The role of mutual funds in the development of the capital market

Abstract

Mutual funds are regarded as one of the best and greatest investment options. Because they offer flexibility, diversification, variety, manageability and tax benefits. Mutual funds allow investors to access opportunities to other investment options that they are not normally able to find or cannot afford. Mutual funds can meet and accommodate the needs of most investors. Though the selection and managing can be challenging. The mutual fund industry is expanding in Bangladesh and more new funds are being added there every year. Mutual funds are highly diversified and as a result, the overall risk of portfolio is quite low. Besides, all mutual funds are not equally diversified, which can ultimately affect their performance. Mutual funds are good at mobilizing savings and encouraging individuals to invest. In that case, mutual funds should launch more of them in order to increase the depth of the capital market. Even though the size of mutual fund sector is small but it has contributed to the capital market base and helped the investors to get high and secure returns which is somewhat beneficial to the overall economy. According to data from Bangladesh Securities and Exchange Commission (BSEC) and Association of Asset Management Companies and Mutual Funds (AAMCMF), the development of mutual fund industry of Bangladesh has grown significantly. There are 58 registered Asset Management Companies in the country. There is a total of 38 AMCs that manage and oversee the 36 closed end and approximately 88 open ended mutual funds that are available for investors to purchase. The Bangladesh Securities and Exchange Commission (BSEC) regulates the operation of mutual funds in Bangladesh. BSEC works to protect investor's interests and contribute to maintaining discipline in the market. The mutual fund industry in Bangladesh remains much behind the rest of the world. The main reason is, the size of overall market is small. Another major reason is, there is a lack of professionalism among asset management companies and low investor knowledge. These areas must be improved. Mutual fund industry is facing trouble because of the poor performance by the fund managers. Sometimes they are also unable to make investors understand. As a result, investors are frequently losing their faith.