Mutual Funds

1 INSTITUTIONAL INVESTMENT What Does Institutional Investor Mean? A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. They are organizations which pool large sums of money and invest those sums in companies. They include banks, insurance companies, retirement or pension funds, hedge funds and mutual funds. Institutional investors face fewer protective regulations because it is assumed that they are more knowledgeable and better able to protect themselves.

Types of institutional Investor: •

Mutual fund

•

Pension fund

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Investment trust

•

Unit trust and Unit Investment Trust

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Investment bank

•

Hedge fund  MUTUAL

FUND :

A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. The mutual fund will have a fund manager that trades the pooled money on a regular basis. The net proceeds or losses are then typically distributed to the investors annually. A mutual fund could simply be described as a financial medium used by a group of investors to increase their money with a predetermined investment.  PENSION FUND: A pension fund is a pool of assets forming an independent legal entity that are bought with the contributions to a pension plan for the exclusive purpose of financing pension plan benefits. Pension funds are important shareholders of listed and private companies.  INVESTMENT

TRUST :

A Investment trust is a form of collective investment found mostly in the United Kingdom. Investment trusts are closed-end funds and are constituted as public limited companies

 UNIT

TRUST AND

UNIT INVESTMENT TRUST:

A unit trust is a form of collective investment constituted under a trust deed. A Unit Investment Trust (UIT) is a US investment company offering a fixed (unmanaged) portfolio of securities having a definite life. UITs are assembled by a sponsor and sold through brokers to investors.  INVESTMENT

BANK :

An investment bank is a financial institution that raises capital, trades in securities and manages corporate mergers and acquisitions. Investment banks profit from companies and governments by raising money through issuing and selling securities in the capital markets (both equity, debt) and insuring bonds (e.g. selling credit default swaps), as well as providing advice on transactions such as mergers and acquisitions  HEDGE

FUND :

A hedge fund is an investment fund open to a limited range of investors that is permitted by regulators to undertake a wider range of investment and trading activities than other investment funds and pays a performance fee to its investment manager.

Institutional investors in Bangladesh Mutual funds: There are 19 mutual funds here in Bangladesh. Largest fund of these is Grameen Mutual fund scheme 2 and the smallest fund is ICB 1st mutual fund and ICB 2nd mutual fund. The volume of Gmfo2 is 125 c taka and 1st and 2nd ICB mutual fund are .5 c taka each. A list of all mutual funds is illustrated below: 1

ICB

2

1st ICB Mutual Fund

3

2nd ICB Mutual Funds

4

3rd ICB Mutual Funds

5

4th ICB Mutual Funds

6

5th ICB Mutual Funds

7

6th ICB Mutual Funds

8

7th ICB Mutual Funds

9

8th ICB Mutual Funds

10

1st BSRS Mutual Fund

11

AIMS First Granted Mutual Fund

12

Grameen Mutual Fund One

13

Grameen One: Scheme Two

14

ICB AMCL 1st Mutual Fund

15

ICB AMCL Islamic Mutual Fund

16

ICB AMCL Unit Fund (Open end)

17

ICB AMCL Pension Holder Unit Fund (Open end)

18.

ICB AMCL First NRB Mutual Fund

19

ICB AMCL Second NRB Mutual Fund

Investment Company: An investment company is a company whose main business is holding securities of other companies purely for investment purposes. The investment company invests money on behalf of its shareholders who in turn share in the profits and losses. There are some investment companies in Bangladesh. Some of their accounts are given below: ➢ ➢ ➢ ➢ ➢ ➢

A & N investments Bahrain Bangladesh Finance and Investment Co. Ltd Bangladesh Industrial Finance Co. Ltd Hayes (Bangladesh) Ltd I.D.L.C I.P.D.C.

➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢

Linkmen Bangladesh Lloyds Commerce & Investment Co-operative Society Ltd Muslin Textile Mill Ltd Onus Pvt. Ltd Prime Finace AND Investment Ltd. Sarah Holdings Ltd Saudia Bangladesh Ind. And Agri. Invest. Ltd. Saudia Bangladesh Ind. & Agri. Invest. Ltd. (SABINCO) Uttara Finance And Investments Ltd Vanik Bangladesh.

Insurance company: A number of insurance company foreign, public and private are also working here in Bangladesh. And they are playing role as institutional investors. Life insurance company: 1. Delta Life Insurance Co., Ltd 2. Fareast Islami Life Insurance Co., Ltd 3. Meghna life insurance Co., Ltd 4. Mercantile Life Insurance Co., Ltd 5. National Life Insurance Co Ltd 6. Popular Life Insurance Co Ltd 7. Prime Islami Life Insurance Ltd 8. Progati Life Insurance Co., Ltd

Foreign Life Insurance Company: 1. American Life Insurance Company

General insurance company: 1. Sadharan Bima Corporation

Private General Insurance:

1. Central Insurance Co Ltd 2. Eastland Insurance Co Ltd 3. Federal Insurance Co., Ltd 4. Janata Insurance Co Ltd 5. People's Insurance Co Ltd 6. Phoenix Insurance Co., Ltd 7. Pioneer Insurance Co Ltd 8. Reliance Insurance Co., Ltd 9. Rupali Insurance Co., Ltd 10.United Insurance Co., Ltd

•

CORPORATE GOVERNANCE What is corporate governance? Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way in which a corporation is directed, administered or controlled. The aim of corporate governance is to ensure that companies that are not managed by their owners are run in the best interest of the shareholder. This is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. Over the time the definition and scope of corporate governance have changed. ➢ The process by which corporations are made responsive to the rights and wishes of stakeholders. ➢ the relationship among various participants [chief executive officer, management, shareholders, employees] in determining the direction and performance of corporations ➢ The system by which companies are directed and controlled Corporate governance is characterized by mainly four topics that are termed RAFT in short. It depicts:    

Responsibility Accountability Fairness Transparency

Rules regulated by SEC in maintaining Corporate Governance Conditions are imposed on ‘comply or explain’ basis. The companies listed with any stock exchange in Bangladesh should comply with these conditions or shall explain the reasons for non-compliance in accordance with the condition No.5. THE CONDITIONS: 1.00 BOARD OF DIRECTORS: 1.1. Board’s Size The number of the board members of the company should not be less than 5 (five) and more than 20 (twenty) with a view to enabling access to diverse expertise and meaningful discussion:

Provided, however, that in the case of banks and non-bank financial institutions, insurance companies and statutory bodies for which separate primary regulators like Bangladesh Bank, Department of Insurance etc. exist, the Board of those companies should be constituted as may be prescribed by such primary regulators in so far as those prescriptions are not inconsistent with the aforesaid condition. 1.2. Independent non-shareholder Directors All companies should encourage effective representation of independent nonshareholder directors on their Boards of Directors so that the Board as a group includes core competencies considered relevant in the context of each company. For this purpose, the companies should comply with the following:i. At least one fifth (1/5) of the total number of the company’s board of directors should be independent non-shareholder directors; Explanation: For the purpose of this clause, the expression “independent nonshareholder director” means a director who is not connected with the company or its promoters or directors on the basis of family relationship; who does not have any other relationship, whether pecuniary or otherwise, with the company or its subsidiary/associated companies; who is not a member, director or officer of any stock exchange; and who is not a shareholder, director or officer of any member of stock exchange or an intermediary of the capital market. ii. The independent non-shareholder directors should be appointed by the elected directors. 1.3. Chairman of the Board and Chief Executive The positions of the Chairman of the Board and the Chief Executive Officer of the companies should be filled by different individuals. The Chairman of the company should be elected from among the directors of the company. The Board of Directors should clearly define respective roles and responsibilities of the Chairman and the Chief Executive Officer. 1.4 The Directors’ Report to Shareholders The directors of the companies should include following additional statements in the Directors’ Report prepared under section 184 of the Companies Act, 1994: (a) The financial statements prepared by the management of the issuer company present fairly its state of affairs, the result of its operations, cash flows and changes in equity; (b) Proper books of account of the issuer company have been maintained; (c) Appropriate accounting policies have been consistently applied in preparation of the financial statements and that the accounting estimates are based on reasonable and prudent judgment; (d) International Accounting Standards, as applicable in Bangladesh, have been followed in preparation of the financial statements and any departure there from has been adequately disclosed; (e) The system of internal control is sound in design and has been effectively implemented and monitored; (f) There are no significant doubts upon the issuer company’s ability to continue as a going concern. If the issuer company is not considered to be a going concern, the fact along with reasons thereof should be disclosed; (g) Significant deviations from last year in operating results of the issuer company should be highlighted and reasons thereof should be explained; (h) Key operating and financial data of at least immediately preceding three years should be summarized;

(i) If the issuer company has not declared dividend (cash or stock) for the year, the reasons thereof should be given; (j) Significant plans and decisions, such as corporate restructuring, business expansion and discontinuance of operations, should be outlined along with future prospects, risks and uncertainties surrounding the company; (k) The number of Board meetings held during the year and attendance by each director should be disclosed; (l) The pattern of shareholding should be reported to disclose the aggregate number of shares (along with name wise details as stated below) held by: Parent/Subsidiary/Associated companies and other related parties (name wise details); Directors, Chief Executive Officer, Company Secretary, Chief Financial Officer, Head of Internal Audit and their spouses and minor children (name wise details); Executives; and Shareholders holding ten percent or more voting interest in the company (name wise details). Explanation: For the purpose of this clause, the expression “executive” means top five salaried employees of the company, other than the Directors, Chief Executive Officer, Company Secretary, Chief Financial Officer and Head of Internal Audit. 2.00 CHIEF FINANCIAL OFFICER (CFO), HEAD OF INTERNAL AUDIT AND COMPANY SECRETARY: 2.1. Appointment The company should appoint a Chief Financial Officer (CFO), a Head of Internal Audit and a Company Secretary. The Board of Directors should clearly define respective roles, responsibilities and duties of the CFO, the Head of Internal Audit and the Company Secretary. 2.2. Requirement to Attend Board Meetings The CFO and the Company Secretary of the companies should attend meetings of the Board of Directors, Provided that the CFO and/or the Company Secretary should not attend such part of a meeting of the Board of Directors which involves consideration of an agenda item relating to the CFO and/or the Company Secretary. 3.00 AUDIT COMMITTEE: The company should have an Audit Committee as a sub-committee of the Board of Directors. The Audit Committee should assist the Board of Directors in handling the issues which might be overlooked and should ensure a good monitoring system within the business. The aims of the establishment of an Audit Committee should be to create efficiency in the operations and to add value to the organization. The Audit Committee should be responsible to the Board of Directors according to the duties and responsibilities assigned by the Board of Directors. The duties of the Audit Committee should be clearly set forth in writing.

3.1. Constitution of Audit Committee i. The audit committee should be composed of at least 3 (three) members; ii. The Board of Directors should appoint members of the Audit Committee who should be directors of the company and should include at least one independent non-shareholder director; iii. When the term of service of the committee members expires or there is any circumstance causing any committee member to be unable to hold office until expiration of the term of service, thus making the number of the committee members to be lower than the prescribed number of 3 (three) persons, the Board of Directors should appoint the new committee member(s) to fill up the vacancy(ies) immediately or not later than 1 (one) month from the date of vacancy(ies) in the Committee to ensure continuity of the performance of work of the Audit Committee. 3.2. Chairman of the Audit Committee i. The Board of Directors should select 1 (one) member of the Audit Committee to be Chairman of the Audit Committee; ii. The Chairman of the audit committee should have a professional qualification and must have knowledge, understanding or experience in accounting or finance. 3.3. Reporting of the Audit Committee 3.3.1 Reporting to the Board of Directors i. The Audit Committee should report on its activities to the Board of Directors; ii. The Audit Committee should immediately report to the Board of Directors on the following findings, if any:(a) Report on conflicts of interests; (b) Suspected or presumed fraud or irregularity or material defect in the internal control system; (c) Suspected infringement of laws, including securities related laws, rules and regulations; (d) Any other matter which should be disclosed to the Board of Directors immediately. 3.3.2. Reporting to the Authorities If the Audit Committee has reported to the Board of Directors about anything which has material impact on the financial condition and results of operation and has discussed with the Board of Directors and the management that any rectification is necessary, upon completion of the period of time mutually fixed, if the Audit Committee finds that such rectification has been unreasonably ignored, the Audit Committee or it’s members should report such finding to the Commission. 3.4. Reporting to the Shareholders and General Investors Report on activities carried out by the audit committee, including any report made to the board of directors under condition 3.3.1 (ii) above during the year, should be signed by the Chairman of the Audit Committee and disclosed in the annual report of the issuer company. 4.00. EXTERNAL/STATUTORY AUDITORS The company should not engage its external/statutory auditors to perform the following services of the company: i. Appraisal or valuation services or fairness opinions; ii. Financial information systems design and implementation; iii. Bookkeeping or other services related to the accounting records or financial statements; iv. Broker-dealer services; v. Actuarial services;

vi. Internal audit services; vii. Any other service that the Audit Committee determines. 5.00 REPORTING THE COMPLIANCE IN THE DIRECTOR’S REPORT The directors of the company shall state, in accordance with the annexure attached, in the directors’ report whether the company has complied with these conditions