A Brief Research on Investment Corporation of Bangladesh.

Submitted to: Abdullah Al Abed Course instructor, Fin- 405 (01) School of Business Independent University, Bangladesh Baridhara, Dhaka

Submitted By: Ramin Ahmed -0610193 Anika Kamal -0630042 Md. Iftakharul Islam -0610178 Shakil Naheyan Payel -0610065

19-11-2009 To Abdullah Al Abed Course Instructor FIN 405 Independent University, Bangladesh Baridhara, Dhaka. Subject: Submission of the Term Paper. Dear Sir, In the following pages, we have presented a Term Paper on Investment Corporation of Bangladesh, as per the partial requirement of the course Finance 405. We tried our level best to include all relevant information and explanation to make the paper interesting and informative. All provided data is authentic as per the ICB personnel we referred to and also some finance books and websites, the names of which are mentioned in the reference page. We had a great experience while preparing the Term Paper, which is both positive and motivating. There are lots of things we have learnt about Nonbanking financial organizations while preparing this paper, which otherwise we would not have learnt. We are really very sorry for bothering you regarding our work, but this could not be helped. At last, we would like to express our sincere appreciation and thanks to your help while preparing the Term Paper. We shall be glad to answer any queries that you may have in this regard. Sincerely yours, -------------------------------------------MD. Iftakharul Islam Ramin Ahmed 0610178 0610193 -----------------------Shakil Naheyan Payel 0610065 ----------------Anika Kamal 0630042

Executive Summary
The Investment Corporation of Bangladesh (ICB) was established on the 1st October in 1976 under the Ordinance No. XL of 1976, with a view to broaden the base of investment to develop capital market and mobilize savings. For stabilizing and development of capital market in our country, the ICB is investing through Investment Scheme, Unit fund and Mutual funds. It also acts as an underwriter and lease financer. It also includes the scheme of term deposit and loan against Unit Certificates. The investors are discouraged to invest in the ICB by borrowing from ICB due to the high interest rate. The main focus of this term paper is in ICBs Mutual Funds. The ICB floated 8 (eight) close ended Mutual Funds with a total paid up capital of Tk 17.50 crore. Because of the professional team; the investors get attractive dividends and make capital gains from the funds and this increases the general interest of the investors to invest in Mutual Funds. ICB is the dominating figure in the mutual fund industry of Bangladesh.

Brief History of ICB

Investment Corporation of Bangladesh (ICB) is a state owned corporation. Its mainly an Investment Bank. As a Financial Institution it mobilizes funds from the surplus units to the deficit units by means of different instruments. After the independence, the investment in private sector was limited to 25 lacs by the investment policy of the Government. This figure was changed to 3 crores by 1972. Later it rose to 10 crores. In revised investment policy, which was announced in the December of 1975, the Government announced its decision to reactivate the stock exchange and examine the question about creating the Investment Corporation of Bangladesh. After recommendation from officials, the decision was made by the government to create the Investment Corporation of Bangladesh and based on that decision ICB was established on first October 1976, under The Investment Corporation of Bangladesh Ordinance, 1976 (No. XL of 1976). The establishment of ICB was a major step in a series of measures undertaken by the government to accelerate the pace of industrialization and to develop a well organized and vibrant capital market in Bangladesh. ICB caters to the need of institutional support to meet the equity gap of the industrial enterprises. In the view of the national policy of accelerating the rate of savings and investment to foster self-reliant economy, ICB assumes an indispensable and essential role. The reforms in operational strategies and business policies of ICB have taken place due to the enactment of the Investment Corporation of Bangladesh (Amendment) Act, 2000 (No. of XXIV of 2000), which allowed the establishments and operations of subsidiaries companies under ICB.

Objectives of ICB: The objectives of the corporation are: To encourage and broaden the base of investments. To develop the capital market To mobilize savings To promote and establish subsidiaries and business development Functions of ICB: In order to achieve the objectives if ICB, the corporation may carry out the following functions: Direct purchase of shares and debentures Participating in and financing of join-ventures companies Providing lease finance solely and through syndication Managing existing investors account Managing existing mutual and unit funds Managing portfolios Providing advance against ICB unit and mutual fund certificates Act as trusty and custodian Providing bank guarantee Providing investment counseling to investors divestment program Introducing new business products suiting the market demand Dealing in other matters related to capital market Products & Services of ICB: Private Placement: ICB is authorized to act as an agent of issuers and investors for private placement of securities. Under this arrangement, ICB places securities to individuals or institutions on behalf of the issuer for which it charges fees. ICB also acquires shares or securities for its own portfolios.

 Underwriting: in order to raise long term debt and equity from the primary market, the government bodies, enterprises, corporations or companies massive intermediary assistance from ICB in the form of underwriting. Because of its long proven experience, reputation, asset backup and established network of regional offices, ICB is in an excellent position to attract the potential investors to the proposed issue of shares and debentures and other securities for successful floatation and placement of IPOs. Custodian and Banker to the Issues: to act as the custodian to the public issue of mutual funds, ICB provides professional services. It also acts as the banker to the issue and provides similar services through the network of its branches. Fees for these services are negotiable. Merger and acquisition: companies willing to expand their business through mergers and acquisitions or to divest projects that no longer fit into present scale of operation contacts ICB; as ICB provides professional services and advice in respect of shaping up the cost and financial structures to ensure best possible operation result. Corporate financial advice: corporate and government enterprises intending to go public often seek professional and financial advice on corporate restructuring and reengineering. provides such services. Lease financing: ICB provides lease finance mainly for machinery, equipments and public transport. ICB is in a position to provide professional advice and financial assistance to the intending clients. The period of lease, rental and changes of other terms and conditions are determined on the basis of assets and to the extent of assistance required by the applicants. Advance against ICB mutual fund certificates scheme: Advance against ICB mutual fund certificate scheme was introduced in 2003, designed for the ICB mutual fund certificate holder to meet the emergency fund requirement. One can borrow maximum of 50% value of last one Through expertise; ICB

years weighted average market price of certificates of the time of borrowing by depositing his/her certificates under lien arrangement from any of the ICBs offices. The rate of interest on the loan is reasonable and also competitive. Bank guarantee scheme: as part of ICBs, business diversification programs, the corporation introduced bank guarantee scheme during the year 2002-2003. ICB provides: i) Bid Bond for enabling the business people to participate in any tender or bidding. ii) Performance Bond for helping the business community to continue the business smoothly by fulfilling their obligations promised by them to their clients iii) Customs Guarantee for solving different disagreements between the customs authority and the business classes at the initial stage. The maximum limit of guarantee is Tk. 2 crore and would be issued against at least 20% cash and 80% securities that can be easily liquidated or against 100% cash margin. Re-guarantee from other financial institution is required for guarantee against the amount exceeding Tk. 2 crore. ICB Mutual Fund: ICB has so far floated 8 close ended Mutual Funds. The 1st ICB mutual fund was floated on 25th April, 1980, while the 8th ICB mutual fund was floated on 23rd July, 1996; the rest of the mutual fund was floated in between. The aggregate size of these funds is Tk. 17.5 crore. About 35000 certificates holder own these funds. Dividends declared on these funds were very attractive ranging from 13.5 to 180 per certificate for 2007-2008. Investors show overwhelming interest in all the ICB mutual funds. One can invest in such funds through the stock exchanges with which funds are listed, through corporate restructuring, new mutual funds are being floated through, ICB Asset Management Company Limited, a subsidiary company of ICB.

Sources of Funds: The source of funds of ICB is diverged into many segments. The Government and state owned banks are the major shareholders of ICB and the rest of the shares are held by private financial organizations and individual investors. The following table illustrates the percentage of ICB shares held by different entities: Shareholder 1 2 3 4 5 6 7 8 9 10 11 Government of Bangladesh Bangladesh Bank Nationalized Commercial Banks Development Financial Institutions Insurance Corporation Denationalized Private Commercial Banks Private Commercial Banks Foreign Commercial Banks 1st BSRS Mutual Fund Other Intuitions General Public Total No. of Shareholders 1 1 4 2 2 2 4 2 1 9 1026 1054 NO. of Shares 13,50,000 6,00,000 11,37,220 6,81,550 6,28,691 4,54,262.50 28,571 42,830 6,900 13,024 57,002 5,000,000 Percentage 28.97 12 22.74 13.63 12.57 9.09 0.57 0.86 0.14 0.26 1.22 100%

0.86% 28.97% 22.74%

GovernPrivate Com m ercial Banksm ent of Bangladesh Bangladesh Bank First BSRS Developm ent Financial Institutions Insurance Corporations Denationalized Private Comm ercial Banks Government of Bangladesh

0.26% 1.22% 0.57% 9.09% 12%

Foreign Com m ercial Banks

0.14% 12.57% 13.63%

Nationalized Com m ercial Banks Other Institutions General Public

Shareholders funds These information shows the source of Position for ICB in total where the government has the major segment, but the source of fund for the eight closeended mutual funds of ICB are the initial public offerings, which has been largely bought by small and medium investors as they consider ICB mutual funds as the most trusted medium of investment in the country. Due to the popularity, the ICB mutual fund stocks are heavily traded in both Dhaka Stock Exchange and Chittagong Stock Exchange and anybody willing to invest in the mutual funds can buy the shares from the stock exchange, though that money will be passed to the seller of the share not to the fund itself. The close-ended funds gathered whatever they can from the IPO offering. Meaning of Mutual Fund A mutual fund is a collection of funds from investors and which is invested in a diversified portfolio of stocks, bonds securities issued by other corporations and government and is run by professional managers or management team. voting right to elect the board of directors. Objectives of the Mutual Funds An investor can get the information from the funds prospectus. The investor has the

There are mainly two objectives of the mutual funds, first to emphasis on producing a steady flow of dividends and second to concentrate on increasing the value of the principle through appreciation of stock. To peruse these objectives, each of the eight close-ended mutual funds has its specific investment policies to serve specific investors. There is a decision making board in order to manage different mutual funds and as per the boards decision securities and debentures are bought under different mutual funds. In the same way, the financial instruments are sold also. In case of public issuing of the new mutual funds, ICB authority makes the portfolio earlier by self financing. After that the prospectus is published on any newspaper, which shows the shares and debentures that have been bought under those mutual funds. By studying this prospectus, public responds whether they will buy the mutual fund or not. Launching of ICB mutual funds Close-ended mutual funds issue a fixed number of shares to the public in an initial public offering, after which time shares in the fund are bought and sold on a stock exchange, and they are not obligated to issue new shares or redeem outstanding shares. The price of a share in a closed-end fund is determined entirely by market demand. Name of mutual funds First ICB Mutual Fund Second ICB Mutual Fund Third ICB Mutual Fund Fourth ICB Mutual Fund Fifth ICB Mutual Fund Sixth ICB Mutual Fund Seventh ICB Mutual Fund Eighth ICB Mutual Fund Date of launching 25 April 1980 17 June 1984 19 May 1985 06 June 1986 08 June 1987 16 May 1988 30 June 1995 23 July 1996 Total Capital Paid up capital (tk. In lac) 50.00 50.00 100.00 100.00 150.00 500.00 300.00 500.00 1750.00

Rules & Regulations ICB is Subjected to

Institutional Framework: Investment Corporation of Bangladesh is a corporate body as per section 3 of Investment Corporation of Bangladesh ordinance, 1976 and deemed to be a banking company within the meaning of the banking companies ordinance, 1962 (L VII of 1962). The shares of corporation are listed with the stock exchange. ICB is an authorized broker of Dhaka Stock Exchange. Regulatory Framework: According to the Investment Corporation of

Bangladesh ordinance, 1976, the ordinance and regulations laid under the authority of the ordinance is the source of all power and authority of ICB. Through the recent enactment of The Investment Corporation of Bangladesh (Amendment) Act, 2000 (XXIV) of 2000, scope of ICBs activities to the formation of subsidiaries has been expanded. In addition to these, to resume its duties and functions ICB has to be compiled by Companies Act 1994, Trust Act 1882, Insurance Act 1983, Security and Exchange Commission Act 1993, Banking Companies Act 1993, Foreign Exchange Regulation Act 1974, Income Tax Act 1982 (XI of 1922) It is to be noted that no provision of law relating to the winding up to the companies or bank shall apply to the corporation as directed by the government. There are lots of details that have to be explained as these depict the framework but due to the lack of shortage of knowledge and space, these details of the Acts have been avoided. Potential Risks of the Mutual Funds and their management RISKS Operational risk is a risk arising from execution of a company's business functions. For example if the financial institution introduce risky shares and bonds in their portfolio without deeply analyzing the companies historical data and the current position of the companies then both the institution and the investors will face huge lose as if the price of the share and bond

in the portfolio falls then simultaneously the share price of the mutual fund will fall. Market risk is the risk that arises due to the fluctuation in the value of the instruments as a result of market conditions. The following market conditions are: Equity risk or the risk that stock prices will change. For example if the price of the stocks changes in the portfolio of the mutual fund the price of the mutual fund stocks will also change. Interest rate risk or the risk that interest rates will change. Interest rate is inversely proportional to bonds price. So if the interest rate increases or decreases the price of the bonds in the portfolio will also decrease or increase respectively and hence their will be change in the mutual fund stocks. RISKS MANAGMENTS PIPO placement according to ICB before starting a new mutual fund they firstly publish prospectus in which they mention about the success of the past or existing mutual fund and also shows the current condition of the companies which they are intending to accumulate in their new mutual fund portfolio. These reduce the risk of the investors to invest in the mutual fund as they can able to judge whether they want to invest in the mutual fund or not. 10% cash reserve strategy out of total investment in the mutual fund 10% of cash amount is kept aside in reserve so that in any sudden problem rise in the stock in the mutual fund, they can use that money so that investors dont face any problem. Portfolio management to obtain less risky stocks and bonds in their portfolio they use their highly experienced analysts whose work are to deeply analysis the companies historical data and current condition by evaluating their NAV (Net Asset Value), P\E ratio (price earning ratio), EPS (earning per share) etc. At the end of each day the management

team of a mutual fund sits for a meeting and over there, they evaluate the present condition of the portfolio and its trend. Recommendations: To make the market stable, ICB should issue more mutual funds. This will also help investors both foreign and domestic to get confidence in the capital market and attract them to invest in their mutual funds. According to the rule (Investment Corporation of Bangladesh ordinance, 1976), the close ended mutual funds should redeem at a specific time in future. But the close ended mutual funds of ICB have no redemption or no maturity date of funds. ICB should implement maturity for their mutual funds; otherwise authority can take any regulative action against ICB. ICB carries out large inter-fund trading of securities whose legality is questionable. It is imperative that the ICB should no longer be permitted to transfer listed share internally without going through stock exchange. Conclusion: ICB is a unique name in our country as an investment bank. It plays an important role to develop the countries capital market, ICB as the national investment house, is the one and only organization to perform the activities by creating demand for securities and on the other hand ensuring the supply of securities in the capital market. The floatation of mutual funds strengthens the supply of attractive securities in Bangladesh capital market. All the funds of ICB earned a return above the market. By the enactment of the Investment Corporation of Bangladesh (Amendment) Act, 2000 ICB was given the authority to establish subsidiaries to broaden scope of activities and t accelerate the pace of industrialization and develop a well organized and vibrant capital market. So time is coming that ICB will reach to the investors outside its present investor segment and people in the remote will know about it. It can be concluded that whatever development, dynamics and momentum are gather in capital market in Bangladesh, majority of them have been brought in by Investment Corporation of Bangladesh.