts;ICBAssetManagementLtdisinvolvedwithinvestmentmanagement (floating and managing mutual funds); and ICB securities Trading Companies Ltdprovides the trading facility,depositoryparticipant facility ofCDBL,brokerageservice,managingownportfolioandworkingassellingagentofDSE.

Meanwhile another government agency, Bangladesh Shilpa Rin Sangstha (BSRS), nowmerged into Bangladesh Development Bank, launched it solitary mutual fund in1997, which isrunningunderitsownstatute.

The first everprivate assetmanagement companyAIMSFirstGuaranteedMutual Fund, aclosedendbalancedfundinMarch2000;Whereguaranteedmeans,thecapitalofthefundthatwasunderwrittenatredemptionbyIDLCandAIMSduringtheinitialfiveyearsoflife.Laterin2005,theunitholdersresolvedtoreducethegranteeto50%underwrittenonlybyAIMS.Thistranslatesthat50%ofthepaidupcapital losswillbebornebyAIMSatthetimeofredemption.Theportfolioofthismutualfundwillbeagrowthvaluebendbasketoflargecapaswellassmallcapstocksandamixoffixedincomesecurities.

Besides AIMS, currently few other private fund managers are also doing the business,namely,RACE,LRGlobal,VIPBetc.Alltogether,36closedendfundaretradedintheDSEwithfewwaitinginthequeueforstartingtheiroperation.

Nowadays commercialbanksandnonbank financial institutionsaregetting involved inmutual fund issue firmly. There are 15 funds of different banks, financial institutions and theinsurancecompaniesoutof36fundstradedinDSE.

Ihavechosen12mutual fundsof6AssetManagementCompanies inordertoanalyzetheperformanceofthosemutualfunds.Theseare:

Inthenextpage,therewillbegivenabriefdiscussionaboutthemutualfundswhichIhave

selectedforevaluatingtheirperformance.

AssetManager SelectedMF AssetManager SelectedMF

ICB

4thICBM.F.AIMS

Aims1stM.F.

6thICBM.F. GrameenM.F.one

8thICBM.F.RACE

EBLFirstMutualFund

ICBAMCLICBAMCL1stM.F. TrustBank1stM.F.

ICBAMCLIslamicM.F.LRGlobal

DBHFirstMutualFund

BSRS 1stBSRS GreenDeltaM.F.


31

3.2.1ICBM.F.InBangladeshthemutualfundswereintroducedbythegovernmentinstituteInvestment

CorporationofBangladesh(ICB)in1980.Itlaunchedsomeeightclosedendmutualfundstill2002.AlongwiththismutualfundsICBissuedICB1stto3rdNRB,ICB1stand2ndAMCLmutualfund,4thICB,6thICB,8thICB,ICBemployeemutualfund,ICBIslamicmutualfundsetc.ICBMutualFundsareindependent of one another. In Bangladesh ICB has pioneered Mutual Funds for the sake ofinvestorsandofthecapitalmarket.Herearethebriefon4th,6thand8thICBmutualfundisgiven.

3.2.1.14THICBMF

BasicInfo.

Particulars 4thICBMutualFundSponsor ICBCapitalManagementLimited(ICML)Trustee&Custodian InvestmentCorporationofBangladesh(ICB)Size Tk.10.00CroreMarketLot 10UnitsFaceValue Tk.100.00perunitPaidUpCapital Tk.10Million

NetAssetValue(Ason30092011) Atmarketpricetk.2223.46

EarningPerUnit(Ason30092010) Tk.114.283.2.1.26THICBMF

BasicInfo.

Particulars 6th ICBMutualFundSponsor ICBCapitalManagementLimited(ICML)Trustee&Custodian InvestmentCorporationofBangladesh(ICB)Size Tk.10.00CroreMarketLot 10UnitsFaceValue Tk.100.00perunitPaidUpCapital Tk.10MillionNetAssetValue(Ason30092011) Atmarket pricetk.454.78EarningPerUnit(Ason30092010) Tk.37.00

3.2.1.38THICBMF

BasicInfo.

Particulars 8th ICBMutualFundSponsor ICBCapitalManagementLimited(ICML)Trustee&Custodian InvestmentCorporationofBangladesh(ICB)Size Tk.10.00CroreMarketLot 10UnitsFaceValue Tk.100.00perunitPaidUpCapital Tk.10MillionNetAssetValue(Ason30092011) Atmarket pricetk.513.72EarningPerUnit(Ason30092010) Tk.32.00


32

3.2.2ICBAMCLAmongthemutualfundsunderAssetManagementCompanyICBAMCL,IhaveselectedICB

AMCL1standICBIslamicmutualfundformyevaluationpurpose.Hereisbriefaboutthosefunds.

3.2.2.1ICBAMCL1STM.F.The fund is a closeend fund of ten years tenure. The size of the fund is Tk. 10.00 crore

dividedinto10,00,000unitsofTk.100.00each.Outofthetotal10,00,000units,990,000unitsareincirculationandtherestunitsareheldbythesponsorareunderlockinforthelifeofthefund.

After deducting total expenditure including provision against investment for the currentyear,thefundhadanetincomeofTk.707.77lacs.TheearningperunitforthecurrentFY200910stoodatTk.70.78,whichwasTk.37.98 inFY200809.AsonJune30,2010, the fundhadatotalinvestmentofTk.2755.04lacsatcostofwhich2725.03lacswereinordinaryshares,Tk.30.00lacsindebenture securities.Themarket valueof the investmentwasTk.5526.98 lacs ason June30,2010showingappreciationof100.61%.

BasicInfo.Particulars ICBAMCLFirstMutualFundSponsor ICBCapitalManagementLimited(ICML)Trustee&Custodian InvestmentCorporationofBangladesh(ICB)Auditor M.A.MalekSiddiquiWali&Co.,CharteredAccountsPublicationofProspectus June09,2003SubscriptionPeriod June16,2003 June30,2003Size Tk.10.00CroreMarketLot 50UnitsFaceValue Tk.100.00perunitDividendforFY200910 Tk.50.00perunit

NetAssetValue(Ason31082011) Atcostpricetk.424.08AtmarketpriceTk.585.56EarningPerUnit(Ason30092011) Tk.55.00

3.2.2.2ICBAMCLISLAMICM.F.The fund is a closeend fund of ten years tenure. The size of the fund is Tk. 10.00 crore

dividedinto10,00,000unitsofTk.100.00each.Outofthetotal10,00,000units,990,000unitsareincirculationandtherestsareheldbythesponsorareunderlockinforthelifeofthefund.

After deducting total expenditure including provision against investment for the currentyear,thefundhadanetincomeofTk.497.64lacs.TheearningperunitforthecurrentFY200910stoodatTk.49.76,whichwasTk.26.60 inFY200809.Ason June30,2010, the fundhada totalinvestmentofTk.1975.86lacsatcostprice,themarketvalueofwhichwasTk.2869.34lacsonthesamedateshowingappreciationof45.22%.Besides,thefundinvestedTk.100.00lacsintermsofMudarabaTermDepositReceipt(MTDR).

BasicInfo.Particulars ICBAMCLIslamicMutualFundSponsor ICBCapitalManagementLimited(ICML)Trustee&Custodian InvestmentCorporationofBangladesh(ICB)Auditor M.A.MalekSiddiquiWali&Co.,CharteredAccountsPublicationofProspectus September15,2004SubscriptionPeriod October12,2004 October17,2004Size Tk.10.00CroreMarketLot 50UnitsFaceValue Tk.100.00perunitDividendforFY200910 Tk.35.00perunit

NetAssetValue(Ason31082010)Atcostpricetk.248.86AtmarketpriceTk.270.06

EarningPerUnit(Ason30062010) Tk.36.00


33

3.2.3AIMSM.F.UnderAIMS,AIMS1standGrameenoneisselectforevaluation.Letsabriefaboutthem.

3.2.3.1AIMS1stM.F.AIMS of Bangladesh conceived the idea and launched the Tk70 million pioneering first

mutualfundinBangladeshunderprivateinitiativetheAIMSFirstGuaranteedMutualFundinyear2000with a five year initial tenure, as theAssetManager. Initially the sizewas contemplated atTk50milliononlybutowingtounprecedentedoversubscriptionfortheIPO(aboutninetimes)thesizewasincreasedbyanotherTk20milliononpublicdemand.

ThesizeofthefundwaslaterincreasedtoTk140millionbytheenthusiasticgeneralunitholdersandthelifeextendedbyanothertenyearsin2005.In2007thepaidupcapitalwasfurthertraised to TK168million through distribution 20% stock dividend to all unitholders. In 2010 thepaidup capital further raised to Tk414.5million after isuing 70%bonus and 130% right to theunitholders.

BasicInfo.Fund&SchemeName AIMSFirstGuaranteedMutualFundSize Tk.50millionPaidupCapital Tk.414.5millionTenure

RedemptionatmaturityonJune30,2015afteroriginalmaturityoffiveyearsendedinJune2005.

FaceValue Tk1(Takaoneonly)MarketLot 2,500unitsofTk1eachManager AIMSofBangladeshLimited

Sponsors

IPDC of Bangladesh Limited, IDLC Finance Limited, Southeast Bank Limited, UttaraFinance&InvestmentsLimited,PangaeaPartners(BD)Limited,SandhaniLifeInsuranceCompany Limited, Sandhani Credit Cooperative Society Limited and BangladeshIndustrialFinanceCompanyLimited.

Trustee BangladeshGeneralInsuranceCompanyLimited(BGIC) Custodian BRACBankLimitedNature&Style Closedendcapitalguaranteedbalancedmutualfund

NetAssetValueAtCostPricetk.1.62AtMarketPriceTk.4.69

EarningsperShare Tk.0.28

3.2.3.2GrameenOneM.F.

AIMS of Bangladesh is the AssetManager for the GrameenMutual FundOne, the secondclosedend privatemutual fund in Bangladesh, the GrameenMutual FundOne sponsored by theGrameenBank,foundedbyNobelLaureateProfessorMuhammadYunus,regardedastheinnovatorofmicrocredit.GrameenFund,anotforprofitventurecapitalfinancingenterpriseoftheGrameenfamilyistheTrusteeandtheStandardCharteredBankistheCustodianofthefund.

BasicInfo.Fund&SchemeName GrameenMutualFundOnePaidupCapital TK170millionTenure RedemptionatMaturityonJune30,2015.FaceValue Tk10(TakaTenonly)MarketLot 500unitsofTk10eachTaxStatus Investmentandincome,includingcapitalgain,oftheFundistaxexemptManager AIMSofBangladeshLimitedSponsors GrameenBankTrustee GrameenFundCustodian StandardCharteredBankNature&Style Closedendcapitalguaranteedbalancedmutualfund

NetAssetValueAtCostPriceTk.28.98AtMarketPriceTk.52.71

EarningsperShare Tk.6.00


34

3.2.4RACEM.F.NowletsdiscussabouttheEBL1stAndTrustBank1stmutualfund.

3.2.4.1EBL1STM.F.EasternBankLimited (EBL) haddecided to be the firstBangladeshi commercial bank to

sponsoraMutualFundtomanageitscapitalmarketinvestmentsinasafeandprofessionalmanner.EBLsseniormanagementbelievedthatreturnsfromthemutualfundareexpectedtohelpdiversifyEBLsrevenuestream.Inaddition,bylaunchingtheEBLFirstMutualFund,EBLalsolookstodoitsparttoimprovetheefficiencyoftheBangladeshicapitalmarkets.

TheFundwillbeaclosedendmutualfundof10(Ten)yearstenure,establishedwithaviewtobroadenthebaseofinvestmentanddevelopthecapitalmarket.

In thisendeavor,EBLhaschosen twohighlycapablepartners:RACEManagementPCLasthe Fund Manager and the Investment Corporation of Bangladesh (ICB) as the Trustee andCustodianoftheFund.

BasicInfo.

Name EBLFirstMutualFund

SizeoftheFund Tk.100croredividedinto100,000,000units.Infuturethesizewillnotbechanged.FaceValue Tk.10.00perunit.Sponsor EasternBankLimitedSponsorsContribution 20,000,000UnitsofTk10eachatparforTK200,000,000Auditor HodaVasiChowdhury&Co.CharteredAccountantsPublicOffer 20,000,000UnitsofTk10eachatparforTK200,000,000Trustee&Custodian InvestmentCorporationofBangladesh (ICB)AssetmanagementCompany RACEManagementPCLPublicationofProspectus May26,2009SubscriptionPeriod June21,2009 July4,2009Nature: ClosedendMutualFundoftenyearstenure.

NetAssetValueAtcostpricetk.13.29Atmarketprice Tk. 14.51

3.2.4.2TRUSTBANK1STM.F.TomakeourstockmarketmorevibrantandefficientfurthermoreTrustBank1stMutual

Fundwouldexpandthebanksproductofferingstoclients.InordertoefficientlylaunchTrustBank1stMutualFund,theBankhasappointedRACEManagementthathasalreadymadeitsmarkinthelocalmarketbysuccessfullylaunchingthefirstevercommercialbanksponsoredmutualfund,EBLFirst Mutual Fund. The Fund is establishedwith a view to broaden the base of investment anddevelopthecapitalmarket.

BasicInfo.

Name: TrustBank1stMutualFund

SizeoftheFund Tk.200croredividedinto200,000,000units.FaceValue Tk.10.00perunit.Sponsor TrustBankLimitedSponsorsContribution 40,000,000UnitsofTk.10eachatparforTk.400,000,000Auditor SFAhmed&Co.CharteredAccountantsPublicOffer 20,000,000UnitsofTk10eachatparforTK200,000,000Trustee&Custodian InvestmentCorporationofBangladesh(ICB)AssetmanagementCompany RACEManagementPCLNetAssetValue

Atcostpricetk.12.66AtmarketpriceTk.14.08


35

3.2.5LRGLOBALM.F.HereisabriefaboutDBH1standGreenDelta.

3.2.5.1DBH1STMUTUALM.F.DBHisoneofthefirstnonbankingfinancialinstitutionsinBangladeshtosponsoramutual

fund. Shares of DBH are quoted on the Bangladesh stock exchanges and have a total marketcapitalizationofapproximatelyTk.6,513millionandshareholdersequityisaboutTk.942million.

TheFundwillbeaclosedendmutualfundof10(Ten)yearstenure,establishedwithaviewtobroadenthebaseofinvestmentanddevelopthecapitalmarket.TheTrustDeedalsoprovidestheflexibilitytotheunitholderstoextendthetenureoftheFundbeyondtheinitial10yearsasperSECregulations.

BasicInfo.

Name DBHFirstMutualFund

SizeoftheFund Tk.120croredividedinto120,000,000units.FaceValue&Marketlot Tk.10.00perunit,500unitsperlot.Sponsor DeltaBracHousingFinanceCorporationLtd.(DBHSponsorsContribution 20,000,000unitsofTk.10eachatparforTk200,000,000Auditor HodaVasiChowdhury&Co.CharteredAccountantsPublicOffer 40,000,000unitsofTk.10eachatparforTk400,000,000Trustee BangladeshGeneralInsuranceCompanyLimited(BGIC)Custodian StandardCharteredBank(SCB)AssetmanagementCompany LRGlobalBangladeshAssetManagementCompanyLimitedPublicationofProspectus November09,2009

NetAssetValueAtcostpricetk.12.51AtmarketpriceTk.12.07

3.2.5.2GREENDELTAM.F.

GDIChasalonghistoryofinvestinginthecapitalmarketofBangladeshthathasdecidedtosponsor a mutual fund for enhancing their active participation in the countrys capital market.GDICsstrongcorporategovernanceanddynamicmanagementteamistherightpartnertohaveinfurtherbuildingthemutualfundindustry.

GDIChasanauthorizedpaidupcapitalofTk500millionandissuedpaidupcapitalofTk408 million. The companys shares are trading on both DSE and CSE, and are listed in the Acategory.ThecompanyhasatotalmarketcapitalizationofapproximatelyTk7,150milliononDSE.The Fundwill be a closedendmutual fundof 10 (Ten) years tenure, establishedwith a view tobroadenthebaseofinvestmentanddevelopthecapitalmarket.

BasicInfo.Name GreenDeltaMutualFundSizeoftheFund Tk.150,00,00,000dividedinto15,00,00,000unitsatparvalueofTk.10.00 each.FaceValue&Marketlot Tk.10.00perunit,500unitsperlot.Sponsor GreenDeltaInsuranceCompanyLtd.SponsorsContribution 1,50,00,000unitsofTk.10eachatparforTk.15,00,00,000Auditor HodaVasiChowdhury&Co.CharteredAccountantsPublicOffer 7,50,00,000unitsofTk.10eachatparforTk.75,00,00,000Trustee BangladeshGeneralInsuranceCompanyLimited(BGIC)Custodian StandardCharteredBank(SCB)AssetmanagementCompany LRGlobalBangladeshAssetManagementCompanyLimited

NetAssetValue Atcostpricetk.10.27AtmarketpriceTk.9.58


36

3.2.3BSRSM.F.3.2.3.11stBSRSM.F.

Bangladesh Shilpa Rin Sangstha (BSRS) was established on October 31, 1972 under theBangladeshShilpaRinSangsthaOrder,1972(President'sOrderNo.128of1972)toprovidecreditfacilities and other assistance to industrial concerns and to encourage and broaden the base ofinvestment in Bangladesh. BSRS extends medium and longterm credit facilities to industrialprojectsmainlyintheprivatesector.

Besides,itprovidesunderwritingfinance/bridgefinance/debentureloanstoPublicLimitedCompanies. BSRS provides underwriting commitment to issuers of stocks and debentures. BSRSalso floats and manages mutual fund thereby providing impetus to the capital market. It alsoregularlyundertakestransactionintheDhakaStockExchange.BSRShastwocommercialbankingbranches.

TheNAVvalueof1stBSRSmutualfundisatmarketpriceifTk.1812.15andatcostvalueisTk.292.78asonSeptember30,2011.


37

DATAADJUSTMENT&CALCULATIONS


38

4.0DATAADJUSTMENT&CALCULATIONS:Inthissection,Iwilldiscussaboutthedataadjustmentprocessandperformsome

calculationswhicharenecessaryformyfinalevaluationprocess.

4.1ADJUSTMENTOFPRICE:Beforeadjustingthepricedataofpreviouslydiscussedtwelvemutualfunds,Ihavetoperform

anumberofcalculationsteps.Theseinclude

9 UNADJUSTEDMONTHLYCLOSEPRICEDATAENTRYInthiscase,atfirstIhaveplacedthedividendunadjustedmonthlyclosingpricesfor69

monthsfromDec2005toAug2011forICB4th,ICB6th,ICB8th,ICBAMCL1st,ICBAMCLIslamic,Grameenone,1stBSRSmutualfundandagaindividendunadjustedweeklyclosingpricesfor66weeks from26May, 2010 to25August, 2011 forEBL1st, TrustBank1st,DBH1st andGreenDeltamutualfunds..Theformatissomehowlikebelow:

9 CALCULATINGDIVIDENDNowIpreparedaDividendDeclarationScheduletoreflectthetimeandpercentage

ofdividend(Cash,Bonus&RightShare)declaredforeachoftheselectedmutualfunds.

Then Idetermined theCashDividendAmount foreachmutual funds for the timeofDec2005toAug2011byusing(FaceValue*DeclaredCashDividendPercentage). TheseschedulesaregiveninAppendix.

9 ADJUSTINGTHERIGHT&BONUSSHAREWITHUNADJUSTEDDATAToadjustthestockdividend,Ihavedividedthepriceofcumdividendmonth,whichis

the immediatemonth of exdividendmonth, by (1+StockDividendRate). But in themonthwhen both stock and right share are offered and benefits are included in the price, then theprocedureforadjustmentinthecumdividendandrightwillbeasfollows:

=(((PricebeforeRight*1)+(RightPrice*(1+RightRatio))/(1+RightRatio))/(1+StockDividendRate))

Then I have found Stock Dividend and Right Adjusted Price and the result issomehowlikebelow:

Assetmanager ICB ICBAMCL AIMS BSRS

MutualFund 4thICB 6thICB8thICB

AMCL1st

AMCLIslamic

Aims1st

Grameen1

1stBSRS

Months

6Aug11 2220.00 681.75 680.00 579.00 361.00 6.99 99.70 1449.00

8Jul11 2200.75 741.50 795.00 629.75 348.25 10.06 121.90 1513.50

9Jun11 2261.00 673.00 708.50 640.25 343.00 7.17 84.30 1395.50

11May11 2360.00 656.25 670.25 593.75 362.25 7.08 80.40 1428.00

12Apr11 2317.00 675.00 732.25 610.50 358.75 7.78 85.10 1483.50

MutualFunds 4thICB6thICB

8thICB

AMCL1st

AMCLIslamic

Aims1st

Grameen1

1stBSRS

FaceValue 100.00 100.00 100.00 100.00 100.00 1.00 10.00 100.00Months 6Aug11 2220.00 681.75 680.00 579.00 361.00 6.99 99.70 1449.008Jul11 2200.75 741.50 795.00 629.75 348.25 10.06 121.90 1513.509Jun11 2261.00 673.00 708.50 640.25 343.00 7.17 84.30 1395.50


39

4.2PREPARINGRETURNSERIES(USINGCLOSINGPRICE&NAV)ThenIhavecalculatedtheReturnbythefunction:

=LN ((' NextMonth Right & Stock Dividend Adjusted Price + Cash Dividend Amount)/ ' PriorMonth StockDividendAdjustedPrice').

Wehavefound68monthlyreturnsand65weeklyreturnsbasedonclosepricebecausethereturnofbeginningmonth(Dec2006)andthereturnofbeginningweek(26May,2010)cannotbecalculateddue tounavailabilityofpriormonthprice (Nov2005)andweekprice (19May,2010)respectively.ButthereturnbasedonNAVis18returnsfor4th,6thand8thICB,22returnsforAMCL1st,AMCLIslamic,Grameen1,AIMS1stand1stBSRSmutualfund,65returnforEBL1st,Trust1st,DBH 1st and 47 for Green Delta mutual fund. Here the differences between returns are due tounavailabilityofNAVdata.Thereturnsresemblesomethinglikebelow:

4.3CALCULATINGTBILLRATE(MONTHLY&WEEKLY)

TocalculatetheAverageMonthly&WeeklyRiskFreeRate,Ihavecollectedthe364daysTBillrateformJan2006toAug2011(ForPricebasisreturn)andfromOct2009toAug2011(ForNAVbasisreturn).Thethenbydividingthe360daysTbillratebytwelve,IgetthemonthlyTBillrateforeachofthemonthsfromOct2009toAug2011.AgainbydividingthemonthlyTbillratebyfour,IgettheweeklyTBillrateforeachoftheweeksfrom3June,2010to25August,2011(ForbothpriceandNAVbasisreturn).

ThecalculationsoftheMonthly&WeeklyRiskFreeRatearegivenbelow:

4.4CALCULATINGMARKETRETURNInthisstepIhavepreparedreturnseriesofmarketfor68month(ForPricebasisreturn)

form Jan2006 to Aug2011 and 22months (ForNAV basis return) fromOct2009 to Aug2011.Again,Ihavepreparedreturnseriesofmarketfor65weeks(ForbothpriceandNAVbasisreturn)from3June,2010to25August,2011.IhaveusedDSEGeneralIndexforthispurposeandIhaveusedmarketportfolioasmybenchmarkportfolio.Thereturniscalculatedusingtheformula:

=LN(nextmonthindexcurrentmonthindex)/currentmonthindex.

Month 4thICB 6thICB 8thICBAMCL1st

AMCLIslamic

AIMS1st Grameen1 1stBSRS

6Aug11 0.10589 0.20274 0.18915 0.17873 0.19681 0.03971 0.07825 0.07532

8Jul11 0.11468 0.16089 0.17418 0.10875 0.13618 0.05259 0.08605 0.10501

9Jun11 0.04470 0.10375 0.11031 0.09685 0.05538 0.05551 0.10834 0.10920

11May11 0.13795 0.12815 0.15441 0.07754 0.03582 0.01810 0.05210 0.09500

12Apr11 0.10804 0.10740 0.10965 0.03966 0.08034 0.00447 0.00986 0.04704

14Mar11 0.09223 0.09713 0.07598 0.02539 0.05390 0.38777 0.01087 0.08918

BangladeshBankTBillRate(364day)

YearTBillRate

MonthlyTBillRate

MonthTBillRate

WeeksWeeklyTBill

Rate6Aug11 0.079000 0.006583

Aug,2011

0.079

8/25/2011 0.001519

8Jul11 0.076000 0.006333 8/18/2011 0.001519

9Jun11 0.075500 0.006292 8/11/2011 0.001519

11May11 0.070000 0.005833 8/4/2011 0.001519


40

Thereturnsresemblesomethinglikebelow:

4.5CALCULATINGMEANRETURNFORMARKET&MUTUALFUNDSTocalculatethemonthlyMeanReturnforMarketandMutualFunds,theformulais,

=AVERAGE(FirstReturn:LastReturn).

Here alternatively, I can sum all of the monthly returns and dividing the result by thenumber of month for which returns are available. Themonthly MeanReturn forMarket andMutualFundsofeachcompanyisgivenbelow:

MutualFundMeanReturn

MutualFundMeanReturn

Price NAV Price NAV

4thICB 2.729% 0.185% EBL1st 0.149% 0.018%

6thICB 2.630% 0.269% Trust1st 0.193% 0.245%

8thICB 2.637% 0.166% DBH 0.275% 0.101%

AMCL1st 1.862% 1.536% GreenDelta 0.988% 0.154%

AMCLIslamic 2.228% 0.349% Market(Weekly) 0.035% 0.035%

AIMS1st 2.722% 1.127%

Grameen1 2.999% 1.391%

1stBSRS 4.409% 2.434%

Market(Monthly) 1.925% 2.788%

4.6CALCULATINGRISKFORMARKET&MUTUALFUNDS

MarketandmutualfundsriskismeasuredbyvarianceorstandarddeviationofMarketandmutual funds returns. The variance/standard deviation ofMarket andmutual funds reflects notonlythevariance/s

Internship report

Documents

Transcript of Internship report