Why Does Bangladesh need the First Bangladesh Fixed Income Fund:
The First Bangladesh Fixed Income Fund is a unique Fund and the first of its kind in Bangladesh. Sponsored by both the public and private sector institutions, this Special Purpose Investment Fund has two broad objectives: develop Bangladesh’s Fixed Income Market and help maintain stability in financial markets during periods of stress.
First Objective: Develop Bangladesh’s nascent Fixed Income Market. In most developed and emerging economies, the Fixed Income market plays a vital role in driving the growth and maintaining the stability of the overall economy and financial markets. Historical studies of these Fixed Income markets reveal that both the government and private sector have collaborated over the years to bring about this development and that specialized investment funds have played a pivotal role. Such Funds come in a large variety, but all are structured by pooling assets from the coffers of the government, private institutions and/or retail investors, and then invested by professional Asset Management Companies to expand the Fixed Income market. It is with this goal of promoting the size and efficiency of Bangladesh’s under-developed Fixed Income market that Bangladesh RACE Management PCL conceived of the First Bangladesh Fixed Income Fund which has since received the support of both public and private sector institutions.
Second Objective: Play a stabilizing role during periods of stress in financial markets. As recent trends have demonstrated, a retail-investor driven listed equity market, like Bangladesh’s, can often over-react during periods of stress. While share market corrections are desirable, and necessary, a market “crash” is undesirable and can be harmful for the stability of the overall economy and financial markets. In order to dampen the harmful impacts of a stock market “crash”, and bring back investor confidence, institutional funds of large size can play a constructive role. By investing a portion of the Sponsor’s capital during periods of unusual stress, the First Bangladesh Fixed Income Fund is already playing such a responsible role.
Some of the other benefits of the First Bangladesh Fixed Income Fund are:
- A dedicated Fixed Income Fund will give retail investors access to privately-placed corporate bond While retail investors today cannot easily access privately placed corporate bonds and other fixed income issues with attractive yields, they can buy shares of the First Bangladesh Fixed Income Fund in the listed market. Since the Fund, given its size and institutional status, will be able to access the various Fixed Income instruments, it can pass on the interest income and capital gains from trading fixed income instruments to retail investors.
- Make the Fixed Income Market more efficient through research based investing. When run by a professional Asset Management Company with in-house Fixed Income research expertise, the Fund can evaluate the true value of listed and privately-placed Bonds and other hybrid fixed income instruments and take advantage of any mispricing opportunity. By serving this very valuable function, a properly managed Fixed Income Fund can make the listed and the unlisted Bond Market more efficient. The investors will be able to save transaction costs as he/she has access to a large number of securities by purchasing a single unit of First Bangladesh Fixed Income Fund.
- Provide liquidity and play the role of a Market Maker. A Fixed Income Fund of sufficient size can provide much needed liquidity in the listed and unlisted Fixed Income By standing ready to buy Fixed Income issues in the secondary market when a seller wants to offload its holdings, and by selling from the Fixed Income Fund inventory when there is excess demand in the market, the Fixed Income Fund can enhance liquidity in the Bond Market and thereby play the role of a Market Maker. Over time, with multiple schemes launched, the Asset Management Company managing such funds can become the de-facto Market Maker. In the long-run, as the Market increases in size and depth, such a role can be formalized in terms of a Bond Exchange.
- Provide capital for infrastructure building. Today the Bangladesh Government is embarking on its Vision 2021, with a key pre-requisite being the development of the country’s infrastructure. Such projects require massive funding and long-term financing. A Fixed Income Fund of size can play a vital role in using its assets under management to buy such Infrastructure Bonds and help in the country’s overall development.
The First Bangladesh Fixed Income Fund, a unique and first-of-its kind Special Purpose Investment Fund, will assist in maintaining the stability of Bangladesh’s financial markets and aid in the development of our Fixed Income Market.
Advantages in investing in First Bangladesh Fixed income fund:
Generally, investment in a dedicated Fixed Income Fund enjoys additional advantages compared to investments made in individual fixed income securities. These additional benefits of investing in the Fund include:
- The Fund will give Investors the opportunity to enjoy attractive returns of Fixed Income instruments without the typical illiquidity of such instruments in Bangladesh.
- Contribute to Bangladesh Government’s mandate to stabilize the share market during times of crisis;
- Contribute to Bangladesh Government’s stated objective to develop the Fixed Income Market and create a thriving alternative to the share market;
- The First Bangladesh Fixed Income Fund will provide investors access to extensive local research and investment experience. The Fund Manager, Bangladesh RACE Management PCL has developed deep insight into the dynamics of the Bangladeshi Fixed Income and Equity Market which will be instrumental for the successful management of the Fund
- As the management of the investments in the Fund is outsourced to a professional Asset Management Company, investors will be relieved from any emotional stress associated with the day-to-day management of individual investment portfolio. In fact, management of the First Bangladesh Fixed Income Fund will require a significant amount of time-consuming research and analyses to identify the highest-quality securities which may not be doable for the general investor and is, therefore, best left to professional investment managers.
- The investors will be able to save transaction costs as he/she will have access to a larger number of securities by purchasing a single unit of First Bangladesh Fixed Income Fund
- Management and operation of the First Bangladesh Fixed Income Fund will be subject to strict regulations from the SEC and the Fund Trustee, ICB. The Trust Deed of the Fund requires exhaustive disclosure to the Regulator and General Public and as such, the Fund’s operation and performance will be highly transparent.
- The Fund will enjoy 10% reserved quota in all Initial Public Offering (IPO). Given the lack of supply of high-quality scripts in the Bangladeshi stock market, IPOs have historically outperformed the general Bangladesh market index significantly and therefore will positively impact the performance of the Fund.
The constitution of the Fund:
First Bangladesh Fixed Income Fund has been constituted as a Special Purpose Investment Fund through a Trust Deed entered into between Eastern Bank Limited, ICB Unit Fund, Janata Bank Ltd, Sonali Bank Ltd and Investment Corporation of Bangladesh on February 15, 2011 under the Trust Act, 1882 and Registration Act, 1908.
The Fund was registered under special consideration of the Securities and Exchange Commission on March 2, 2011 under the broader legal framework and relevant Rules of the সিকিউরিটিজ ও এক্সচেঞ্জ কমিশন (মিউচ্যুয়াল ফান্ড) বিধিমালা, ২০০১.
Life of the Fund:
The Fund will be a Special Purpose Investment Fund of 10 (Ten) years. As per BSEC’s Directive No BSEC/CMRRCD/2006-157/210/Admin/83, dated October 02, 2018, the tenure of the fund may be increased up to another 10 years, established with a view to broaden the base of investment and develop the capital market.
The Trust Deed also provides the flexibility to the unit‐holders to extend the tenure of the fund beyond the initial 10 years.
Size, Face Value and Market Lot of the Fund:
- Total Fund is fixed at 500,000,000 (Fifty crore) units of Tk. 10 each totaling Tk. 5,000,000,000 (Five Hundred crore).
- The Sponsor’s portion of the Fund is 200,000,000 (Twenty crore) units of Tk. 10 each totaling Tk. 2,000,000,000 (Taka Two Hundred crore).
- Size of the Pre-IPO Private Placement is 50,000,000 (Five crore) units of Tk. 10 each totaling Tk. 500,000,000 (Taka fifty crore).
- Size of the Initial Public Offering (IPO) is 250,000,000 (Twenty Five crore) units, each worth Tk. 10, totaling Tk. 2,500,000,000 (Two Hundred crore and fifty Lac) available as public offering to general public, NRBs, Mutual Funds and collective investment schemes.