Performance of Mutual Fund of Bangladesh

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Mutual Fund Performance in Bangladesh: An Analysis of Monthly Returns Md. Hashibul Hassan* Tahmina Akhter†

Abstract
Extensive research has evaluated mutual fund performance in different financial markets which led to mixed results (Soderlind et al., 2000; Korkeamaki and Smythe, 2004); however, very limited work has been done to evaluate Bangladeshi mutual funds. This paper focused on measuring risk adjusted performance of 13 closed end mutual funds on the basis of monthly Net Asset Value. For this purpose methods suggested by Jensen, Treynor and Sharpe are employed. Performance of the selected funds found superior in compare to benchmark index. Furthermore diversification, market timing and selectivity skill of fund managers are tested. We found little amount of diversification, no statistically significant timing skill but good level of selectivity. Keywords: Net Asset Value, Reward to Volatility, Reward to Variability, Jensen alpha, diversification, Market Timing, Selectivity.

1. Introduction: A mutual fund is a professionally managed firm of collective investments that collects money from many investors and puts it in stocks, bonds, short-term money market instruments, and/or other securities (Investopedia). As it is professionally managed this segment is very crucial to bring rationality in the market. In Bangladesh, the mutual funds were first introduced by the state-owned investment agency Investment Corporation of Bangladesh (ICB) in 1980. It launched some 8 close-end and one * †

Lecturer, Department of Finance and Banking, Jatiya Kabi Kazi Nazrul Islam University, Trishal, Mymensingh. Lecturer, Department of Finance, University of Dhaka, Dhaka.

Mutual Fund Performance in Bangladesh: An Analysis of Monthly Returns

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Electronic copy available at: http://ssrn.com/abstract=1685455

unit fund till 2002, when it had to create 3 subsidiaries under an Asian Development Bank prescription, including the asset management company, which was entrusted with the responsibility to launch mutual funds under the SEC rules (AIMS 2007). This company has launched 7 close-end and 2 open-end mutual funds since 2009. Meanwhile, another stateowned lending agency, Bangladesh Shilpa Rin Sangstha (BSRS), now merged in to Bangladesh Development Bank, launched its solitary mutual fund in 1997, which is run under its own statute. The first ever private asset management company AIMS of Bangladesh comes into play at 1999. They issued their first fund, AIMS First Guaranteed Mutual Fund, a closed end balanced fund in March 2000. Currently few other private fund managers doing this business namely RACE, LR Global, Brac-EPL etc. All together 24 close ended funds are traded in the Dhaka Stock Exchange (DSE) with quite few waiting in the queue for starting their operation. In the market of active portfolio management the central concentration of related parties (manager, investor and researcher) is the performance of the active management versus passive management. This paper is trying to evaluate the performance of closed end mutual funds traded in the Dhaka Stock Exchange (DSE) in compare to benchmark index. The article is segmented in few parts. At first we focus on the earlier studies regarding the performance evaluation of mutual funds in literature review section. The following parts present the research questions and basic concepts of performance analysis. In part five, six, seven and eight presents the methodology, limitation, analysis of results and summary and conclusion respectively.

Mutual Fund Performance in Bangladesh: An Analysis of Monthly Returns

Page 2 of 23

Electronic copy available at: http://ssrn.com/abstract=1685455

2. Literature Review: In the area of Bangladesh‟s mutual fund performance analysis there are very few research conducted. As the market growing rapidly and related parties are also approaching promptly, it is very good time to evaluate the market activities. We conduct this...
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