Performance Evaluation of ICB Mutual Funds

Performance Evaluation of ICB Mutual Funds - 1 -
Chapter: One
Introduction

Introduction
1.1 Background of the Report:
Internship means receiving practical training through attending particular work
physically. Practically training means a way through which a person or a trainee can
gather experience about the related subjects and be able to apply his theoretical
experience in the field of real life action. Practical training is necessary to achieve
complete knowledge about something. Internship program is actually a form of
practical training.
As a student of BBA, major in Marketing Studies, internship is an academic
requirement. For doing internship every student is required to work in a selected
institution to enhance ones practical knowledge and experiences. For my internship, I
was gone to the Investment Corporation of Bangladesh (ICB), under the supervision
of Asst. Prof. Md. Masum Iqbal, Department of Business Administration, Daffodil
International University.
The purpose of this report, Performance Evaluation of Mutual Funds of ICB. is
to evaluate the performance of the Mutual Funds that are being traded in our country.
1.2 Rationale of the Study:
The Bangladeshi capital market has been increasing tremendously during last couple
of years. With the reforms of economy, reforms of industrial policy, reforms of public
sector and reforms of financial sector, the economy has been opened up and many
developments have been taking place in the Bangladeshi money market and capital
market. In order to help the small investors, mutual fund industry has come to occupy
an important place.
In recent days, asset management companies are emerging at a great pace. Due to
economic sloth and recession of the economy, investment went down at a great extent
which caused a low return on investment in different sectors. During that time, while
other countries capital market moved downward, Bangladeshs capital markets
followed less with those. For that reason, more and more investors came into the
capital market with their savings not putting them into banks and it has caused the
capital markets (DSE & CSE) to boom. Moreover, upward trend in prices of stocks
have incited other non-listed companies to come forth through initial public offering.

As a result, supply of stocks is increasing. This was not that end with happiness. Stock
markets are still lacking of good and growth-based stocks and gambling has been
going on. Small investors are becoming victim of those unlawful acts of those
gamblers for their unwise decision. Risk in investing stocks has now become riskier.
Small investors face a lot of problems in the share market; limited resources, lack of
professional advice, lack of information etc. Mutual funds have come as a much
needed help to these investors. It is a special type of institutional device or an
investment vehicle through which the investors pool their savings which are to be
invested under the guidance of a team of experts in wide variety of portfolios of
Corporate securities in such a way, so as to minimize risk, while ensuring safety and
steady return on investment. It forms an important part of the capital market,
providing the benefits of a diversified portfolio and expert fund management to a
large number, particularly small investors.
ICB Mutual Funds have been mobilizing savings from the investors by way of selling
certificates and investing the funds in portfolio securities in secondary markets so as
to ensure maximum return for certificate holders and ensure the liquidity of the
markets. Return from mutual funds inevitably depends on the performance and ability
of the fund managers to construct and manage portfolios that generate above average
risk-adjusted return.
In this paper, I tried to analyze and represent the mutual funds of Investment of
Corporation of Bangladesh (ICB). This paper will show the organization structure,
valuation policies, investment policies and restriction, portfolio strategies and
performance evaluation of eight funds which will be helpful to investors to understand
the trend of return and risk of a fund and the market.

1.3 Objectives of the Report
Primary objective of the report is to meet the requirements for the fulfillment of BBA
program. The core objectives of the study are as follows:
To understand the operation and management of investment banking in Bangladesh.
To know the role of Investment Corporation of Bangladesh (ICB) as the market maker.
To understand the activities and contribution of mutual funds in the capital markets.
To obtain the knowledge about how the ICB Mutual Funds are managed.
To evaluate and analyze the portfolio performance of ICB Mutual fund.


1.4 Methodology

This study is conducted based on the application of theoretical knowledge of the field
of management and the practical working experience from Investment Corporation of
Bangladesh (ICB) as internship course. Investment Corporation of Bangladesh is the
pioneer and one of the best performing investment banks in Bangladesh. Its public
reporting system is awarded by Institute of Chartered Accounts of Bangladesh
(ICAB) for Published Accounts and Reports in the Public Sector Entities. Its data
arrangement is logical that helps in easy application of analytical tools.
1.5 Data Collection
In order to prepare the assigned report all the necessary data and information have
been collected from Primary and Secondary sources.
a) Primary Sources of I nformation

Primary data had been collected through interviews and discussions with the officials
of various departments, study of different files of different sections and the practical
working experience gained from different departments. Normally, head of the
departments or their approved officials gave the briefing about their respective
departments.
b) Secondary Sources of I nformation

The main sources of the secondary information were the Annual Reports of ICB
Mutual Funds, Annual Reports of Investment Corporation of Bangladesh, Dhaka
Stock Exchange Library, Investment Corporation of Bangladesh Library, Official
website of Dhaka Stock Exchange, Official website of Investment Corporation of
Bangladesh and Planning and Research Division of Investment Corporation of
Bangladesh. Besides, data are also collected from different books, journals and
internet


1.6 Limitations of the Study:
As previously stated this study has been conducted with the data collected based on a
specific time period may have been affected by the sample selection bias. There are
some specific limitations in this study:
Relevant information was not as available as required. In some cases updated
information was not available.

Due to time constraint limited analytical tools have been used to draw the
conclusion of the study.

ICB Mutual Funds are thinly traded shares. Estimates for securities' systematic
risk, the beta coefficients, are highly affected by infrequent trading. The beta
correction for thinly traded shares is beyond the scope of this analysis.

Investment Corporation of Bangladesh (ICB) is one of the largest investment
banking institutions in Bangladesh. In a short span of time like internship
program it was not possible to get in-depth knowledge about such a large
corporation.

Officials of ICB maintain a very busy schedule. So they were not always able
to provide enough time to enlighten the internee students every time, even if
they were very helpful and supportive.

In the face of these limitations, the study has been conducted and the report has been
prepared with the best efforts and integrity.


Chapter: Two
Organizational Profile

2. Organizational Profile
2.1 Historical Background of ICB

The Investment Corporation of Bangladesh was established on 1st October 1976,
under The Investment Corporation of Bangladesh Ordinance, 1976 ( NO. XL of
1976). The establishment of ICB was major step in a series of measures undertaken
by the Government to accelerate the pace of industrialization and develop a well
organized and vibrant Capital market particularly securities market in Bangladesh.
ICB caters to the need of institutional support to meet the equity gap of industrial
enterprises. In view of the notational policy of accelerating the rate of savings and
investment to foster enactment of the Investment Corporation of Bangladesh
(Amendment) Act, 2000, (No. XXXIV of 2000 ) , reforms in operational strategies
and business policies have been taken place by establishing and operating subsidiary
companies under ICB.

2.2 Objectives of ICB
The main objectives of the ICB are as follows:
a. To encourage and broaden the base of investment.
b. To develop the capital market.
c. To mobilize savings.
d. To promote and establish subsidiary companies for business development .
e. To provide for matters ancillary thereto.

2.3 Nature of the Business:
The principle activities of ICB are providing various kind of services to customers
specially investment banking services. The activities that are mainly included are
underwriting public issue of shares and providing bridge financing against such
underwriting, providing debenture loan to companies & loan to operative investors on
margin trading basis, management of unit fund and mutual funds as well as operating
investors accounts and participation in stock market for trading securities on behalf of
unit fund, mutual funds, investors and corporation itself.

2.4 Functions of ICB
- Direct purchase of shares and debentures including placement and equity
participation
- Providing lease finance singly and through syndication
- Managing existing investment accounts
- Managing existing mutual funds and unit fund
- Managing portfolios of existing business
- Providing advance against ICB unit and mutual fund certificates and ICB
AMCL Unit Fund certificates

- Providing consumer credit
- Providing bank guarantee
- Acting as trustee and custodian
- Participating in and financing of joint-venture companies
- Providing investment counseling to investors
- Participating in government divestment program
- Supervising the activities of subsidiary companies
- Venture capital financing
- Managing Equity and Entrepreneurship Fund(EEF)

2.5 Organizational Structure of ICB
Institutional Framework of ICB
Investment Corporation of Bangladesh is a corporate body as per section 3 of
Investment corporation of Bangladesh Ordinance 1976 and deemed to be a banking
company within the meaning of the Banking Companies Ordinance !962. The shares
of the corporation are listed with the stock exchange. ICB is an authorized broker of
DSE and CSE.

Regulatory Framework of ICB
As mentioned earlier the regulatory framework of ICB is the Investment Corporation
of Bangladesh Ordinance 1976. This ordinance and regulations laid under the
authority of the ordinance is the source of all power and authority of ICB. Through
the recent enactment of The Investment Corporation of Bangladesh(Amendment)
Act, 2000 scope of ICBs activities through the formation of subsidiaries, have been
expanded. In addition to these for carrying its activities it has to compel by
Companies Act 1994, Trust Act 1882, Insurance Act 1983, Security and Exchange
Commission Act 1993, Banking Companies Act 1993, Foreign Exchange Regulation
1974, Income tax etc.

Management of ICB
The head office of the corporation as per the requirement of the ordinance of ICB is
located at Dhaka. The general direction and superintendence of the corporation
created in a board of directors, which consists of persons including the chairman and
managing director of ICB.
The board of directors consists of the following directors:

a) The Chairman to be appointed by the government.

b) The directors to be appointed by the government from among persons
serving under the government.
c) One director to be nominated by the Bangladesh Bank.
d) The managing directors, Bangladesh Shilpa Bank, Ex-office.
e) The managing directors, Bangladesh Shilpa Rin Shangshta, Ex-office.
f) Four other directors to be elected by the shareholders other than the
government, BB, BSB and BSRS.
g) The managing director of ICB to be appointed by the government.

Administration, Human Resource
Investment Corporation of Bangladesh (ICB) is providing different categories of
financial and banking service. Nature of different division/departments very, such that
Economic and Business Research (EBR) Department requires teamwork, Loan
Appraisal division requires professional work, Funds division needs chain work.
Managing Director is entrusted with authority to transact the regular business of the
organization; he may delegate some authority to officials of the corporations.
However most of the policy decisions are taken by the different committee with the
approval of managing director with and where required of the Board in discharging of
the function stated under the ordinance. The board may appoint such other committee
as it think fit to assist it in the efficient discharge of its functions. So far, board has
appointed two such committees Economic and Business Research committee and loan
appraisal committee headed by General Manager.

Board of Directors of ICB
The Board is comprised of 11 directors. Except managing directors, all directors are
non-executive and independent and represent government, banks, Insurance, financial
institutions and general public.

2.6 Functions of Several Departments of ICB:
The organizational setup of ICB is functionally divided into two broad groups:

- Operation Wings
- Administrative Wings

The functions of the Operation wings are involved with activities related to project
financing, Research, Computer, Unit & Mutual Funds, Investment Accounts,
Shares/Stocks/Debentures/ Bonds, Securities & Transactions etc.

The functions of the Administrative wings are involve with the activities relating to
General Administration, Accounts, Implementation & monitoring of Projects,
Recovery, Public Issues & Legal matters.

Under the each wings, there are some distinctive departments (round about 16 in no.)
through which the objectives & strategic plans of the corporation are implemented.

These departments are:
Project Loan Accounts Department
Central Account Department
Law Department
Public Issue Department
Recovery & Follow-Up Department
Project Implementation Department
Economic & Business Research Department
Loan Appraisal Department
Share Department
Transaction Department
Investors Department
Mutual Fund Department
Unit Sales Department
Unit Registration & Purchase Department
Human Resource Department
Personnel Department

The functions of the significant departments are given in the following pages:
Project Loan Accounts Department:
This department presents up to date information about projects to the other related
department. Functions of this department are:
Issue check to the projects after getting disbursement order from the PIC.
Maintenance of registers for interest penalties, interest dues & interest over-
dues.
Calculation of interest & preparation of periodical bills.
Preparation & dispatch of statement of accounts.
Any other assignment asserting by the management.
Central Accounts Department:
All kinds of receipts & payments of ICB are done by the central accounts Department.
The important functions of this department are:

Prepare income tax return and matters relating to accounts.
Prepare bills including projects accounts & their maintenance.
Prepare salary statement, overtime statement.
Make payment of all bills.
Prepare financial statements.
Keep accounts of unit funds & mutual Funds.
Keep accounts of Govt. loans.
Maintain liaison with the external & commercial audit.
Maintaining of investors account & portfolio ledgers.
Calculation of quarterly interest.
Ensure proper budgetary control.
Prepare annual budget for the corporation.
Furnishing of information to the other departments related to investors
scheme.
Determine the sources, raising funds from their and manage the funds in an
efficient way.

Law Department:
This is a specialized department empowered to:
Process all legal matters.
Prepare legal documents, advance agreements, share agreements.
Make correspondence with the company.
Arrange execution of under-writing-cum advance agreement, underwriting
arrangement.
Preserve, supervise and keep in safe custody of legal security departments.
Coordinate with the management, ministries & other Govt. officers in respect
of legal affairs.

Public Issue Department:
The public issue department is the vital department in the context of ICB with its
following activities:

Visit & collect audited financial statement from the sponsors.
Analyze the financial statement of on-going projects.
Advice, pursue sponsors for going to the public issue.
Assists sponsors to prepare prospectus & examine its accuracy.
Advice companies in issuing allotment letters.
Other functions assigned by the management.

Recovery & Follow-Up Department:
ICB has three modes of finance, namely bridge loan, debenture loan & share purchase
loan. The recovery & follow up department is the key operation department as it
ensures the recoiling of funds provided as credit. The major activities of this
department are:
Recover the principles & interest due on the sanctioned projects.
Analyze balance sheet & sanction study review.
Furnishing information to different department of ICB.
Assist the law department of the corporation.
Analyze the problems of the sick projects.
Recommended for making necessary provision for doubtful debts.
Ensure recovery of dues/ over dues from sponsors.
Visit of projects, examine the problems & provide solutions.

Project Implementation Department:

It starts work after LAD & law department, which are closely related. This
department mainly focuses on bringing loan. The functions of this department are:
Help implementation of sanction project.
Review progress of implementation project.
Submit progress report to the management regarding implementation.
Inspect the site & books account of project.
Make recommendations for additional loans appropriate cases.
Provide counseling for solution of any dispute & problems.
Contact with the consortium member.

Economic & Business Research Department:

This department is functioning as a provider of up to date information & summarizing
all the information to justify new opportunities of business. It is a decision making
department. The functions of this department are:
Conduct meeting with the securities purchase & sale committee.
Fixing budget for branches & department.
Finalizing annual report of the ICB.
Prepare MIS report which contains updated business performance.
Prepare five years performance appraisal report.
Prepare & distribute annual report, board memo etc.
Maintain information related to SE & CSE.
Manage the business development cell.

Maintain liaison with the Ministry of Finance.
Portfolio management of the organization.
Perform all activities related to South Asian Development Fund (SADF).

Loan Appraisal Department:
This department is to work out the viability of the finance hopeful forecasting about
safety, security & risk of investment. ICB is responsible for providing credit facilities
to the public ltd. Companies in two ways to meet the equity gap.
Functions of this department include the activities related to the investment decisions,
which are summarized below:
Receive investment proposals from sponsors.
Prepare appraisal report on projects & conduct meeting with the project
appraisal committee.
Place appraisal of the project to board & consortium.
Conduct consortium meeting & coordination with the consortium members.
Apprise management on technical aspect of projects.
Issue sanction letter to projects.
Maintain liaison with the commercial banks.

Share Department:
This department, subject to act as a custodian of ICB portfolio & investors accounts.
It maintains IPO shares, right shares, secondary shares from transaction department &
the bonus share of the company. All these activities are performed into five different
sections:
I. Permanent Reconciliation Cell
II. Fund Portfolio Section
III. Investors Portfolio Section
IV. Sales & Withdrawal Section

Transaction Department:
It deals with investors sales & purchases order of securities. The prime functions of
this department are as follows:
Sell & buy shares from the secondary market.
Keep record of all types of shares transactions.
Verify the order according to the previous transactions.
Collecting financial statement, buyers & sellers advice for the transaction
already done in DSE.
Prepare purchase & sale confirmation statements on behalf of the branch
office.

Calculate the net of all the transactions.
Deposits the checks and securities payable to the DSE & CSE.
Collect the receivables checks from the DSE & CSE.
Deal with receipt and remittance of foreign currency regarding Wage Earners
Mutual Fund, Unit Fund etc.

Investors Department:
This department deals with the investors scheme, which starts operation on 13th
June, 1977. The prime functions of the investors department are as follows:
Open & maintain Investors account.
Sanction loans against deposits in investment accounts.
Buy & sale shares on behalf of the investors both from the primary &
secondary market.
Counsel investors in respect of building up their portfolios.
Withdrawal funds & shares from investors account.
Issue income tax certificate, portfolio statement, account statement etc.
Provide services to investors account holders.
Receive direct application against public issue of shares.
Keep financial records of all existing investment accounts.
Posting of all transactions.

Mutual Fund Department:
The prime functions of mutual fund department are as follows:
Act as manager of all mutual funds.
Receive applications from general public in respect of new issues of mutual
funds.
Prepare prospectus in connection with the floatation of mutual funds.
Arrange for lottery, in necessary for allotment.
Examine the application for allotment of shares against application made.
Prepare registers of allotters.
Issue allotment share certificates.
Arrange refund of excess application money.
Make correspondents with the branches of the corporations, bank & certificate
holders.
Arrange for payments of brokerage & commission to the stock exchange
members for successful application submitted under the membership sales &
the bankers to the issue respectively.

Issue duplicate allotment the date of payment of dividend on Dividend
Warrants.

Unit Sales Department:
The unit sales department is entrusted with the following responsibilities:
Sale of units to the investors.
Enchased the units by the way of surrendering the certificate along with the
prescribed surrendering forms duly filled in & signed by registered holders &
no prior notice is required.
Transfer unit certificate if applied with the prescribed form.
Consolidated the units if applied for.
Splits the units if applied for.
Issues dividend warrants & CIP certificates to the holders.
Coordinate activities of bank branches in respect of unit sales & repurchases.
Transmission of units in case of death of the unit holders.

Unit Registration & Purchase Department:
This department works for the record keeping mainly. It records register wise ledger
entry of information of unit holders & this type of entry. On this basis total balance of
units & dividends is calculated & dividend warrants are delivered to the unit holders.

As for work efficiently, & provide maximum service to the unit certificate holders,
this department performs the following tasks:

Registers & transfer unit certificates.
Maintain a separate registers for unit holders ICP.
Maintain signature of transfer deed.
Preparation of dividend lists from the ledger posting & CIP marking.
Posting all the information related to the sale, transfer & purchase from the
statement after receiving from Unit Sales department of the ICB head office &
the other issuing offices in the ledger registration wise.
Issue dividend warrants & CIP certificates to the holders.
Sending the dividend lists & the traditional lists to the dividend paying bank.
Delivering the certificates, forms brochures, annual reports etc. to all the
issuing officers as per their requisitions.
Coordinate all the activities relating to procurement & issue of unit certificate.
Human Resource Department:
Authentically the HR department is strategic. The prime objective of HR department
is to allocate human resources in different posts or departments in such a way where

maximum efficiency or output come from the employees. In this way, it ensures cost
minimization & profit maximization of the company.

In brief the functions of the HR department have been shown below:

To arrange different types of training program for the executives as well as for
the employees to get more output for them.
To find out the scope of foreign training for executives.
To arrange internal training for its employees.
To arrange training for the newly recruited employees of the organization.
To maintain the institutional training centre.
To arrange seminar, symposium, workshop etc & to bring expert in this
respect if t necessary.
To collect instruments & other materials for the participants of the training
programs to ensure their needs & requirements.

Personnel Department:
It is also known as the administrative department of the IB. The objective of this
administrative department is to check & control the activities of employees & take
necessary actions if the rules & regulations of the company are violated. Strategic
plans are implemented through administrative department. The prime functions of this
department are as follows:

To prepare policies, laws & regulations to make more effective administration
system.
To recruit manpower for the corporation.
To transfer, promotion, fixing remuneration structure, vacations of employees
are also implemented through this department.
Pension & other related works after retirement like gratuity, provided fund etc
are also processed here.
To maintain constant communication with the ministry & monthly statement /
quarterly statement are sent according to the demand of the ministry.
To maintain al the activities regarding the union of the employees/ executives.
To maintain the attendance of the employees.
To implement other activities ascertained by the authority whenever it is
necessary.

Share Capital Ownership Pattern
Classification of Shareholders of ICB

Shareholding Position of ICB

Shareholders
No. of
Shareholders

No. of Shares

Percentage
Government of Bangladesh
1
1350000 27.00
Nationalized Commercial Banks
4
1136900 22.74
Development Financial Institutions
2
1281550 25.63
Insurance Corporations
2
617781 12.35
Denationalized Private Commercial
Banks
2
454262.5 9.09
Private Commercial Banks 3 28286 0.57
Foreign commercial Banks 2 110 0.01
First Mutual Fund 1 5750 0.12
Other Institutions 12 17454 0.34
General Public 1109 107906 2.16
Total 1124 5000000 100.00

Capital structure of ICB:
The particulars and capital structure of ICB are as follows:

Particulars

ICB
Consolidated
(ICB & Subsidiaries)
As on 30th June Increase/ As on 30th June Increase/
27%
23%
26%
12%
9%
1%
0%
0%
0%
2%
Shareholding Position of ICB
Government of Bangladesh
(27.0%)
Nationalized commercial
Banks (22.74%)
Development Financial Inst.
(25.63%)
Insurance Corporation
(12.35%)
Denationalized Pvt. Comm.
Banks (9.08%)
Pvt. Comm. Banks (0.58%)
Foreign Comm. Banks
First Mutual fund (0.12%)

(Decrease) (Decrease)
2010 2009 % 2010 2009 %
Paid up capital 50.00 50.00 ** 50.00 50.00 **
Reserves for stock
dividends
50.00 ** 55.00 **
Reserves 164.61 122.61 34.25 185.56 130.06 42.67
Retained Profit 16.33 13.82 18.16 73.52 36.43 101.81
Long term Govt.
loan
4.20 4.55 -7.69 4.20 4.55 -7.69
Debentures 31.80 41.80 -23.92 31.80 41.80 -23.92
Others 14.05 16.29 -13.75 16.39 17.18 -4.60
Total 330.99 249.07 32.89 416.47 280.02 48.73
Table: Capital structure of ICB

Following pie- charts are the presentation of above presented data:

Figure: Capital structure of ICB Figure: Consolidated (ICB & Subsidiaries)

2.7 SWOT Analysis of ICB:

On the basis of all collected data about ICB a SWOT model was been formulated to
find some strengths, weakness, opportunities & threats of ICB which seemed to me
relevant & important to note down. Following are the dioramic presentation of these
issues:
Capital Structure of ICB as on
30th June,2010
Paid up capital
Reserves for
stock
dividends
Reserves
Retained Profit
Long term
Govt. loan
Paid up capital
Reserves for
stock dividends
Reserves
Retained Profit
Long term Govt.
loan
Debentures


Govt trying to boost up capital market
as the corporate tax is reduced, more
investors will come to set up new
ventures.
the economy is overcoming the
September 11 crises.
Investors are getting confidence over
security markeets
A lot of private enterprise caters into the
market
People have less knowledge about the
capital market.
There are some unethical practices in
security markets.
Low rate of dividend decleared by the
companies.
Bureaucratic Practice
Lack of Discipline
Lack of Authority in officer Level
Lack of computarizati0on system
Inactive manpower
Strong Financial Backup
Expert Management team
Good reputation
Diversified Financial Product
Strong Network
Strength
Weakness
Oppourtunity Threats


Chapter: Three
About Mutual Funds

3.1 Introduction to Mutual Funds:
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned
through these investments and the capital appreciations realized are shared by its unit
holders in proportion to the number of units owned by them. Thus a Mutual Fund is
the most suitable investment for the common man as it offers an opportunity to invest
in a diversified, professionally managed basket of securities at a relatively low cost.
The flow chart below describes broadly the working of a Mutual Fund.


A Mutual Fund is a body corporate registered with the Securities and Exchange
Commission that pools up the money from individual/corporate investors and invests
the same on behalf of the investors/unit holders, in Equity shares, Government
securities, Bonds, Call Money Markets etc, and distributes the profits. In the other
words, a Mutual Fund allows investors to indirectly take a position in a basket of
assets.

Mutual Fund is a mechanism for pooling the resources by issuing units to the
investors and investing funds in securities in accordance with objectives as disclosed
in offer document. Investments in securities are spread among a wide cross-section of
industries and sectors thus the risk is reduced. Diversification reduces the risk because
all stocks may not move in the same direction in the same proportion at same time.
Investors of mutual funds are known as unit holders.
The investors in proportion to their investments share the profits or losses. The mutual
funds normally come out with a number of schemes with different investment
objectives which are launched from time to time. A Mutual Fund is required to be
registered with Securities Exchange Commission which regulates securities markets
before it can collect funds from the public.

3.2 Important Characteristics of a Mutual Fund
A Mutual Fund actually belongs to the investors who have pooled their
Funds. The ownership of the mutual fund is in the hands of the Investors.

A Mutual Fund is managed by investment professional and other Service
providers, who earn a fee for their services, from the funds.
The pool of Funds is invested in a portfolio of marketable investments.
The value of the portfolio is updated every day.
The investors share in the fund is denominated by units. The value of the
units changes with change in the portfolio value, every day. The value of one
unit of investment is called net asset value (NAV).
The investment portfolio of the mutual fund is created according to The stated
Investment objectives of the Fund.

3.3 Types of Mutual Funds:

3.3.1 OPEN-ENDED MUTUAL FUNDS:
The holders of the shares in the Fund can resell them to the issuing Mutual Fund
Company at the time. They receive in turn the net assets value (NAV) of the shares at
the time of re-sale. Such Mutual Fund Companies place their funds in the secondary
securities market. They do not participate in new issue market as do pension funds or
life insurance companies. Thus they influence market price of corporate securities.
Open-end investment companies can sell an unlimited number of Shares and thus
keep going larger. The open-end Mutual Fund Company Buys or sells their shares.
These companies sell new shares NAV plus a Loading or management fees and
redeem shares at NAV. In other words, the target amount and the period both are
indefinite in such funds

3.3.2 CLOSED-ENDED MUTUAL FUNDS:
A closedend Fund is open for sale to investors for a specific period, after which
further sales are closed. Any further transaction for buying the units or repurchasing
them, Happen in the secondary markets, where closed end Funds are listed. Therefore
new investors buy from the existing investors, and existing investors can liquidate
their units by selling them to other willing buyers. In a closed end Funds, thus the
pool of Funds can technically be kept constant. The asset management company
(AMC) however, can buy out the units from the investors, in the secondary markets,
thus reducing the amount of funds held by outside investors. The price at which units
can be sold or redeemed Depends on the market prices, which are fundamentally
linked to the NAV. Investors in closed end Funds receive either certificates or
Depository receipts, for their holdings in a closed end mutual Fund.

3.4 Advantages of Mutual Fund:

Mutual Fund substantially minimizes the investment risk of small investors
through diversification in which funds are spread out into various sectors,
companies, securities as well as entirely different market.
Mutual Fund mobilizes the savings of small investor and channels them into
lucrative investment opportunities. As a result, Mutual Fund adds liquidity to
the market.
Mutual Fund provides small investors access to the whole market that an
individual level would be difficult if not impossible to achieve.
Because funds are professionally managed, investors are relieved from the
emotional strain associated with the day to day management of the fund. Thus
the fund provides access to extensive local research and investment
experience.
The investor saves a great deal in transaction costs given that she/he has
access to large number of securities by purchasing a single share of a Mutual
Fund.
Income will be tax free up to certain level, which is permitted as per Finance
Act.
Investment in the Fund would qualify for investment tax credit under section
44(2) of the Income Tax Ordinance 1984.
SEC regularly monitors the performance of such funds. The laws governing
mutual funds require exhaustive disclosures to the regulator and general public
and, as such mutual funds are one of the most transparent investment vehicles
in Bangladesh.

3.5 Organization and Management of Mutual Funds:
In Bangladesh Mutual Fund usually formed as trusts, three parties are generally
involved-
- Settler of the trust or the sponsoring organization.
- The trust formed under the Trust Act, 1882.
- Fund managers or The merchant-banking unit
- Custodians.
Mutual Funds Trust:
Mutual fund trust is created by the sponsors under the Trust Act, 1882 which is the
main body in the creation of Mutual Fund trust.
The main functions and obligations of Mutual Fund trust are as follows:
(Name of the Trustee)..... Shall be the Trustee of the Fund by Virtue of this
Trust Deed.
Planning and formulating Mutual Funds schemes.
Seeking SECs approval and authorization to these schemes.

Marketing the schemes for public subscription.
The Trustee shall, as the guardian of the Fund hold all capital assets of the
Fund in trust for the benefit of the unit holders, in accordance with the
Securities and Exchange Commission (Mutual Fund) Rule 2001 and this
instrument of Trust and the unit holders shall preserve only the beneficial
interest in the Trust properties on pro rata basis of their ownership in the
specific scheme of the Fund.
The Trustee shall take all reasonable care to ensure that the schemes of the
mutual fund floated and managed by the Asset Management Company are in
accordance with the Trust Deed and the Securities and Exchange Commission
(Mutual Fund) Rule 2001.
The Trustee shall receive a quarterly report from the Asset Management
Company and submit a six monthly report to the Commission on the activities
of the schemes of the Mutual Fund.
The Trustee shall have the right to call for any books of accounts, records,
documents and such other information as considered necessary from the Asset
Management Company as is relevant to the management of the affairs
concerning the operation of the schemes of the Mutual Fund.
The Trustee shall not participate in any decision making process for
investments of the Fund and its various schemes.
The Trustee shall be paid an annual Trusteeship Fee of @.........% of the Net
Asset Value (NAV) of the Fund on semi-annual in advance basis, during the
life of the particular scheme or as may be agreed upon between the parties.

The Asset Management Company (AMC)

AMC has to discharge mainly functions as under:
Taking investment decisions and making investments of the funds through
market dealer/brokers in the secondary market securities or directly in the
primary capital market or money market instruments.

Realize fund position by taking account of all receivables and realizations,
moving corporate actions involving declaration of dividends, etc to
compensate investors for their investments in units; and

Maintaining proper accounting and information for pricing the units and
arriving at net asset value (NAV), the information about the listed schemes
and the transactions of units in the secondary market. AMC has to feed back
the trustees about its fund management operations and has to maintain a
perfect information system.

(Name of the AMC)....shall be the Asset Manager of the Fund and its various
schemes, this Deed shall constitute as the basis of the Investment Management
Agreement with the Trustee/Sponsor as required by the provision of the
Securities and Exchange Commission (Mutual Fund) Rule 2001.

The Asset Management Company shall be responsible for designing,
structuring, registering, promoting, issue & public floatation, investment
operation and management of the schemes of the mutual fund in accordance
with the provisions of the Trust Deed and the Securities and Exchange
Commission (Mutual Fund) Rule 2001.

The Asset Management Company shall submit to the Trustee and the
Commission quarterly activity and compliance reports on March 31, June 30,
September 30 and December 31 within fifteen days of the end of the quarter or
at such intervals as may be required by the Trustee or the Commission.

The Asset Management Company shall prepare and distribute prospectuses,
annual and periodical reports of the Fund and shall maintain all sorts of
communications with investors and other stakeholders as per the Securities
and Exchange Commission (Mutual Fund) Rule 2001 and shall undertake
advertising and other promotional activities.

The Asset Management Company shall be paid with an one-off Formation Fee
not exceeding one percent of the size of the schemes of the Fund and also the
annual Management Fee as per and under the limits prescribed in the
Securities and Exchange Commission (Mutual Fund) Rule 2001 or as
determined by the Commission from time to time.

A requisition meeting called by two-third majority of the unit holders of any
scheme of the Fund, under the procedure laid down in the Securities and
Exchange Commission (Mutual Fund) Rule 2001 can propose termination of
the appointment of the Asset Management Company for that particular scheme
of the Fund, and the Trustee may initiate termination process of the Asset
Management Company with prior approval of the Commission.


Custodians of mutual funds:

Responsibilities of custodians are:-

Receipt and delivery of securities
Holding of securities
Collecting income
Holding and processing cost
(Name of the Custodian)....) shall be the Custodian of the Fund and its various
Schemes as per the Securities and Exchange Commission (Mutual Fund) Rule
2001.
The Custodian shall keep liaison with the CDBL and collect and preserve
information required for ascertaining the movement of securities of the Fund.
The Custodian shall keep the securities of the Fund in safe and separate
custody and shall provide highest security for the assets of the Fund.
The Custodian, among others, shall preserve the following documents and
information as applicable as regards to the Fund:
a) Details of acquisition and disposal of securities under
custody;
b) Details of receipt and disbursement of funds;
c) Details about the right of the clients on the securities held
on behalf of the clients:
d) Details of registration of the securities, if any; under
custody.
e) Ledger of accounts of the clients;
f) Details about the order received from and given to the
clients;
The Custodian shall have physical possession of the stock and securities of the
Fund and be responsible for safekeeping of the securities. Applicable
negotiated custodial service charges shall be paid to the Custodian by the
Fund, which shall be competitive and market based and disclosed on the
prospectus of the respective schemes.

The Custodian shall also be responsible for the settlement, transfer and
registration, dividend collection and corporate announcement dissemination
services.

The Custodian shall furnish to the Asset Management Company the interest
that they may have in any company or financial institution or anybody
corporate by virtue of their positions as director, partner, and managers or in
which they may be associated with in other capacities.


Chapter: Four
Performance Evaluation of ICB Mutual Funds

4. Performance Evaluation of ICB Mutual Funds

4.1 Mutual Funds of ICB:
ICB pioneered the Mutual Fund industry in Bangladesh. Countrys first Mutual Fund
the First ICB Mutual Fund was floated on 25
th
April 1980. Since then, ICB has,
over the year, floated 8 Mutual Funds with the total capital of TK. 17.50 crore. All
ICB mutual funds are closed-end mutual funds. ICB Mutual Fund continued to
command the confidence and attention of investors as lucrative and rewarding
investment in terms of steady dividend performance.


ICB launched eight mutual funds in different period with different paid up capital
MUTUAL FUND DATE OF
FLOATATION
PAID UP CAPITAL
(Taka in Lac)
First ICB Mutual Fund 25 April,1980 75.00
Second ICB Mutual Fund 17 June, 1984 50.00
Third ICB Mutual Fund 19 May, 1985 100.00
Fourth ICB Mutual Fund 06 June, 1985 100.00
Fifth ICB Mutual Fund 08 June, 1987 150.00
Sixth ICB Mutual Fund 16 May, 1988 500.00
Seventh ICB Mutual Fund 30 June, 1995 300.00
Eighth ICB Mutual Fund 23 July, 1996 500.00

Advance against Mutual Fund certificates Scheme
Advance against ICB Mutual Fund certificates Scheme was introduced in 2003,
designed for the ICB Mutual Fund certificate holders to meet their emergency fund
requirement. One can borrow maximum of 50% value of last one years weighted
average market price of certificates at time of borrowing by depositing hid/her
certificates under lien arrangement from any of the ICB offices. The rate of interest on
the lone is reasonable and also competitive.

Management Fee Charge etc.
At present management fee @ 1% on the paid up capital of the Fund is charged
annually. No amount charged on account of custodial and trust services. Part of the
operating experience are charged to the respective Mutual Fund on pro rata basis.

Assets of ICB Mutual Funds
ICB Mutual Fund certificate holders shall have unfettered ownership into assets of the
Fund to which they are related. In case of winding up of the corporation the assets
belonging to any ICB Mutual Fund shall not be traded as the assets of the corporation.

Tax Concessions
(a) Investment in certificates provides the same tax exemptions as an investment
qualifying under section 44 of the Income Tax Ordinance 1984.

(b) Capital gains received on investment in the Fund Certificates shall not be
included in the total income of a certificates holder within the limited specified
in the Income Tax Ordinance 1984.
(c) Dividends received on investment in the Fund will be treated as dividend
income under Income Tax Act, and will be exempted from tax with the limited
specified in the Act.
(d) The Funds incomes are to be exempted from all taxes as granted by the
Government as per SRO No. 80-L/80 dated April 1980.

Management of the Funds
There is decision making board in order to manage different Mutual Funds. As per
boards decision securities are bought under different Mutual Funds. At the same way
securities are sold. In case of new Mutual Fund subscribes for public issue. ICB
authority is made portfolio earlier by its own finance and given it name. After that it is
published on any newspaper as prospectus. By studying this prospectus public
response whether they will buy the Mutual Fund or not.

Declaration of Dividend:
The net income received on investments of Funds on account of dividend, bonus,
interest, capital gain etc are distributed amongst the certificate holders as per decision
of the Board of Directors of ICB. Board declares such income in the form of dividend
at end of July each year. Dividend declared by ICB in the past for the Mutual Funds
were very attractive. The year-wise per certificate dividends performance are
mentioned in the next page:

Dividend per Certificate (Taka)

FY
FUNDS
1ST 2ND 3RD 4TH 5TH 6TH 7TH 8TH
1981 20
1982 20
1983 20
1984 25

1985 35 21
1986 38 23 21
1987 41 25.5 22.5 21.5
1988 48 28 25.5 23
1989 49 29 26 23.5 20.5 15.5
1990 49 29 26 23.5 20.5 13.25
1991 35 22 19 17 10 6
1992 31 22 19 18 11 6
1993 31.5 21 18 17 12
1994 45 27 22 40 25 16
1995 50 40 27 41 28 18
1996 60 42 28 41 30 20 18
1997 70 45 38 45 35 24 21 18
1998 70 30 35 32 22 18 14 12
1999 100 32 38 35 20 15 13 12
2000 125 35 40 36 21 16 13.5 12.5
2001 170 40 45 38 23 17 14 13
2002 175 42 50 40 24 17.5 14.5 13.5
2003 180 45 50 40 24 17.5 14.5 13.5
2004 200 50 50 45 24 17.5 15 14
2005 210 55 52 48 27 18.5 16 15
2006 210 55 52 48 27 18.5 16 15
2007 190 62 56 52 33 23 22.5 18
2008 265 75 65 60 45 30 30 25
2009 310 95 85 80 56 37 35 32
2010 400 200 140 125 100 75 70 65

NAV per certificate:
NAV (AT COST PRICE) 2005 2006 2007 2008 2009 AS ON 06.09.2010
1st ICB M.F. 766.18 785.90 816.72 748.84 869.08 885.18
2nd ICB M.F. 335.45 346.49 367.65 412.79 473.34 607.47
3rd ICB M.F. 256.91 271.02 288.12 324.99 381.38 494.29
4th ICB M.F. 270.78 276.48 291.58 325.32 379.59 455.59
5th ICB M.F. 158.58 165.01 179.01 210.27 243.83 315.98
6th ICB M.F. 129.65 135.69 143.23 162.87 182.87 188.31
7th ICB M.F. 129.41 139.07 150.60 170.95 190.95 237.19

8th ICB M.F. 128.86 133.77 140.90 158.60 176.45 212.31

NAV(AT MARKET
PRICE)
2005 2006 2007 2008 2009 AS ON 06.09.2010
1st ICB M.F. 2761.20 2269.54 3217.58 4461.15 6172.15 11078.99
2nd ICB M.F. 391.55 286.66 480.33 1005.52 1484.00 3581.01
3rd ICB M.F. 312.39 231.49 415.05 807.94 1122.13 2700.72
4th ICB M.F. 345.99 250.44 586.36 978.45 1251.92 2961.11
5th ICB M.F. 234.12 150.83 508.06 998.05 1189.27 2337.24
6th ICB M.F. 141.67 110.27 196.03 345.51 454.78 838.64
7th ICB M.F. 166.56 90.84 271.70 503.42 694.21 1367.63
8th ICB M.F. 153.76 99.85 215.35 401.37 513.72 987.59

4.2 Performance Measures of Mutual Funds:
Mutual Fund industry today, has about 29 players among them 27 are traded in Dhaka
Stock Exchange. However, with a plethora of schemes to choose from, the retail
investor faces problems in selecting funds. Factors such as investment strategy and
management style are qualitative, but the funds record is an important indicator too.

Though past performance alone cannot be indicative of future performance, it is,
frankly, the only quantitative way to judge how good a fund is at present. Therefore,
there is a need to correctly assess the past performance of different Mutual Funds.
Worldwide, good Mutual Fund companies over are known by their AMCs and this
fame is directly linked to their superior stock selection skills.

For Mutual Funds to grow, AMCs must be held accountable for their selection of
stocks. In other words, there must be some performance indicator that will reveal the
quality of stock selection of various AMCs.

Return alone should not be considered as the basis of measurement of the
performance of a Mutual Fund scheme, it should also include the risk taken by the
fund manager because different funds will have different levels of risk attached to
them. Risk associated with a fund, in a general, can be defined as Variability or
fluctuations in the returns generated by it. The higher the fluctuations in the returns of
a fund during a given period, higher will be the risk associated with it. These
fluctuations in the returns generated by a fund are resultant of two guiding forces.
First, general market fluctuations, which affect all the securities, present in the
market, called Market risk or Systematic risk and second, fluctuations due to specific

securities present in the portfolio of the fund, called Unsystematic risk. The Total
Risk of a given fund is sum of these two and is measured in terms of standard
deviation of returns of the fund.

Systematic risk, on the other hand, is measured in terms of Beta, which represents
fluctuations in the price of the fund vis--vis market. The more responsive the price of
a Mutual Fund is to the changes in the market; higher will be its beta. Beta is
calculated by relating the returns on a Mutual Fund with the returns in the market.
While Unsystematic risk can be diversified through investments in a number of
instruments, systematic risk cannot. By using the risk return relationship, we try to
assess the competitive strength of the Mutual Funds one another in a better way. In
order to determine the risk-adjusted returns of investment portfolios, several eminent
authors have worked since 1960s to develop composite performance indices to
evaluate a portfolio by comparing alternative portfolios within a particular risk class.

Measures of Performance:
The most important and widely used measures of performance are as follows:

- The TreynorMeasure
- The Sharpe Measure
- Jensen Model
- Fama Model

4.2.1 Treynors composite performance measure:
This measure indicates the portfolios risk premium return per unit of risk. Here risk
premium is measured by subtracting from the average rate of return for portfolio i
during a specified time period, the average rate of return on a risk free investment
during that time period. Risk is measured by beta.
i
i
R RFR
T
|
=
where:
Ri = average rate of return for portfolio i during a specified time period

RFR = the average rate of return on a risk free investment during that time
period
Bi = the slope of the funds characteristic line during the time period (this
indicates the portfolios relative volatility.)

In this way mutual funds providing highest return per unit of risk (systematic) will be
preferred in comparison to the funds that provide lower return per unit of risk.

Comparing a portfolios T value to a similar measure for the market portfolio
indicates whether the portfolio would plot above the SML.

4.2.1.1 1
st
ICB Mutual Fund:

The results of the calculations are summarized below

Covariance of 1st ICB Mutual Fund return with market return 0.0019
Variance of market return 0.0067
Beta of 1st ICB Mutual Fund 0.2851
Average monthly return of 1st ICB Mutual Fund 0.0259
Average monthly Risk free return 0.0066

Ti 0.0676
-
Return

reReturn
Beta 1.00
SML
T
m
0.00
R
m
-
-


The beta is .2851, which means for market movement of 1 this Mutual Fund moves
only .2851 which is low. Because of this low systematic risk, the risk adjusted return
showed by Treynor is quite high. The result indicates that 1st ICB Mutual Fund
obtained 6.76% risk premium per unit of systematic risk. If we compare this result
with market Treynor ratio which is 1.46% we find that 1
st
ICB Mutual Fund has
performed better than market and it plots above the SML.

4.2.1.2 2
nd
ICB Mutual Fund:
Covariance of 2nd ICB Mutual Fund return with market return 0.0023
Beta of 2nd ICB Mutual Fund 0.3364
Average return of 2nd ICB Mutual Fund 0.03405
Average Risk free return 0.00659

Ti 0.0816

We can see that beta is low like the previous one and is only .33641, which means for
market movement of 1 this mutual fund moves only .3364 which is low. Because of
this low systematic risk the risk adjusted return showed by Treynor is quite high. The
result indicates that 1st ICB Mutual Fund obtained 8.16% risk premium per unit of
systematic risk. If we compare this result with market Treynor ratio which is 1.46%
we find that 2
nd
ICB Mutual Fund has performed better than market and it plots above
the SML.

4.2.1.3 3
rd
ICB Mutual Fund:
Covariance of 3rd ICB Mutual Fund return with market return 0.0020
Beta of 3rd ICB Mutual Fund 0.3034
Average return of 3rd ICB Mutual Fund 0.0218

Ti 0.0502


We can see that beta is .3034, which means for market movement of 1 this security
moves only .3034 which is low. Because of this low systematic risk the risk adjusted
return showed by Treynor is quite high. The result indicates that 3rd ICB Mutual
Fund obtained 5.02% risk premium per unit of systematic risk. If we compare this
result with market Treynor ratio which is 1.46% we find that 3rd ICB Mutual Fund
has performed better than market and it plots above the SML.

4.2.1.4 4
th
ICB Mutual Fund:
Covariance of 4th ICB Mutual Fund return with market return
0.0027
Variance of market return
0.0067
Beta of 4th ICB Mutual Fund
0.4029
Average return of 4th ICB Mutual Fund
0.0290
Average Risk free return
0.0066

Ti
0.0555

return showed by Treynor is quite high. The result indicates that 4th ICB Mutual Fund
with market Treynor ratio which is 1.46% we find that 4th ICB Mutual Fund has

4.2.1.5 5
th
ICB Mutual Fund:

Covariance of 5th ICB Mutual Fund return with market return 0.0034
Beta of 5th ICB Mutual Fund 0.4977
Average return of 5th ICB Mutual Fund 0.0384

Ti 0.0640


obtained 6.4% risk premium per unit of systematic risk. If we compare this result with
market Treynor ratio which is 1.46% we find that 5th ICB Mutual Fund has

4.2.1.6 6
th
ICB Mutual Fund:


Ti 0.0705


4.2.1.7 7
th
ICB Mutual Fund:

Covariance of 7th ICB Mutual Fund return with market return
0.0017
Variance of market return
0.0067
Beta of 7th ICB Mutual Fund
0.2587
Average return of 7th ICB Mutual Fund
0.0462
Average Risk free return
0.0066

Ti
0.1532



4.2.1.8 8
th
ICB Mutual Fund:


Ti 0.0772


Performance Compared on the basis of Treynor ratio:
Following is the treynor ratio organized from highest to lowest for the mutual funds
that are being traded since 2005 or before.

1
st
BSRS M.F. 0.15636
7
th
ICB M.F. 0.153215
2
nd
ICB M.F. 0.081624
8
th
ICB M.F. 0.077173

6
th
ICB M.F. 0.070523
1
st
ICB M.F. 0.067636
5
th
ICB M.F. 0.063983
Aims 1st M.F. 0.059364
4
th
ICB M.F. 0.055498
Grameen M.F. one 0.053388
3
rd
ICB M.F. 0.0502
ICBAMCL 1st M.F. 0.030859
ICB AMCL 1st Islamic M.F. 0.026918

We can see that 1st BSRS M.F and 7th ICB M.F. performed significantly better than
others. And another side is that ICB mutual funds performed well as a whole than
others although the first position is occupied by 1st BSRS M.F

4.2.2 Sharpe Portfolio Performance Measure:
This measure indicates the portfolios risk premium return per unit of total risk. Here
risk premium is measured by subtracting from the average rate of return for portfolio i
during a specified time period, the average rate of return on a risk free investment
during that time period. Total risk is measured by standard deviation of portfolio
return.
i
i
R RFR
S
o
=
Where

Ri = average rate of return for portfolio i during a specified time period
RFR = the average rate of return on a risk free investment during that time
period
= the standard deviation of the rate of return for portfolio i during the
time period.
An assets Sharpe measure in isolation means little. It must be measured against the
markets Sharpe measure. The market Sharpe measure is calculated the same way, by
dividing the market risk premium, or the return on the market minus the risk-free rate
by the standard deviation of the market. If the assets Sharpe measure is greater than
the markets Sharpe measure, the asset has outperformed on a risk-adjusted basis. In
these way mutual funds providing highest return per unit of risk (total) will be
preferred in comparison to the funds that provide lower return per unit of risk.

4.2.2.1 1
st
ICB Mutual Fund:

Average Return of 1st ICB Mutual Fund 0.0259
Average Risk-free Return 0.0066
Standard deviation of Return of 1st ICB Mutual Fund 0.1074

Si 0.1796

The excess return per unit of total risk is 17.96%. If we compare this result with
market Sharpe ratio which is 17.72% we find that 1st ICB Mutual Fund has
performed slightly better than market and it plots above the CML.

4.2.2.2 2
nd
ICB Mutual Fund:

Average Return of 2nd ICB Mutual Fund 0.0341
Standard deviation of Return of 2nd ICB Mutual Fund 0.1656

Si 0.1658

market Sharpe ratio which is 17.72% we find that 2nd ICB Mutual Fund performance
was inferior to the market performance and it plots below the CML.

4.2.2.3 3
rd
ICB Mutual Fund:

Average Return of 3rd ICB Mutual Fund 0.0218
Standard deviation of Return of 3rd ICB Mutual Fund 0.1215

Si 0.1254

market Sharpe ratio which is 17.72% we find that 3rd ICB Mutual Fund performance
was well below than the market performance and it plots well below the CML.

4.2.2.4 4
th
ICB Mutual Fund:

Average Return of 4th ICB Mutual Fund 0.0290
Standard deviation of Return of 4th ICB Mutual Fund 0.1209

Si 0.1849

market Sharpe ratio which is 17.72% we find that 4th ICB Mutual Fund performance
was above than the market performance and it plots above the CML.
4.2.2.5 5
th
ICB Mutual Fund:


Si 0.1926

was well above than the market performance and it plots well above the CML.

4.2.2.6 6
th
ICB Mutual Fund:


Si 0.1583

was below than the market performance and it plots below the CML.

4.2.2.7 7
th
ICB Mutual Fund:


Si 0.1629


4.2.2.8 8
th
ICB Mutual Fund:


Si 0.1659


Performance Compared on the basis of Sharpe ratio:
Following is the Sharpe ratio organized from highest to lowest for the mutual funds
that are being traded since 2005 or before.

Aims 1st M.F. 0.2393
1st BSRS M.F. 0.2308
Grameen M.F. one 0.2153
5th ICB M.F. 0.1926
4th ICB M.F. 0.1849
1st ICB M.F. 0.1796
8th ICB M.F. 0.1659
2nd ICB M.F. 0.1658
7th ICB M.F. 0.1629
6th ICB M.F. 0.1583
ICBAMCL 1st M.F. 0.1396
3rd ICB M.F. 0.1254
ICB AMCL 1st Islamic M.F. 0.105

From the perspective of total risk the excess return per unit of risk is lower than
market for most of the Mutual Funds that means most of the Mutual Funds
underperformed in comparison to market. Excess return per unit of total risk is highest
for 1st BSRS M.F, then for Aims 1st M.F, then for Grameen M.F. one, then for 5th
ICB M.F and so on as indicated by Sharpe ratio. As we know risk-averse investor
who makes decision only in terms of mean excess return and standard deviation prefer
Mutual Fund with higher ratio, so they may choose any of the mentioned three. If we
take a closer look we can see that w 1st BSRS M.F, Grameen M.F. one, Aims 1st M.F
all had both highest standard deviation and highest return. This means price
fluctuation for them was very high but the return well compensated for the risk

4.2.3 Jensen Portfolio Performance measure:

Jensen measure is based on capital asset pricing model (CAPM). All versions of the
CAPM calculate the expected one-period return on any security or portfolio by the
following expression.
E(Ri) = Rf + i[E(Rm) - Rf]
Where
E(Ri) = the expected return on portfolio or security i
Rf = the one period risk free interest rate
i = the systematic risk for portfolio or security i
E(Rm) = the expexted return on the market portfolio of risky assets

Assuming that the asset pricing model is empirically the equation can be expressed in
terms of realized rate of return as follows:
E(Ri) = Rf + i[E(Rm) - Rf] + e

This equation states that the realized rate of return on a security or portfolio during a
given time period should be a linear function of the risk-free rate of return during the
period, plus a risk premium that depends on the systematic risk of the security or
portfolio during the period plus a random error term (e)

Subtracting the risk-free return from both side we get
E(Ri) - Rf = i[E(Rm) - Rf] + e

This shows that the risk premium earned on the ith portfolio is equal to i times a
market risk premium plus a random error term. In this form an intercept for the
regression is not expected if all assets and portfolio were in equilibrium.

Alternatively, superior portfolio managers who forecast market turns or consistently
select undervalued securities earn higher premiums than those implied by this model.
Specifically superior portfolio managers have consistently positive random error
terms because the actual returns for their portfolios consistently exceed the expected
returns implied by this model. To detect and measure this superior performance one
must allow for an intercept that measures any positive or negative difference from the
model. Consistent positive performance causes a positive intercept, whereas
continuous inferior performance causes a negative intercept. With an intercept or
nonzero constant, earlier equation becomes
E(Ri) - Rf = i + i[E(Rm) - Rf] + e
In this equation value indicates whether the portfolio manager is superior or inferior
in market timing and/or selection. A superior manager has a significant positive
value.

The performance of a portfolio manager with no forecasting ability but not clearly
inferior equals that of a naive buy-and-hold policy. In the equation, because the rate of
return on such a portfolio typically matches the return that is expected, the residual
returns generally are randomly positive or negative. This gives a constant term that
differs insignificantly from zero, indicating that the portfolio manager basically
matches the market on a risk adjusted basis.

4.2.3.1 1st ICB Mutual Fund:
The summery of the results of the calculation is summarized below:

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.225408
R Square 0.050809
Adjusted R Square 0.034443
Standard Error 0.105632
Observations 60

ANOVA
df SS MS F Significance
F
Regression 1 0.034642 0.034642 3.104639 0.083339
Residual 58 0.647169 0.011158
Total 59 0.681811

Coefficients Standard
Error
t Stat P-value Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 0.015006 0.013851 1.083394 0.283117 -0.01272 0.042732 -0.01272 0.042732
X
Variable
1 0.293785 0.166734 1.761999 0.083339 -0.03997 0.627539 -0.03997 0.627539
We can derive the equation from the results
E(Ri) - Rf = 1.5% + .29[E(Rm) - Rf]
Here from the equation we find that intercept is 1.5%. Which says that the portfolio
earned 1.97% excess return than the expected return by CAPM. But the question is
whether the excess return is statistically significant.
The null hypothesis: = 0

The alternative hypothesis: not equal to 0
The t value is 1.083 and that table value for 59 degree of freedom at 10% level of
significance is 1.671. So we can not reject null hypothesis. So we can say that the
excess return is random not significant.

4.2.3.2 2nd ICB Mutual Fund:

SUMMARY OUTPUT

Multiple R 0.170811994
R Square 0.029176737
Adjusted R
Square
0.012438405
Observations 60

ANOVA
F
Regression 1 0.04722 0.04722 1.743109 0.191932076
Residual 58 1.571199 0.02709
Total 59 1.618419

Error
t Stat P-value Lower 95% Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 0.022469058 0.021582 1.0411 0.30215 -
0.020732092
0.06567 -
0.02073
0.06567
X
Variable
1
0.342999068 0.259795 1.320269 0.191932 -
0.177036978
0.863035 -
0.17704
0.863035

E(Ri) - Rf = 2.25% + .3430[E(Rm) - Rf]

excess return is random, not significant.

4.2.3.3 3rd ICB Mutual Fund:

SUMMARY OUTPUT

Multiple R 0.211666
R Square 0.044802
Adjusted R
Square
0.028334
Observations 60

ANOVA
F
Regression 1 0.039081283 0.039081 2.720423 0.104478
Residual 58 0.8332213 0.014366
Total 59 0.872302583

Error
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 0.010691 0.015716548 0.680228 0.499066 -
0.02077
0.042151 -
0.02077
0.042151
X
Variable
1
0.312042 0.189188749 1.64937 0.104478 -
0.06666
0.690745 -
0.06666
0.690745
E(Ri) - Rf = 1.06% + .3120[E(Rm) - Rf]

The t value is .6802 and that table value for 59 degree of freedom at 10% level of

4.2.3.4 4th ICB Mutual Fund:
SUMMARY OUTPUT

Multiple R 0.281088
R Square 0.079011
Adjusted R
Square
0.063131
Observations 60

ANOVA
F
Regression 1 0.068311 0.068311 4.975748 0.029588
Residual 58 0.796273 0.013729
Total 59 0.864584

Coefficients
Standard
Error t Stat P-value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 0.016358 0.015364 1.064712 0.291419 -0.0144 0.047113 -0.0144 0.047113
X
Variable
1 0.412549 0.184946 2.230638 0.029588 0.042338 0.782759 0.042338 0.782759
E(Ri) - Rf = 1.64% + .4125[E(Rm) - Rf]
earned 1.06% excess return than the expected return by CAPM? But the question is


SUMMARY OUTPUT

Multiple R 0.252395
R Square 0.063703
Adjusted R
Square
0.04756
Observations 60

ANOVA
F
Regression 1 0.102775 0.102775 3.946165 0.05171
Residual 58 1.510571 0.026044
Total 59 1.613346

Error
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 0.02448 0.021162 1.156838 0.252081 -
0.01788
0.06684 -
0.01788
0.06684
X Variable
1
0.506026 0.254733 1.986496 0.05171 -
0.00388
1.015931 -
0.00388
1.015931

E(Ri) - Rf = 2.45% + .506[E(Rm) - Rf]


SUMMARY OUTPUT

Multiple R 0.188279
R Square 0.035449
Adjusted R
Square
0.018819
Observations 60

ANOVA
F
Regression 1 0.055243 0.055243 2.13161 0.149685
Residual 58 1.503138 0.025916
Total 59 1.558382

Error
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 0.020342 0.021109 0.963658 0.339218 -
0.02191
0.062597 -
0.02191
0.062597
X
Variable 1
0.370995 0.254106 1.460003 0.149685 -
0.13765
0.879643 -
0.13765
0.879643

E(Ri) - Rf = 2.03% + .37[E(Rm) - Rf]

The t value is .963 and that table value for 59 degree of freedom at 10% level of

SUMMARY OUTPUT

Multiple R 0.089354
R Square 0.007984
Adjusted R
Square
-0.00912
Observations 60

ANOVA
F
Regression 1 0.027886 0.027886 0.466806 0.497181
Residual 58 3.464833 0.059738
Total 59 3.492719

Error
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 0.035806 0.032049 1.117231 0.268502 -
0.02835
0.09996 -
0.02835
0.09996
X
Variable
1
0.263587 0.385795 0.683232 0.497181 -
0.50866
1.035839 -
0.50866
1.035839
E(Ri) - Rf = 3.58% + .2635[E(Rm) - Rf]


SUMMARY OUTPUT

Multiple R 0.180548
R Square 0.032598
Adjusted R
Square
0.015918
Observations 60

ANOVA
F
Regression 1 0.056971 0.056971 1.954366 0.167441
Residual 58 1.690734 0.029151
Total 59 1.747705

Error
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 0.023067 0.022388 1.030327 0.307134 -
0.02175
0.067881 -
0.02175
0.067881
X
Variable
1
0.376752 0.269496 1.397987 0.167441 -0.1627 0.916208 -0.1627 0.916208

E(Ri) Rf = 2.30% + .3767[E(Rm) Rf]



4. 2.4 Famas performance measure
Fama breaks performance by a portfolio manager into two categories: selectivity and
diversification. Famas measure incorporates measures for managing both systematic
and unsystematic risk.

Selectivity: measures the ability of the portfolio manager to earn a return that is
consistent with the portfolios market (systematic) risk. The selectivity measure is:
)) ( ( (
f m i f i
R R R R + |

(+) selectivity indicates that the manager earned a higher return than the systematic
risk of the portfolio would indicate. Basically, we are just comparing the return on
the asset with the return earned by the CAPM.

Diversification: Diversification measures the extent to which the portfolio may not
have been completely diversified. Diversification is measured as:
( )
i f m f
m
i
f m f
R R R R R R |
o
o
) ( ) ( +
|
|
.
|
\
|
+

If the portfolio is completely diversified, contains no unsystematic risk, then
diversification measure would be zero. A positive diversification measure indicates
that the portfolio is not completely diversified; it would contain unsystematic risk. If
the diversification measure is positive, it represents the extra return that the portfolio
should earn for not being completely diversified

Net Selectivity: Net selectivity = selectivity diversification
Net selectivity measures how well the portfolio manager did at earning a fair return
for the portfolios systematic risk and how well the portfolio manager did at
diversifying away unsystematic risk. Positive net selectivity indicates the portfolio
manager did a good job. Negative net selectivity indicates that the portfolio manager
did a poor job.


4.2.4.1 Net selectivity results:
Net selectivity results are presented below in a descending order:
Aims 1
st
M.F. 0.017023
1
st
BSRS M.F. 0.015464
5
th
ICB M.F. 0.002534
4
th
ICB M.F. 0.000925
1
st
ICB M.F. 0.000249
2
nd
ICB M.F. -0.0019
8
th
ICB M.F. -0.00196
6
th
ICB M.F. -0.00308
7
th
ICB M.F. -0.00349
ICBAMCL 1
st
M.F. -0.00554
3
rd
ICB M.F. -0.0063
Grameen M.F. one -0.00663
ICB AMCL 1
st
Islamic
M.F.
-0.01351

From the table above we can see that 62 % of the mutual funds did not have any net
selectivity. Only five Mutual Funds had superior security selection. In calculation we
found that all of them had positive selectivity before adjusting for diversification.
That means they earned more than what their systematic risk suggested. Their actual
excess return was higher than expected excess return. But after adjustment for
diversification eight of them turn out to be negative. According to the finding Aims
1st M.F., 1st BSRS M.F, 5th ICB M.F, 4th ICB M.F and 1st ICB M.F. had net
selectivity. That means their mangers could do superior security selection.


Chapter: Five
Findings, Recommendations & Conclusion

5. Findings, Recommendations & Conclusion

5.1 Findings of the Report:
If want to have an overall view rather than segregated performances regarding various
measures we have to on all of the together. Following are the major findings.


Mutual Fund Treynor Sharpe Alpha Net
Selectivity
Beta Std Ri- Rf
1st ICB M.F. 0.0676 0.1796 Insignificant 0.000249 0.2851 0.1074 0.0193
2nd ICB M.F. 0.0816 0.1658 Insignificant -0.001900 0.3364 0.1656 0.0275
3rd ICB M.F. 0.0502 0.1254 Insignificant -0.006303 0.3034 0.1215 0.0152
4th ICB M.F. 0.0555 0.1849 Insignificant 0.000925 0.4029 0.1209 0.0224
5th ICB M.F. 0.0640 0.1926 Insignificant 0.002534 0.4977 0.1654 0.0318
6th ICB M.F. 0.0705 0.1583 Insignificant -0.003075 0.3650 0.1626 0.0257
Aims 1st M.F. 0.0594 0.2393 Insignificant 0.017023 1.1052 0.2741 0.0656
Grameen M.F.
one
0.0534 0.2153 Insignificant -0.006629 0.8992 0.2229 0.0480
ICB AMCL 1st
Islamic M.F.
0.0269 0.1050 Insignificant -0.013513 0.7296 0.1871 0.0196
ICBAMCL 1st
M.F.
0.0309 0.1396 Insignificant -0.005545 0.6653 0.1471 0.0205
1st BSRS M.F. 0.1564 0.2309 Insignificant 0.015464 0.4257 0.2883 0.0666

We can see from the perspective of market risk the excess return per unit of risk is
highest for 1st BSRS M.F, then for 7th ICB M.F, then for 2nd ICB M.F and so on as
indicated by Treynor ratio. As we know risk-averse investor who makes decision only
in terms of mean excess return and beta prefer Mutual Fund with higher ratio, so they
may choose any of the mentioned three.

If we take a closer look we can see that when only the excess return is considered the
highest return is given by 1st BSRS M.F, then by Aims 1st M.F then by Grameen
M.F. one then by 5th ICB M.F and so on. But when we took risk into consideration
the comparatively higher risk of Aims 1st M.F and Grameen M.F. one pushed them
down in ranking.

From the perspective of total risk the excess return per unit of risk is lower than
market for most of the Mutual Funds that means most of the Mutual Funds
underperformed in comparison to market. Excess return per unit of total risk is highest
for 1st BSRS M.F, then for Aims 1st M.F, then for Grameen M.F. one, then for 5th
ICB M.F and so on as indicated by Sharpe ratio. As we know risk-averse investor

who makes decision only in terms of mean excess return and standard deviation prefer
Mutual Fund with higher ratio, so they may choose any of the mentioned three.

If we take a closer look we can see that w 1st BSRS M.F, Grameen M.F. one, Aims
1st M.F all had both highest standard deviation and highest return. This means price
fluctuation for them was very high but the return well compensated for the risk.

When considered from the perspective of excess return than expected by CAPM we
found that all of the Mutual Funds had some excess return but when tested for
significance we found that none was significant. So no clear preference can be
concluded.

From the table above we can see that 62 % of the mutual funds did not have any net
selectivity. Only five Mutual Funds had superior security selection. In calculation we
found that all of them had positive selectivity before adjusting for diversification.
That means they earned more than what their systematic risk suggested. Their actual
excess return was higher than expected excess return. But after adjustment for
diversification eight of them turn out to be negative. According to the finding Aims
1st M.F., 1st BSRS M.F, 5th ICB M.F, 4th ICB M.F and 1st ICB M.F. had net
selectivity. That means their mangers could do superior security selection. And the
best net selectivity is provided by Aims 1st M.F, then by 1st BSRS M.F and then by
5th ICB M.F.

Overall we can see 1st BSRS M.F, Aims 1st M.F and 5th ICB M.F are performing
better related to other Mutual Funds.

This study was affected by one factor and that is mutual funds are less frequently
traded in our country so beta showed unusually low figures. I believe this limitation
may change interpretations for individual securities but will not affect comparative
results.

5.2 Recommendations:
Some mutual funds of ICB look well performing by general observation, but after
analyzing we can see a different scenario. In this situation, authority of ICB should
consider some factors for getting better performance from its mutual funds. The
factors are as follows:

Funds managers should focus especially on the 4th, 5th, 6th, 7th and
8th Mutual fund because their EPS, DPS are not satisfactory.
Management should analyze the internal and external factors that can
affect the performance of the funds.

For high amount of reserve from the current income, the present
investors are being deprived, so the management should keep
minimum reserve in consistent with the net assets value.

As ICB mutual funds are close end fund, it cannot run forever. So the
management should take decision regarding its redemption period.

As the cost price is greater than market price of some portfolios of the
funds, fund manager should efficiently manage those portfolios.

Manager should maintain the consistency of the assets value with the
market price so that the investors can be ensured their environment.

Fund manager should consider the reshuffling system and trading of
funds portfolio.

ICB might float more mutual funds which could protect the capital
market from struggling if it would have floated some more funds, than
it could hold more stock and the investors might have more confidence
on capital market. Because it can protect the small and young investors
from losing their money for any unusual behavior of the capital
market, which was happened in 1996.

Now a day, banking sector is less risky sector to invest because
historically the sector has been performing good, and providing regular
dividend ICBS mutual funds should have highest investment in this
sector.

Mutual funds should have separate trustee, custodian and sponsor and
portfolio manager.

Employees should set up proper position according their skill and
educational background.

Dividend policy should be fair to all funds so that the investors become
satisfied. Dividend policy should be earning basis, not year basis.

Investing by costly borrowing funds should be reduced. Management
may look for source of less costly funds and reduce expense & increase
income.

Investment in any companys shares will need to proceed with
conscious & investors interest, should the first priority.

More employees should be recruited for better service.

Employees should set up proper positioned according to their skills and
educational background.

Mutual fund department should be shifted to head office.

Mutual fund department should be monitored and evaluated properly.

5.3 Conclusion
Investment Corporation of Bangladesh (ICB) is a pioneer investment Bank of our
country. It is playing a vital role for the development of the countrys capital market.
ICB is a major organization of the country to perform the activities by creating
demand for securities and on the other hand to ensure the supply of securities in the
capital market. The flotation of mutual funds and issuance of unit certificates by the
ICB strengthens the supply of attractive securities in our capital market. ICB has a
great opportunity to get better performance from its mutual funds. For this reason,
mutual fund management should be innovative. ICB should specially emphasize to
the operations and management of mutual fund to increase the performance of its
mutual fund and way to find out the path for overcoming the problems of operations
and management of ICB mutual fund.

-The End-

Bibliography

ICB, Annual Report, 2009-2010, 2008-2009, 2007-08.

ICB AMCL, Annual Report, 2009-2010, 2008-2009, 2007-08, 2006-07.
Various Journals Kept in the ICB Library.
Business Communication - Lasiker & Pettit.
www.icb.gov.bd
www.dsebd.org
www.bangladesh-bank.org
The Daily Financial Express
DSE Library

Appendix

List of Table:

Sl No. Table Title Page No.


List of figures

Sl No. Figure Title Page No.
01 Shareholding Position of ICB.
02 Capital Structure of ICB as on 30
th
June,2010.
03 SWOT Analysis.
04 the working of a Mutual Fund.
05 Comparing a portfolios T value.

01 Shareholding Position of ICB
02 Capital structure of ICB:
03 Launching of ICB Mutual Fund
04 Dividend per Certificate (Taka)
05 NAV per certificate
06 Consolidated position of portfolios of ICB
Mutual Funds

07 Performance Compared on the basis of
Treynor ratio

08 Performance Compared on the basis of Sharpe
ratio

09 Net selectivity results
10 performances regarding various measures

Performance Evaluation of ICB Mutual Funds

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