Two maiden Exchange Traded Funds get BSEC nod

The Bangladesh Securities and Exchange Commission (BSEC) has decided to approve, for the first time in the local capital market, two exchange traded funds (EFT).

The approval letters will be issued soon and the funds will be launched without delay, said BSEC officials.

One of the funds – LB Multi Asset Income ETF – will be launched with an initial target size of Tk100 crore, while the FAM DG Bengal Tiger Exchange Traded Fund's target size will be Tk50 crore.

Both the ETF would be actively managed ones, instead of being those for mimicking an index.

That means, the asset manager would select portfolio scrips based on its discretion in compliance with the regulations.

A leading local merchant bank LankaBangla Investments as the sponsor would invest Tk10 crore in LB Multi Asset Income ETF, while the asset manager LankaBangla Asset Management Ltd would invest Tk2 crore. The rest of the amount – Tk88 crore – will be raised from investors.

On the other hand, FAM DG Bengal Tiger Exchange Traded Fund would be co-sponsored by local asset manager Frontier Asset Management Ltd and London-based emerging and frontier market investment management firm Dawn Global Management.

Like mutual funds, ETF are built out of pulled capital that is invested in portfolio scrips. Also ETF units can be created and redeemed upon investors' wills, just like that happens with open-end mutual funds.

The main difference between the two is that the ETF units are tradable in the secondary market, and third party firms are assigned as authorised participants, market makers who ensure that the units are trading at a narrow price range pivoting the real time asset value of the ETF.

Investors who are interested in a basket of securities for a stable portfolio performance, hassle-free investment operations, instead of picking and continuously monitoring individual scrips, find an ETF a good option, according to experts.

Increasing demand for ETF units in the secondary market results in creation of more units and supplying them in the market while the asset manager uses the new money to proportionately buy the underlying securities.

And selloff in ETF units results in redemption of some units where asset managers sell off underlying securities and pay cash to the ETF investors through the trustee.   

ETFs which publish real time net asset value also help increase market liquidity – enough buy and sell orders for the underlying assets.

2021 has been a record year for the global ETF industry, as with around $1 trillion in net inflow, the total asset under the industry's management soared to nearly $10 trillion, according to international compilations.