KNOWLEDGE CENTER

A mutual fund is a collective investment vehicle that gathers money from multiple investors—both individual and institutional—to invest in a diversified portfolio of assets such as stocks, bonds, and other securities. Managed by professional fund managers, mutual funds offer investors the benefits of diversification, expert management, and convenient access to a wide range of investment opportunities.

When investors contribute to a mutual fund, they receive units corresponding to the amount invested, making them unitholders. The profits or losses generated by the fund are distributed among unitholders in proportion to their investment. Before raising funds from the public, mutual funds are required to register with the Bangladesh Securities & Exchange Commission (BSEC).

Open-Ended Mutual Funds

With open-ended mutual funds, you can buy or sell your units anytime you wish. There’s no minimum period you need to keep your money invested. The price of each unit, known as the Net Asset Value (NAV), changes daily based on the performance of the fund’s investments like stocks or bonds. This gives you the flexibility to invest or withdraw whenever you want at the current NAV.

Close-Ended Mutual Funds

Close-ended mutual funds have a fixed number of units and operate for a set period. You can only purchase units when the fund is initially launched. After that, if you want to buy or sell units, you do so through the stock market, similar to trading company shares. You cannot buy directly from or sell back to the fund during its term. The market price of these units may differ from their actual NAV, depending on supply and demand.

In Bangladesh, a custodian plays a critical role in mutual funds by ensuring the safe custody of the fund’s assets, including securities and cash. Appointed by the Asset Management Company (AMC), the custodian must be registered with the Bangladesh Securities and Exchange Commission (BSEC).

The custodian is responsible for holding the fund’s assets securely, settling transactions (buying and selling of securities), and maintaining records. While it does not make investment decisions, the custodian ensures that all asset movements are accurately recorded and processed in compliance with regulatory standards.

Operating independently from the AMC, the custodian adds an essential layer of safety and transparency, helping to protect investors’ assets from fraud, mismanagement, or operational errors.

Net Asset Value (NAV) represents the price per unit of a mutual fund and determines the buying or selling rate for investors. It’s calculated by subtracting the fund’s liabilities and expenses from the total market value of its assets, then dividing by the number of outstanding units.

For example, if a balanced mutual fund holds assets worth BDT 185,000 (including equity stocks, government bonds, and corporate bonds) and has liabilities and expenses totaling BDT 5,000, the net asset value is BDT 180,000. If the fund has 15,000 units, the NAV per unit would be:

BDT 180,000 ÷ 15,000 = BDT 12.00
Thus, each unit of the mutual fund is priced at its NAV of BDT 12.00.

SIP is a disciplined way of investing in mutual funds where you invest a fixed amount regularly—usually monthly or quarterly—rather than investing a lump sum all at once.

How does it work?

• You decide an amount (e.g., BDT 5,000) and a frequency (monthly, quarterly).

• This amount is automatically deducted from your bank account and invested in the chosen mutual fund.

• Over time, your investments accumulate units at varying NAVs, which averages out the cost of buying units (known as rupee cost averaging).

• SIP helps reduce the risk of market volatility because you buy more units when prices are low and fewer units when prices are high.

SWP is a method to systematically withdraw a fixed amount from your mutual fund investment at regular intervals (monthly, quarterly, etc.). It’s a way to generate a steady income stream from your investments.

How does it work?

• You decide how much money you want to withdraw regularly (e.g., BDT 4,000 every month).
• The fund sells enough units to pay you that amount based on the current NAV.
• This process continues until you stop the plan or your investment amount gets exhausted.

A Cumulative Investment Plan (CIP) is a dividend reinvestment strategy where the dividends received from an investment are not paid out as cash but are instead used to buy additional units or securities. This enables investors to grow their investment over time by reinvesting their dividends continuously.

How CIP works:

• At the time of investment, you choose the CIP option instead of receiving cash dividends.
• When the fund declares a dividend, the Asset Management Company (AMC) converts the dividend amount into additional units at the current NAV.
• As a result, the total number of units you hold increases each time a dividend is declared.

Suppose you invest BDT 50,000 in a mutual fund and purchase 5,000 units at a NAV of BDT 10, choosing the CIP option. Over time, the NAV rises to BDT 11.50, and the fund declares a dividend of BDT 1.10 per unit. Instead of receiving BDT 5,500 as cash, the dividend amount is used to buy additional units at the current NAV. As a result, your total units increase to 5,500. In the following year, dividends are calculated based on this higher unit count, allowing you to earn even more dividends and accumulate additional units.

Exit load is a fee charged to investors when they redeem (sell) units of a mutual fund before a specified time period. It's essentially a penalty for early withdrawal, and it is deducted from the redemption proceeds.

Let's say an investor invested BDT 100,000 in a mutual fund that imposes a 2% exit load if units are redeemed within a 60-day period. Over 45 days, the fund’s value appreciated by 5%, increasing the investment’s worth to BDT 105,000. As the redemption occurred within the 60-day exit load period, a 2% exit load amounting to BDT 2,100 was deducted. Consequently, the investor received BDT 102,900, realizing a net gain of BDT 2,900 after accounting for the exit load.