Islamic mutual funds struggle due to lack of investment options
There are 14 open-end and 4 closed-end Islamic mutual funds operating in Bangladesh
Islamic mutual funds, which invest public funds in Shariah-compliant securities, are grappling with a shortage of investment tools necessary for diversifying portfolios and securing their investments.
Market insiders said the blue-chip stocks in the capital market are quite small and it shrinks further when Shariah filters are applied.
Typically, Shariah mutual funds lean towards non-financials, with a view towards long-term capital accumulation. There is, therefore, a need for more quality initial public offerings (IPOs) for these types of businesses, they added.
According to a report by EBL Securities on Islamic mutual funds published on 21 March, investments in Shariah-compliant mutual funds are heavily reliant on the pharmaceutical sector. Many fund managers have concentrated public funds in a limited number of stocks due to a shortage of investment tools.
Keep updated, follow The Business Standard's Google news channel
As a result, the country's Islamic mutual funds have only grown by 10% in the last five years, while globally, they have experienced a growth of over 300%.
At present, there are 14 open-end Islamic mutual funds and four closed-end Islamic mutual funds operating in Bangladesh. As of September 2023, the total Assets Under Management (AuM) of Islamic mutual funds stood at Tk771 crore. Out of this, the AuM of Islamic closed-end funds was Tk369 crore, while the open-end mutual funds during the same period was Tk402 crore.
In the open-end segment, ICB Asset Management Company leads the industry with total AuM of Tk70 crore which accounts for around 17.35% of the total Islamic open-end AuM.
In terms of closed-end segment, the market is dominated by Strategic Equity Management, with total AuM of Tk101 crore, around 27.55% of the total Islamic closed-end AuM.
The journey of Islamic mutual funds in Bangladesh started in 2010 with Islamic Finance and Investment Limited's "IFIL Islamic Mutual Fund-1". It was a closed-end mutual fund.
In the same year, Al-Arafah Islami Bank sponsored another closed-end Shariah Mutual fund, named "AIBL 1st Islamic Mutual Fund." Open-end Shariah mutual funds entered the fray in 2016 with Asian Tiger Capital Partners Investments Limited's "ATC Shariah Unit Fund."
In 1984, M Yaqub Mirza floated the idea of establishing the Amana Income Fund, the first US mutual fund managed according to Islamic principles.
As of 2021, there were 1,508 Islamic mutual funds globally with a total AuM of $194.51 billion.
With 401 funds, Malaysia leads the global Islamic mutual fund industry, followed by Indonesia and Saudi Arabia with 209 and 183 funds, respectively. However, in terms of total AuM, Saudi Arabia tops the ranking with a fund size of $53.4 billion, closely followed by Iran and Malaysia.
