The mutual fund industry found itself in a tight spot in FY23, as the price movement restriction kept the market stagnant throughout the year giving little opportunity for capital gains.
Open-ended mutual funds that secured commendable double-digit returns a year before saw their earnings shrink drastically in FY23.
For example, Capitec Padma P.F. Shariah Unit Fund, the second best performer in terms of return in FY22, reported a loss of Tk 23.11 million in FY23. The trustee declared no dividend for the year.
The Shariah Unit Fund had gained a profit of Tk 66.93 million in FY22 and disbursed 12.5 per cent cash dividend to unitholders for the year.
Hasan Rahman, chairman of Capitec Asset Management that manages the fund, said lower capital gains and the mandatory requirement of 100 per cent provision against marketable investments, effective from last year, had dragged their income.
Capital gain is the profit derived from selling securities at higher prices than purchasing prices.
The Shariah Unit Fund’s income from share transactions tumbled 91 per cent year-on-year to Tk 3.71 million in FY23.
Capital gains accounted for 62 per cent of its total income in FY22, which was reduced to 20 per cent in FY23.
Mr Rahman said the fund manager had prioritised fundamentally-strong stocks for investment, considering long-term returns, but most of such stocks had remained stuck at floor prices.
In its annual financial report, Capitec showed huge unrealised losses — around Tk 5.90 million in GP, Tk 4.30 million in Beximco Sukuk, and Tk 4 million in Square Pharmaceuticals.
Though the open-ended fund achieved high capital income from Navana Pharmaceuticals, Nialco Alloys, Genex Infosys, and Bata Shoe, the gains could not offset losses in the big companies.
The Capitec chairman, however, is optimistic about a strong comeback and generating healthy return for investors in the future.
“Capitec is developing and expanding its business, ensuring integrity and compliance to provide the highest returns to investors,” said Mr Rahman.
The fund had investments in 26 stocks in FY23. Of them, it incurred capital losses in eight firms but made gains in 18 other stocks.
Dividend income also dropped to Tk 8.99 million in FY23 from Tk 10.49 million a year before. The dividend income dwindled as multinational companies refrained from providing good returns for the present dollar crisis has made it difficult to repatriate dividends abroad.
A large chunk of the fund’s dividend income came from Beximco Sukuk — Tk 2.07 million — in FY23, as was the case in FY22, and from Square Pharma — Tk 1.05 million.
Mandatory provision meant to protect investors also caused a dent in the yearly income.
Mr Rahman said they had maintained 40 to 50 per cent provision against marketable investments since it was not compulsory, but in FY23 100 per cent provision was necessary to comply with the changed rules.
Hence, provision against marketable investments soared 45 per cent year-on-year to Tk 30 million in FY23.
Presently, Capitec Asset Management operates three open-ended mutual funds and one close-ended fund, “Capitec Grameen Bank Growth Fund”.
The other open-ended mutual fund, Capitec Popular Life Unit Fund, which was the seventh top performer among open-ended MFs in FY22, saw an 86 per cent decline in profit to Tk 7.75 million in FY23.
The trustee board of the fund declared 9.50 per cent cash dividend for FY23, down from 15 per cent the year before.
The trend is similar for almost all open-end MFs. While some funds managed to limit profit erosion to some extent, 20 open-ended MFs did not pay any dividend due to losses in FY23.
Of the 37 close-ended MFs, only one managed to see a slight income growth in FY23 from its nominal income in FY22. The others reported 16-97 per cent year-on-year fall in income in FY23.
As a result, dividend payouts by most listed MFs were insignificant for FY23, while six MFs declared no dividend due to losses.
“Mutual funds’ returns mostly depend on how the stock market performs in a year,” said Mir Ariful Islam, managing director & CEO of Sandhani Asset Management.
The asset managers had little scope to make capital gains from the secondary market throughout the financial year, which affected their overall income, he added.
LankaBangla Gratuity Growth Fund, which was the top performer in FY22, saw 68 per cent year-on-year plunge in profit to Tk 7.58 million in FY23, as it navigated the bearish market.
The Growth Fund’s capital gains tumbled 59 per cent year-on-year to Tk 10.04 million in FY23, but dividend and interest incomes were as much as in FY22, according to its financial statements.
The fund’s capital gains from Olympic Industries, Krishibid Seed and IT Consultants were worth Tk 7.25 million; the highest, Tk 6.68 million was from Krishibid Seed.