Mutual funds are gaining renewed investor attention, as regulatory reforms aimed at strengthening governance, safeguarding fund assets, and improving accountability appear to be restoring confidence in the sector.
Market participants say the Bangladesh Securities and Exchange Commission's (BSEC) recent measures have addressed some of the key concerns that kept discouraging investors for long from investing in mutual funds, particularly over security and custody of fund assets.
The DSEX, the benchmark index of the Dhaka Stock Exchange, increased 3.7 per cent over the six weeks through August 6 while mutual funds’ sectoral gain is above 30 per cent during the same period. Many mutual funds advanced more than 20 per cent in the secondary market in the six weeks’ time.
The sharp divergence indicates that investors are reassessing mutual funds as regulatory changes improve governance and reduce concerns over the safety of fund assets.
Under the Mutual Fund Rules, 2025, trustees have been recognised as legal owners of assets in fund portfolios, while unitholders remain beneficial owners. At the same time, custody of the assets and money has been placed more firmly under the custodians, separating asset management from direct control over cash and securities.
The arrangement is designed to prevent asset managers from directly moving or withdrawing cash and assets. Asset managers are responsible primarily for investment decisions, while custodians would execute payments for securities purchases and receive proceeds from sales.
Even management fees claimed by asset managers are subject to verification by custodians before payments, according to BSEC spokesperson Md. Abul Kalam.
“This has laid a stronger foundation of trust because asset managers can no longer take away mutual fund assets,” he said.
The regulator has also been working to address the long-standing problems relating to closed-end mutual funds, many of which have traded at substantial discounts to their net asset values (NAVs).
The BSEC has moved to facilitate the conversion of closed-end mutual funds into open-end structures, which will give investors a better opportunity to realise the value of their holdings. Unlike closed-end funds, open-ended funds provide investors with a mechanism to surrender units at NAV.
The securities commission has also taken steps against poorly performing asset managers, including cancellation of some management appointments, in efforts to improve the quality of fund management.
These measures appear to be gaining traction in the market, with mutual funds significantly outperforming the broader equity market in recent weeks.
The stronger performance also comes at a time when the broader market has shown some volatility, suggesting that the recent mutual fund rally might be driven not only by overall market sentiment but also by sector-specific expectations surrounding reforms.
