Performance in Pooling of Funds, Making Portfolios and Dividend Policy of Investment Corporation of...

Chapter 1Background information and methodologies

1.1 OverviewInvestment Corporation of Bangladesh (ICB) is astatutory corporation. It is mainly an investmentbank. As an investment bank is a financialinstitution, which mobilizes fund from the surpluseconomic units through various mutual funds and saleof securities and develops funds for the deficiteconomic units through purchase and/or underwritingof securities..The Investment Corporation of Bangladesh (ICB) wasestablished on 1 October 1976. under "The InvestmentCorporation of Bangladesh Ordinance, 1976" (No. XL of1976). The establishment of ICB was a major step in aseries of measures undertaken by the government toaccelerate the pace of industrialization and todevelop a well-organized and vibrant capital marketparticularly securities market in Bangladesh. ICBcaters to the need of institutional support to meetthe equity gap of the industrial enterprises. In viewof the national policy of accelerating the rate ofsavings and investment to foster self-relianteconomy, ICB assumes an indispensable and pivotalrole. Though the enactment of the InvestmentCorporation of Bangladesh (Amendment) Act, 2000 (No.of XXIV of 2000), reforms in operational, strategicand business polices have taken place by establishingand operating subsidiary companies under ICB.

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1.2 Statement of the problemICB has a strong impact in the capital market inBangladesh. It has diversified objectives since itsinception. The main concern of the present study isto assess the performance of ICB, i.e to measure towhat extent it has achieve its objectives and forthis ICB’s three major functional areas have beenevaluated. These are mobilization of funds, making ofportfolios and formulating and implementing adividend policy that have contribution to furtherexpansion of the organization.

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1.3 Rationale of the studyThe study has been conducted to identify how ICB isperforming in the three major functional areas andin the same time how contribution it has in thedevelopment of the capital market. The study has alsoassessed whether the other financial organizationsand the individual investors are benefited by itsperformance. Meanwhile, the study has also assessedhow much contribution it has in creating the bases ofinvestment and mobilization of savings as part of itscommitment. Finally, the study has reflected how ICBis contributing to the financial market by itsfunctions and activities.

1.4 Objective of the study

The broad objective of the study is to assess theperformance of ICB in three broad functional areaslike: pooling of funds, making of portfolios anddividend policy as its contribution in the financialmarket in Bangladesh. Investment Corporation ofBangladesh is a state-own statutory organization,which was mainly, established to strengthen andreenergize the final market of Bangladesh.

The specific objectives of the study are to assess:

1) The role of ICB to broadening and encouragingthe base of investment;

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2) The role of ICB in mobilization of savings fromthe households and channeling them to thefinancial markets;

3) Success of ICB in the development of the capitalmarket;

4) Performances of ICB in the recent years in thethree major functional areas;

5) Making of ICB’s portfolios after mobilizingfunds from the investors; and

6) The dividend policy of ICB

1.5 MethodologiesThe evaluation has been made by assessing in three

major areas of ICB. The study has been designed in a

way that, it reflects the details functions and

activities of the organization of the firm. The

methodologies that have been used are- the

mobilization of funds by the ICB from the general

households, the making of portfolios by the generated

funds and the dividend policy and further expansion

Besides the above-mentioned approach, the

methodologies covered the following:

a) Sources of data: In conducting the study data

and information have been collected from the

diversified sources. Firstly, data have been

collected from the published financial statement

and prospectus of the company. Each and every

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year the firm published the financial report.

So, this information from the report has been

used for the study. Again, many other published

materials are here in the collection of ICB. So,

this information has also been used. Meanwhile,

there are a lot of published materials, which

will also be used for this study purpose. The

last but not the least thing is that, assistance

from the Internet has also be en taken for the

study purpose. However, in conducting the study,

mainly the assistance from the financial

statements and report of the firm has been taken

for the study.

b) Quality Control: In the part of the quality control, throughout the

data collection, quality control was the special

concern. Whenever, data have been collected,

special care was given in this respect so that

accurate information can come for the accurate

calculation. So, this thing has been done with

special care. Again in collecting the data from

the financial statement of the firm, various

years’ data has been taken for the accurate

calculation of the study. Meanwhile special care

has been devoted at the time of copying the digits

from the financial statement to the calculations

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sheet. In collecting the information, most recent

published data and information has been taken from

the reliable sources for ensuring the quality

control.

c) Data Processing: Data that have been collected from different sectors

was not be available in the processed form. So, after

getting the data the second job is to process those

data into form so that they were in the arranged

form. In processing the data, most recent published

data and information has been taken from the reliable

sources. For example, five years data has been taken

for the performance analysis of the firm. So, in

taking the samples most recent data and information

was taken for the accurate measurement of the

performance. At the time of processing the data

special care was given so that the digits are not

changed mistakenly when they were shifted from the

report to the calculation sheet.

1.6 Expected outcome of the study and its use:The study has been conducted to assess the

performances of ICB. Among the many functional areas

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of ICB three major areas have been evaluated to

assess the performance of ICB. However, so far he

study has been done the information form the all

groups of people to have an idea about the ICB can

use the report. The information can deliver the ideas

about ICB in some of the important functional areas.

General investor can use the information from the

study to determine about their investment decision at

ICB. As ICB pools fund from the general households

and invest this fund again in different areas, so the

investor can have idea about it from this report.

Meanwhile, the information in the report can also

been used for the further study.

1.7 Limitation of the studyThis report so far has some limitations in some

areas. In preparing the report a lot of data and

information were required data, but sufficient

information and data has not been found for the

report to be made really impressive. However, in

spite of the scarcity, effort has been given much to

make the report acceptable and reliable. Meanwhile,

to assess the performance of ICB, not all the

functional areas has been considered In this respect,

three major areas were considered to evaluate the

performance of ICB.

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Chapter 2

Company profiles2.1 BackgroundInvestment Corporation of Bangladesh (ICB) is a

statutory corporation. It is mainly an investment

bank. As an investment bank is a financial

institution, which mobilized fund from the surplus

economic units by savings securities and developed

funds to the deficit economic unit also by

buying/underwriting securities. After liberation in

view of social economic changes, the scope for

private sector investment in the economy was kept

limited by allowing investment in projects up to tk.

25 lac. The new investment policy, which was

announced in July, 1972 provides for an expanded role

of private sector by allowing investment in a project

up to tk. 3 crore. The ceiling has further being

raised to tk. 10 crore in spite of the adequate

facilities and incentives provided to the private

sectors encouraging response was not for the coming.

One of the reasons among other was the lack of

institutional facilities, which provides underwriting

support (Like former ICB) to industrial enterprise

that was required to raise much need equity fund.

Thus, the need for reactivation for capital market,

stock market was keenly felt.

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The Investment Corporation of Bangladesh (ICB) was

established on 1 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

particularly securities market in Bangladesh. ICB

caters to the need of institutional support to meet

the equity gap of the industrial enterprises. In view

of the national policy of accelerating the rate of

savings and investment to foster self-reliant

economy, ICB assumes an indispensable and pivotal

role. Though the enactment of the Investment

Corporation of Bangladesh (Amendment) Act, 2000 (No.

of XXIV of 2000), reforms in operational strategic

and business polices have taken place by establishing

and operating subsidiary companies under ICB.

2.2 Objective of ICB

The objectives of the corporation are:

To encourage and broaden the base of

investments,

To develop the capital market,

To mobilize savings,

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To promote and establish subsidiaries for

business development,

To provide for matters ancillary thereto.

2.3 Business policy

The business policies of ICB are in the following:

To act on commercial consideration with due

regard to the interest of industry, commerce,

depositors, investors and to the public in

general,

To provide financial assistance to projects

subject to their economic and commercial

viability,

To arrange consortium of financial institutions

including Merchant Banks to provide equity

support to projects,

To develop and encourage entrepreneurs,

To diversify investments,

To induce small and medium savers for investment

in securities,

To create employment opportunities,

To encourage investment in Agro-based and IT

sectors.

2.4 Basic functions

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In order to achieve the previously mentioned

objectives, the corporation may carryout the

following functions:

Direct purchase of shares and debentures

including placement and equity participation,

Participating in and financing of joint-ventures

companies,

Providing lease finance singly and through

syndication,

Managing existing Investor's Accounts,

Managing existing Mutual Funds and Unit Fund,

Managing Portfolios,

Conducting computer training program,

Providing advance against ICB Unit and Mutual

Fund certificates,

To act as Trustee and Custodian,

Providing Bank Guarantee,

Providing investment counseling to investors,

Participating in Government divestment program,

Introducing new business products suiting market

demand,

Dealing in other matters related to Capital

Market.

2.5 Organization’s manpower

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The general direction and superintendence of

corporation is created in a board of directors, which

consists of clever (11} persons including the

chairman and managing director of ICB. This is the

most powerful board compare to other govt. financial

institutions in terms of their experience and

knowledge. The managing director is the chief

executive of the organization. Two general managers

assist him, viz. G.M. (Operation) and G.M. (Admin.).

Total manpower of ICB at present is 372.

2.6 Business area 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/institutions on behalf of the issuer

for which it charges fees. ICB also acquires

shares/securities for its own portfolios.

Underwriting: In order to raise long-term debt

equity from the primary market, the Government

bodies, enterprises, corporation or Companies

may seek intermediary assistance from ICB in the

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form of underwriting. Because of its long and

proven experience, reputation, asset back up and

established network of regional offices, ICB is

in an excellent position to attract the

potential investors to the proposed issue of

shares, debenture and other securities for

successful floatation of IPO & placement.

Custodian and Banker to the Issues: To act as

the custodian to the public issue of Open-end &

Mutual Funds, ICB provides professional

services. It also acts as the Banker to the

issues and provides similar services through the

network of its branches. Fees in this regard are

negotiable.

Merger and Acquisitions: Companies willing to

expand their business through mergers or

acquisitions or to divest projects that no

longer fit into present scale of operation

contact the corporation. ICB provides

professional services & advice in respect of

shaping up the cost and financial structures to

ensure best possible operation results.

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Corporate Financial Advice: Companies and

Government enterprises intending to go public

often seek professional & financial advice on

corporate restructuring & reengineering. ICB

through its expertise provide such services.

Lease Financing: ICB provides lease finance

mainly for machinery, equipment and transport.

ICB is in a position to provide professional

advice and financial assistance to the intending

clients. The period of lease, rental, changes

and other terms and conditions are determined on

the basis of assets and the extent of assistance

required by the applicants.

Advanced against ICB Mutual Fund Certificates

Scheme: Advanced against ICB Mutual Fund

Certificates Scheme was introduced in 2003,

designed for the ICB Mutual Fund certificate

holder to meet their emergency fund requirement.

One can borrow maximum of 50% value of last one

year's weighted average market price of

certificates at the time of borrowing by

deposing his/her certificates under lien

arrangement from any of the ICB's offices. The

rate of interest on the loan is reasonable and

also competitive.

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Bunk Guarantee Scheme: As part of ICB's business

diversification program, the corporation

introduced bank guarantee scheme during the year

2002-2003 ICB provides (1) bid bond for enabling

the business people to participate in any tender

or bidding; (2) performance bond for helping the

business community to continue their business

smoothly by fulfilling their obligations

promised by them to their clients; (3) 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. 2.00 crore and would be

issued against at least 20% cash and 80% easily

encashable securities or against 100% cash

margin. Re-guarantee from other financial

institutional is required for guarantee against

the amount exceeding tk. 2.00 crore.

ICB Mutual Fund: ICB has so far floated eight

close-ended Mutual Funds. The first ICB Mutual

Funds was floated on 25April, 1980, while the

eight ICB Mutual Fund was floated on 23 July

1996. The aggregate size of these funds is tk.

17-5 crore. About 35,000 certificates holders

own these funds. Dividends declared on the funds

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were very attractive ranging from 13.5 to 180

per certificate for 2002-2003. Investors show

overwhelming interest in all the ICB Mutual

Funds. One can invest in such funds through the

stock exchanges with which these funds are

listed. Through corporate restructuring, new

mutual funds are being floated through "ICB

Asset Management Company Limited", subsidiary

company of ICB.

ICB Unit Fund: It is an open-ended Mutual Fund

scheme launched in April 1981, through which the

small and medium savers get opportunity to

invest their savings in a balanced and

relatively low risk portfolio. ICB has so far

declared attractive dividends on units every

year ranging from taka 12 to 25 per unit.

Investment in units enjoys tax benefit, amount

being applicable as per law. However, under the

ICB's restructuring program new unit certificate

are being sold by ICB's new subsidiary company

"ICB Asset Management Company Limited".

Investors Scheme: The Investors' Scheme was

introduced in June 1977. Over the years, this

scheme has grown tremendously. ICB, at its

discretion, may grant up to times loan against

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the assets of the account subject to a maximum

limit of tk. 3 lac. An account holder may use

the combined balance of his/her equities and

loan to buy shares/securities. To help the

investors to develop diversified and balanced

portfolio to minimize risk and earn a reasonable

return, ICB provides professional advice and

other support services. Under the restructuring

program, ICB operates and manage only the old

accounts and new accounts are being opened and

managed by the ICB Capital Management Limited, a

subsidiary of ICB.

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2.7 Share Capital Ownership Pattern of ICB

Classification of Shareholders as on 1 January 2004

Shareholder No. Of

Shareholde

rs

No. Of

Shares

Percenta

ge

Government of Bangladesh 1 1350000 27.00

Nationalized Commercial

Banks

4 1137220 22.74

Development Financial

Institutions

2 681550 13.63

Insurance Corporations 2 628691 12.57

Bangladesh Bank 1 600000 12.00

Denationalized Private

Commercial Banks

2 454262.

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9.09

Private Commercial Banks 4 28571 0.57

Foreign Commercial Banks 2 42830 0.86

First BSRS Mutual Fund 1 6900 0.14

Other Institutions 9 13024 0.26

General Public 1026 56951.5 1.14

Total 1054 5000000100.00

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Source: ICB annual report 2005-06.

2.7 Milestone of ICB

MilestonesDate/Establishment

Commencement

Date of Establishment/

Commencement ICB1st October 1976

lnvestors' Scheme 13th June 1977

First ICB Mutual Fund 25th April 1980

ICB Unit Fund 10th April 1981

Second ICB Mutual Fund 17 June 1984

Third ICB Mutual Fund 19 May 1985

Fourth ICB Mutual Fund 6 June 1986

Fifth ICB Mutual Fund 8 June l987

Sixth ICB Mutual Fund 16 May 1988

Nomination as the

country's Nodal DFI in

SADF

7 May 1992

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Seventh ICB Mutual Fund 30Junel995

Eighth ICB Mutual Fund 23 July 1996

Purchase of own Land &

Building11 December 1997

Participation in Equity

of SARF16 January 1998

Advance Against ICB Unit

Certificates Scheme12 October 1998

Lease Financing Scheme 22 April 1999

"The Investment

Corporation of Bangladesh

(Amendment)

Act, 2000" passed in the

Jatiya Sangsad

(Parliament) and

Honorable President's

assent thereof

5 and 6 July 2000

Formation and

Registration of 3

Subsidiary Companies of

ICB

5 December 2000

Computer Training Program 25 March 2001

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Commencement of business

operations of the

subsidiary companies

ICB Capital Management

Ltd. 01 July 2002

ICB Asset Management

Company Ltd.01 July 2002

ICB Securities Trading

Company Ltd.13 August 2002

Registration as a Trustee

with SEC20 August 2002

Registration as a

Custodian with SEC20 August 2002

Bank Guarantee Scheme 21 June 2003

Advance Against ICB

Mutual Fund Certificate

Scheme

21 June 2003

Consumers Credit Scheme 15 February 2004

Received BASIS-SEDF Best

IT Use Award in

SOFTEXPO,2004

28 November 2004

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Chapter 3

Company information

3.1 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 (LVII of 1962). The shares of

corporation are listed with the stock exchange. ICB

is an authorized broker of DSE.

3.2 Regulatory framework

As the mentioned earlier the regulatory framework of

ICB is the, Investment Corporation Bangladesh

Ordinance, 1976. This 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 ICB's activities through the formation of

subsidiaries, have been expanded. In addition to

these, to resume its duties and functions, it has to

compelled by Companies Act 1994, trust Act 1882,

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Insurance Act 1983. Security and Exchange Commission

Act 1993, Banking Companies Act 1993, Foreign

Exchange Regulation 1974, Income Tax Act etc.

It is to note that no provision of law relating to

the winding up of companies or bank shall apply to

the Corporation and the Corporation shall not be

wound up save by order of the government and in such

manner as it may direct.

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3.3 Management of ICBThe Head office of the corporation as per the

requirement of the ordinance of ICB is located al

Dhaka. The general direction and superintendence of

the corporation is created in a board of directors,

which consist of 11 persons including the chairman

and managing director of ICB.

The Board of directors consists of the following

directors:

The chairman to be appointed by the government,

The directors to be appointed by the government

from among persons serving under the government,

One director to be nominated by the Bangladesh

Bank,

The managing directors, Bangladesh Shilpa Bank,

Ex-office,

The managing directors, Bangladesh Shilpa Rin

Sangstha, Ex-office,

Four other directors to be elected by the share

holders other than the government, BB,BSB,&BSRS.

3.4 Administration and Human resourcesInvestment Corporation Of Bangladesh (ICB) providing

different category of financial and banking services.

Nature of the different division departments vary,

such that Economic and Business Research (EBR)

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Department requires teamwork, Loan Appraisal division

requires professional work. Funds divisions need

chain work. Managing Director is entrusted with

authority to transact the regular business of the

organization; he may delegate some authority to the

officials of the Corporations. However, most of the

policy decisions are taken by the different committee

with the approval of managing Director and where

required of the Board. It is the discretionary

authority of the Board to constitute the execute

committee and to maintain its Chairman to assist the

Board in the discharging of the function stated under

the ordinance. The board may appoint such other

committee (s) as it thinks fit to assist it in the

efficient discharge of its function. So far, board

has appointed two such committees. Economic and

Business Research (EBR) committee and Loan Appraisal

committee headed by General Manager.

3.5 Board of directors

The Board is comprised of 11 directors. Exchange

managing Director, all directors are non-executive

and independent and represent government, banks,

Insurance Corporation, financial institutions and

general public.

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3.6 Future contrivance of the organization

ICB is going to float two new Mutual Funds. ICB

AMCL, a subsidiary of the state owned

institutional investor, will launch and operate

the funds. The Funds are:

ICB AMCL Pension Holder Unit Fund and

ICB AMCL Islamic Mutual Fund, each worth Tk. 10

crore.

A great deal of planning effort of the

corporation has been towards future IT structure

and related operations. In the roadmap the

following goals have been set:

Establishing ICB firmly on IT industry not only

as a consumer but also as a formidable IT

solution provider especially in the financial

sector.

In the long run, ICB may consider establishing a

separate business entity on IT, if found viable.

ICB is considering going for starting full

pledge activity in the field of IT area.

ICB is actively considering to provide web-based

online services to its clients and to connect

all its branches through WAN with head office.

So that customers at any corner of the country

can get instant services.

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Chapter 4

Departments

4.1 Personnel department

This department deals with the human resources of

the organization. It makes the rules and

regulation of the right person to the right place.

The process may be held by two ways:

Direct recruitment

Promotion

This department takes disciplinary action

gradually to that employee who violates the

rules and regulation of the organization. This

action is of two types:

Light Punishment

Heavy punishment

The other functions of this department are as

follows:

Make necessary rules, regulations, and

policies for efficient administration of

the Corporation;

Handle all personnel matter including

confirmation, posting, transfer, fixation,

leaves etc.

Process all promotion, time-scale encashment;

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Process registration, retirement cases;

Deal with retirement benefits including

gratuity, pension, provident fund etc.

4.2 Central accounts departmentAll kinds of receipts and payments of ICB are done by

the Central Account Department. The bill of all

departments end destination is account department.

Account department holds and maintain all accounts

separately. For this reason adjustment and

rectification of any transaction of all departments

become easier to this department.

4.3 Loan appraisal department

ICB provide credit facilities to the public limited

companies to meet heir equity gap. There are two

modes by which ICB provides credit facilities to the

prospective public limited companies, through:

Direct underwriting for BMRE and

Underwriting through bridge financing

4.4 Economic and business research department

The functions of the EBR department are as

follows:

Performance portfolio management decision

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Conduct meeting of the securities and sale

committee

Prepare annual reports for ICB, Unit Fund and

Mutual Fund

Convey securities sell or purchase decision to

the merchandising division

Prepare and distribute annual Report

Maintain information related to DSE, CSE,

dividend, right share, bonus declared by

different companies, public issues, half yearly

accounts of listed companies etc.

Maintain liaison with Ministry of Finance,

Bangladesh Bank and provide TCB related

information to interested parties,

Prepare board memo regarding declaration

dividends on ICB's own portfolio, unit and

mutual funds

4.5 Unit sales department

ICB unit is an open end Mutual Fund through which the

small and medium savers get opportunity to invest

their savings in a balanced and relatively low risk

portfolio. It ensures a continuous and regularly

flows of incomes for the holders and is easily

cashable. The responsibility undertaken for managing

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the fund, management fee charges @ Tk. 1.00 per unit

sold. Units are sold through ICB offices and other

authorized bank branches. In lieu of cash dividend,

one can reinvest his/her dividend income under

Cumulative Investment plan (CIP) to purchase

additional units with a price rebate.

ICB stopped selling of Unit Certificates from 1st day

of July after the business operation starts of ICB

Asset Management Company Limited.

The main functions of this department are to sale,

repurchase and transfer of Unit

Certificates.

Act as manager of Unit Fund,

Promote sales of Unit Certificates,

Sell and issue Unit Certificates to the

applicants,

Repurchase Unit Certificates,

Issue new Unit Certificates in lieu of

mutilated, lost or defaced Unit Certificates.

4.6 Unit registration and procurement department

The following are the functions of this department:

Registration and transfer Unit Certificates,

Maintain a separate register for unit holder

under CIP,

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Verify signature of transfer deed,

Issue dividend warrants and CTP certificates to

the holders,

Procure unit certificates of various

denominations from the printing.

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4.7 Mutual fund department

Broadly the functions of Mutual Funds Department

consist of:

Act as manager of all mutual funds,

Maintenance of ledger with the name,

address and number of certificates along

with distinct folio number for each Mutual Fund

separately,

Verify the signature of the holders in the 117

forms,

Preparation of dividend list from the ledger

position,

Issue dividend warrants to the holders of the

certificates,

Distribution of final dividend warrants to the

certificate holders after completing necessary

formations.

4.8 Investors department

The main task of Investors Department is to

accumulate the investment of small and new investors

of the capital market by helping them open an

investment account in the concern department. This

department deals with 'Investors scheme'.

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The following are the main functions of this

department:

Open and maintain Investment accounts:

Sanction loans against deposits in Investment

Accounts;

Buy and sale shares on behalf of the investors;

Counsel investors in respect of building up

their portfolios;

Withdraw funds and shares from Investment

Accounts;

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4.9 Share department

The shares act as the custodian of securities. These

department facilities the physical transfer of

shares. For performing the above mentioned activities

Share Department is divided into five sections. These

sections are:

Investors portfolio section

Sale and withdrawal section

Funds portfolio section

Securities reconciliation section

4.10 System analyst department

The main functions of this department are:

System administration of the entire network

setup;

Performing system analysis wherever ICB feels

the need for periodic change in computerization

setup;

Performing miscellaneous small hardware and

software related servicing tasks on the

many workstations, network system, sever

and other components and provide training to

staff of other departments about computer usage,

Any other assignment given by the management.

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4.11 Public issue department

The public issue department is a vital department in

the ICB as the ultimate objective of sanction loan is

to help the project to go for public issue. The

department is engaged in:

Visit and collect audited financial statement

from the sponsors,

Analyzing the financial statement of on going

projects,

Advice and pursue sponsors of on going projects,

Assists in preparing prospectus for issuing

shares and debentures,

Examines the prospectus submitted by the

sponsors and help getting approval,

Advise companies in issuing allotment letters

and warrants,

Make necessary adjustments of bridge loan of the

concerned company,

Make liaison with the recovery and follow up

department regarding realization of dues and

overdue.

4.12 Law department

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Law department is a specialized department; handle

any kind of legal affairs of ICB. ICB takes the

resource of legal actions against the defaulting

borrowers who did not come forward to repay loans

despite repeated persuasion and reminders.

4.13 Project implementation department

The following are the tasks of this department:

Placement of IPO,

Justify the projects terms and conditions,

Help implementation of sanctioned projects,

Review progress of implementation of projects

and recommend disbursement of funds,

Submit progress reports to the management

regarding implementation,

Process the case for cancellation of sanctioned

projects,

Inspect the site and books of accounts of

projects.

4.14 Recovery and follow up department

Loan recovery and follow-up department is the key

operation as it ensures the recovery of funds

provided as credit. There remains two 'Task Forces'

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and the 'Review & Monitoring Committee' for giving

necessary guidelines for accelerates process of

recovery. As a result, ICB recovered an amount of tk.

7.67crore during 2002-2003, which was 2.27% higher

than the recovery of tk. 7.5crore during 2001-2002.

Interest of loan recovered in quarterly basis.

4.15 Secretary department

The main functions of this department are:

Arrange meetings of the Board of Directors,

Executive Committee and other Committee,

Communicate with the directors of the

Corporation,

Call board meeting,

Prepare work schedule of directors meeting and

collect signature of the Chairman,

Send work schedule to Govt. and board of

directors,

Call Annual General Meeting.

4.16 Public relation department

The main function of this department is to:

Maintain close liaisons with the Ministry of

Finance and other concerned officers

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Help publish all types of official

advertisements

Furnish management with the relevant newspaper

cuttings

Help focusing ICB through mass media

Meet all adverse comments about the Corporation

published in Different newspapers and

periodicals

Publish internal newsletter or journal

Appraise the management of its overall relation

to public

40

4.17 Audit departmentDepartment under Audit & Method Division are showing

in the following:

1. Audit & Method Head Office

2. Audit & Method Branches

This department with regard to ICB does three kinds

of Audit:

Internal Audit: Accomplished by Head Office

Audit Department

External Audit: Accomplished by Ministry of

Finance

Commercial Audit: Accomplished by Government

Audit Department

Audit Department mainly performs two types of

audit:

Pre Audit: Done before the starts of the job,

Post Audit: Done after the completion of the

job.

41

Chapter 5

Operational and functional areas and results

5.1 ICB’s role in the financial market

As in the previous year, ICB and its subsidiaries

played very important and expanded roles through

participation in the both primary and secondary

markets to quicken the pace of industrialization and

to develop and enlarge a vibrant and sustainable

capital market in the economy.

As on 30 June 2006, the number of ICB assisted

securities was 122 out of 303 listed securities of

the Dhaka Stock Exchange Ltd.

Out of 213 listed securities of the Chittagong Stock

Exchange Ltd. ICB assisted securities was 80.

5.2 Operational activitiesICB has continued to provide financial and other

assistance to projects in different forms with a view

to accelerating the pace of industrialization as well

as to develop a well organized and vibrant capital

market.

Commitments

42

During 2005-06, ICB made commitment of total

financial assistance of Tk. 57.15 crore to 11

projects. In 2004-05, ICB;s commitment of total

financial assistance was Tk. 149.05 crore to 11

projects.

Details of commitments made by ICB during 2004-05 and

2005-06n are shown below in the following table:

(Amounts in Crore Tk.)

Nature of financial

assistance

2005-06

2004-05

Decrease

in

amount(%

)

no. of

projects

Amount

s

No. Of

projects

Amount

s

Pre IPO placement of

shares 2 2.5 2 16.5 84.85

Purchase of

preference share 1 4 1 20 80

Equity participation 1 3.75 1 5 25

Advance against

equity 2 30

Purchase of 4 15.85 6 57 72.19

43

debentures

Lease financing 2 1.05 1 50.55 97.92

Total 11 57.15 11 149.05 61.66Source: ICB annual report 2005-06.

5.3 Other operational activities

Other operational activities of ICB includes advance

against ICB mutual certificates. bank guarantee

scheme and consumer credit scheme.

Advance against ICB mutual certificates:

Disbursement under this scheme amounted to Tk. 4.65

crore in the year2005-06 which was Tk. 4.66 crore in

the previous year registering a decrease of 0.21

percent. Icb provides advance against the

certificates of Icb unit /Mutual funds and ICB AMCL

unit fund.

Consumer credit scheme

As part of business diversification program of ICB,

“consumer credit scheme” was introduced in 2003-04.

Under this scheme the cumulative amount of loan-

disbursed up to 30 June 2006 was Tk. 2.82 crore

including Tk. 1.54 crore during the year under

review.

44

5.4 Merchandising operations

Merchandising operation has been one of the

foundations of ICB functions, which are discussed, in

detailed form in the separate part. ICB has continued

its pivotal contribution significantly to the capital

market through merchandising operations like

management of mutual funds and investment accounts.

ICB has three other subsidiaries. Among them, ICB

Asset Management Company Limited started its

operation in 1 July 2002 to carry out merchant

banking and fund management activities respectively

5.5 Recovery and rehabilitation activities

As in the previous year, ICB continued to put strong

emphasis on recovery of overdue project loans during

the year 2005-06 from the projects financed by ICB.

At the same time, increased focus as given on

recovery of dues on account of dividend/interest on

securities and fees and commissions of different

schemes. In order to make recovery drive more

effective, two task forces and a “Debt collection

unit for written- off loans” comprising senior

officers of ICB make necessary guidelines and follow

45

up. Besides the concerned executives also maintain

relentless efforts to make the recovery drive

successful.

5.6 Participation in international activitiesICB also participate in some international

activities. Among them, some are discussed below:

ICB’s involvement with South Asian Development Fund

(SADF)

SAARC fund for regional projects (SFRP) and SAARC

Rejional Fund were established in 1991 with the

collaboration of member countries of the SAARC. The

established of SADF was officially declared by

dissolving SFRP and SRF in a meeting of the member

countries held in Dhaka in June 1996.

Investment in South Asian Regional Fund

To facilitate investment in SAARC member countries a

development fund of US$ 200.00 million, namely, the

South Asia Regional Fund (SARF) was launched in the

Commonwealth Summit held in 1997. The fund is

maanaged by a wholly owned subsidiary of Commonwealth

Development Corporation(CDC) incorporated in

Mauritius.

46

5.7 Financial results

Total income

ICB earned a total income of Tk. 166.41 crore in

2005-06 which was 2.33 percent lower than Tk. 170.38

crore earned in 2004—05. Though the total income in

2005-06 was lower than that of previous year, the

income was 10.23 percent higher than the previous.

Total expenditures

During 2005-06 the total expenditure stood at

Tk.143.22 croreas compared to Tk. 148.45 crore in the

year 2004-05.

Net income

During 2005-2006 ICB’s net income after tax stood at

Tk. 23.19 crore as compared to net income of Tk.

21.93 crore earned in the year 2004-05 showing as

increased of 5.71 percent.

Dividend

The Board of Directors declared dividend at the rate

of Tk. 12.0 per share for 2005-06. The same of rate

of dividend was declared in the previous.

Appropriation of profits

The board of directors recommended appropriation of

net profit of Tk. 23.19 crore in the manner as stated

below:

47

Comparative position of appropriation of profit(Tk. In crore)

Particulars 2005-06 2004-05

Dividend: 12.0 percent(Proposed)

(2004-05: 12.0 percent) 6 6

General reserve 2 1

Reserve for building 14.5 14

Benevolent reserve 0.4 0.3

Retained profit 0.29 0.63

Total 23.19 21.93Source: ICB annual report 2005-06.

Financial analysis The overall financial position of ICB remained

satisfactory during the reporting year. Financial results

of ICB own and after consolidation of accounts including

its subsidiaries along with some key financial ratios

relating to profitability, liquidity and solvency are

given below:

Particulars

ICB Consolidated

(ICB and its

subsidiaries)

2005-062004-05 2005-06 2004-05

Financial results

Total income (Tk. In crore) 166.41 170.38 180.2 187.82

48

Total expense (Tk. In

crore) 119.17 82.72 122.9 86.82

Profit before provision 47.24 87.66 57.3 101.53

Provision made 24.05 65.73 26.84 69.85

Net profit (Tk. In crore) 23.19 21.93 30.46 31.68

Financial ratios

Net profit to income

(percentage) 13.93 12.87 16.9 16.87

Return on investment

(Percentage) 10.68 9.27 13.02 14.5

Return on equity

(percentage) 14.45 15.73 17.19 20.91

EPS 46.38 43.87 60.92 63.36

Book value per share 325.92 281.63 361.8 307.11

Dividend yield (percentage) 8.45 6

Dividend payout

ratio(percentage) 25.88 27.35 19.7 18.94

P/E ration 3.06 4.56 2.33 3.16

Current ratio

1.18:1

1.11:1

1.24:1

1.15:1

Debt equity ratio 26.74 32.68 24.76 31.69

Source: calculated on the basis of the performance

published in the annual report 2005-06.

49

Chapter 6

Mobilization of fund

6.1 ICB mutual fund

Mutual funds are very attractive investment means due

to its provision of professional asset management

services and "instant diversification" at less

brokerage cost than smaller investor. ICB has played

a pioneering role in the field of closed-end funds.

Up to June 2003 the corporation floated eight closed-

end mutual funds with total paid up capital of TK.

17.50 crore. The funds have been goods source of

consistent income for the certificate holders. These

funds have gain wide spread popularity at home and

abroad because of having scope of capital gain as

well as satisfactory return in term of dividend.

6.1.1 Roles and Performance of ICB Mutual Fund in

the Capital Market

ICB has played a pioneering role in the development

of close-ended mutual fund in Bangladesh. The

country’s first mutual fund that is the “ First ICB

Mutual Fund was launched on 25 April 1980. Since

then, ICB has floated eight mutual funds of total

51

capital of TK. 17.5 crore over the years. ICB mutual

funds have become very popular due to among others

payment of constantly attractive dividend.

52

6.1.2 Comparative Performance of ICB Mutual Funds

Mutual funds seek to offer comparatively safe and

attractive investment revenue to small and medium

investors. Here below analyzed comparative performance of

ICB mutual funds in year 2005.

Table:01 Comparative Performance ofICB Mutual Funds

(Yr. – 2005)

Name ofthe

MutualFund

Sizeof

Fund(Tkin

crore)

MarketValueof

Portfolio

MarketPriceper

Certificate at

DSE(Taka)

Dividend

Declared perCertificate

No. OfCertificate

Holders

Costof

Portfolio

(crore)

MarketCapitaliza

tion(crore)

1st ICBMutualFund .50 13.09 2655 210 973 3.12 13.28

2nd ICBMutualFund .50 3.12 820 55 994 2.84 4.10

3rd ICBMutualFund 1.00 4.73 697 52 2748 4.17 6.97

4th ICBMutualFund 1.00 4.57 564 48 2152 3.82 5.64

5th ICBMutualFund 1.50 7.13 341 27 3923 5.99 5.12

6th ICBMutualFund 5.00 10.02 217 18.5 9712 9.42 10.89 7thICB

Mutual

3.00 12.21 217 16 3163 11.09 6.53

53

Fund8th ICBMutualFund 5.00 12.79 205 15 7671 11.54 10.26Source: ICB annual report from year 2001 to year

2006.

54

6.1.3 First ICB Mutual Fund

First ICB Mutual Fund was established in April 1980,

under regulation 29A of ICB (general) regulations

with a total capital of TK. 50 lac divided into 50000

Certificates of Tk. 100 each. The management of the

fund is vested with ICB.

In the above Table-01 shown that as on 30th June, 2005

market value of portfolio of First ICB Mutual Fund

consisting of 973 certificate holders amounted to TK.

13.09 crore as against cost of portfolio TK. 3.12

crore. That means capital appreciation of TK. 9.97

crore. In year 2005 market price per certificate at

DSE was TK. 2655 and First Mutual Fund was declared a

dividend of per certificate was TK. 210.

6.1.4 Second ICB Mutual Fund

Second ICB Mutual Fund was established in June 1984,


with a total capital of TK. 50 lac divided into 50000

Certificates of Tk. 100 each. The management of the

fund is vested with ICB.

In year 2005 Second ICB mutual fund no of certificate

holders was 55 and market price per certificate at

DSE was TK. 820. In that year market value of

55

portfolio was Tk. 3.12 and cost of portfolio was Tk.

2.84 crore. In year 2005 Second ICB mutual fund

declared a dividend of Tk. 55.

6.1.5 Third ICB Mutual FundThird ICB Mutual Fund was established in May 1985,


with a total capital of TK. 1 crore divided into

100,000 Certificates of Tk. 100 each. The management

of the fund is vested with ICB.

In the above Table-01 shown that as on 30th June, 2005

market value of portfolio of third ICB Mutual Fund

consisting of 2748 certificate holders amounted to

TK. 4.73 crore as against cost of portfolio TK. 4.17

crore. That means capital appreciation of TK. 0.56


DSE was TK. 697 and Third Mutual Fund was declared a


6.1.6 Fourth ICB Mutual FundFourth ICB Mutual Fund was established in June 1986,





56

As on June 30, 2005 the market value of the portfolio

consisting 2152 certificate holders amounted to Tk.

4.57 crore as against cost of portfolio of Tk. 3.82

crore indicating capital appreciation of Tk. 0.75


DSE was TK. 564 and Fourth Mutual Fund was declared a


6.1.7 Fifth ICB Mutual Fund

Fifth ICB Mutual Fund was established in June 1987,





In the above Table-01 shown that market value of

portfolio of Fifth ICB mutual fund was Tk. 7.13 crore

and cost of portfolio was Tk. 5.99. In that year

market price per certificate at DSE was Tk. 341 and

number of certificate holders was 3923. Fifth Mutual

Fund was declared a dividend of per certificate was

TK. 27 in year 2005.

6.1.8 Sixth ICB Mutual Fund

57

Sixth ICB Mutual Fund was established in June 1988,


with a total capital of TK. 1.50 crore divided into




portfolio of Sixth ICB mutual fund was Tk. 10.02

crore and cost of portfolio was Tk. 9.42. In that

year market price per certificate at DSE was Tk. 217

and number of certificate holders was 9712. Sixth

Mutual Fund was declared a dividend of per

certificate was TK. 18.5 in year 2005.

6.1.9 Seventh ICB Mutual Fund

Seventh ICB Mutual Fund was established in July 1995,





As on June 30, 2005 the market value of the portfolio

consisting 3163 certificate holders amounted to Tk.

12.21 crore as against cost of portfolio of Tk. 11.09

crore indicating capital appreciation of Tk. 1.12


58

DSE was TK. 217 and Seventh Mutual Fund was declared

a dividend of per certificate was TK. 16.

6.1.10 Eight ICB Mutual FundEighth ICB Mutual Fund was established in August

1996, under regulation 29A of ICB (general)

regulations with a total capital of TK. 5 crore

divided into 500,000 Certificates of Tk. 100 each.

The management of the fund is vested with ICB.


portfolio of Eighth ICB mutual fund was Tk. 12.79

crore and cost of portfolio was Tk. 11.54. In that

year market price per certificate at DSE was Tk. 205

and number of certificate holders was 7671. Eighth

Mutual Fund was declared a dividend of per

certificate was TK. 15 in year 2005.

6.1.11 Cause Behind Investing in ICB Mutual Fund

ICB Mutual fund is regarded as the most trusted

medium of investment in the country and it is very

much popular with the small and medium investors. The

close it for various reasons, these are-

Diversified Investment: 25% investors come here

because of this reason.

59

Free from Tax: Investment in mutual fund is free

from income tax. This advantage of mutual fund

attracts mainly the businesspersons to invest

here. They study shows that 5 per cent investors

come here with this vision.

High Return: Most small and medium investors

seek a smooth return from their investment. The

dividend payment against each certificate was

very much attractive. This brings satisfaction

to the investors. From the study was found that

10 per cent investors come here because of the

security of their investment.

Free of Harassment: Many investors want to avoid

the harassment in the investment process. That

is why they do not for buying share from the

primary or secondary market. Moreover, it was

found that 5 per cent investors interested

because of this reason.

Risk Free: Small and medium investors are very

much carious about the security of their

investment and they found that there is no

chance to loss their savings and not doubt about

the institution that is will not close its

operation without any notification.

6.2 ICB Unit fund

60

ICB Unit Fund is an open end Mutual Fund and its

share capital is not fixed like other companies or

closed end finds like ICB Mutual Fund. The Fund issue

Unit Certificates freely on the basis of demand and

fix the unit prices as and when deemed necessary

considering the underlying value of its own assets.

The factors responsible for fluctuations in the

quoted price of shares in the stock market are not

applicable to the unit certificates. With the

approval and cooperation of the government,

investment corporation of Bangladesh (ICB) Launched

ICB Unit Fund Scheme on 10 April 1981. The scheme

induces the small and medium savers to participate in

the activities of industrial development of the

country

Unit Fund" means the Fund constituted of all the

assets for the time being held or deemed to be held

on account of the ICB Unit Certificate excluding any

amount standing to the credit of dividend

distribution account, any sum payable to the

corporation as its management charge and other

charges in establishment and administration of the

fund and any amount for purposes of meeting any

requirement of the fond. The corporation issue unit

certificate against unit fund. Unit certificate means

61

a certificate issued by the corporation for the share

in the Unit Fund.

6.2.1 Objectives of the unit fund

Its main objective is to mobilize savings through

sale of its units to small investors and invest these

funds in marketable securities. Thus, the scheme

induces the small and medium savers to participate in

the activities of industrial development of the

country.

6.2.2 Advantages of investing in ICB unit fundGenerally investment in open-end mutual fund enjoys

the following

Advantages.

Unit fund mobilizes the savings of small

investors and channels them in to lucrative

investment opportunities- As a result open-end

mutual fund adds liquidity of the market.

Moreover, given that the fund is long-term

investment vehicle, it reduces market volatility

by offering support to scrip price,

Due to diversified portfolio, open-end mutual

fund helps in reducing investment risk of small

investors.

62

Diversified portfolio of the fund help the small

investors access to the whole market, which is

difficult at individual level.

The investors save a great deal in transaction

costs as he/she has access to a large number of

securities by purchasing a single unit of mutual

fund.

As funds are professionally managed, investors

are relieved from the emotional stress

associated with day-to-day management of

individual investment portfolio,

Only the open —end mutual fund operate

simultaneously both at the demand as well as the

supply side of the market.

Investment in open-end mutual fund may relief

investors from various rules and regulations

applicable to individual investment parameters,

Expertise in stock selection and timing is made

available to investors by gathering higher

return to them,

Mutual fund helps investors to liquidate their

fund out of the investment.

Investment in unit fund contributes not only to

economic growth but also broaden the base of

investment.

63

Unit fund is an open-end mutual fund through

small and medium savers an opportunity to invest

in a balanced portfolio at relatively low risk.

6.2.3 Management of the ICB Unit Fund

Under the Capital Market Development Program

initiated by the Govt. of Bangladesh and Asian

Development Bank ICB Asset Management Company Ltd.

has been formed as per the provision of the

Investment Corporation of Bangladesh (Amendment) Act,

2000 (XXIV of 2000) and started their operation from

the first day of July 2002. Accordingly ICB stopped

selling of Unit Certificate from the same date. There

are some provisions regarding management of ICB Unit

Fund whish are as follows:

Fund share holdings shall be registered in the

same of the corporation on behalf of the Unit

Fund with the respective companies whose shares

are so acquired.

The fund share holdings shall be retained and

held by the corporation for the benefit of the

unit fund certificate holders subject to the

64

provisions of the Articles of Associations of

the respective companies.

The corporation will collect all dividends and

other income in respect of the fund

shareholdings and deal with and act in respect

of, the fund share holdings as shareholders of

the companies without reference to the

certificate holders.

The corporation will provide necessary staff for

management and administration of unit fund and

realize the expenditure incurs there fore

provided, however, such expenditure should not

be added to the price of the unit certificate

exceeding five percent of the total sale price

while determining the price of the unit

certificate.

The corporation shall keep separate books of

account relating to the income and expenditure

of and connected with the unit fund. The said

books of account shall be opened to inspection

only by the Directors of the corporation and the

corporation shall not be accountable to any one

65

expect to its Board in respect of the income and

expenditure relating to any unit fund.

The accounting records of the unit fund will be

kept on the basis of accounting period ending of

the last day of June in each calendar year.

At least one in every year the auditors will

audit the accounting records of the unit fund.

The fees of the auditor’s -will be charged

against and payable out of the income of the

said fund. The statement relating to each period

with the auditors report annexed shall be

conclusive and binding and copies thereof shall

be opened for inspection during usual business

hours by any certificate holder at the head

officer of the corporation of with agents. The

corporation shall be absolutely protected in

retying on and shall act upon an audited

statement.

The profits if any, available in respect of the

unit fund at the end of accounting period will

be distributed to the registered certificate

holders in proportion to the number of

certificate help by them on the accounting date.

66

Deducting the management shall assess the amount

available for distribution in respect of any

accounting period and administration charge from

the total income received by the cooperation in

the accounting period by way of interest,

divided and other receipts and after making such

adjustments as the corporation may think it.

Bonus shares and right shares acquitted in

respect of fund shareholding may be added to the

portfolio of the unit fund or, in the discretion

of the corporation may be sold and its proceeds

added to the income of the said fund.

The corporation shall be competent to do all

other acts that, in the opinion of the board may

be necessary to promote the interest of the

certificate holders and that may be necessary in

view of the capital market and the investment

climate in Bangladesh and warranted by

commercial considerations.

67

6.2.4 Issue of Unit Certificates

ICB units are issued as registered which can be

bought and sold by Govt. recognized charitable

institutions only 10,000 certificates. The

corporations have the right to restrict the

acquisition by a person of the units over and

above certain numbers from time to time. Units

may be offered for sale to institutions also it

the Board may so determine.

These can be bought from the offices

of ICB, approved bank branches of different

commercial bank in Dhaka and other districts.

The units can be transferred using such forms

available for the purpose. Inter officer

transfer of units are allowed it the unit holder

so desires.

ICB units are available in 1, 5, 10, 50, 100,

250, 500, 1,000 and 5,000 denominations and

issued at the discretion of a buyer at the time

of acquisition. Every holder shall be entitled

to exchange any or all of his certificates for

one or new certificates of such denominations as

he may require for the aggregate number of his

against payment of prescribed fee.

68

The units can be sold back of ICB unit fund of

its repurchase price. Only the issuing office of

ICB or banks can repurchase the units at the

prevailing repurchase price.

The units can be pledged with banks for

obtaining loans by the unit holders in terms of

circular of Bangladesh Bank.

The units are regarded as an approved security

for investment and are entitled to investment

allowance under income Tax Act.

The corporation may issue new certificates for

worn out mutilated or defaced ones or in case of

last, stolen or destroyed ones upon satisfactory

proof against payment of prescribed fees.

In case of the death of any one of the Joint

holders of unit certificates, the corporation as

having the title of ownership in these units

shall recognize the survivor or surveyors.

In case of an individual holders death his

successors shall be recognized by the

corporation provided they produce a succession

certificate issued by a court as having the

title to the units.

The books of the fund remain closed during the

month of July every year and sale and repurchase

69

of units remain suspended in all the officers of

ICB and authorized bank branches.

The income derived from professional management

of the fund and capital appreciation from its

operations are determined on the basis of

audited accounts as on 30th June each year. The

annual dividend is declared by the fund in July

and al holders of units are entitled to full

amount of dividend whose names appear in the

register as on the ebbing date, irrespective of

their date of purchase.

Dividend of units up to Tk. 10,000 is exempt

from tax for individuals. Such relief is not

available for dividends on institutional

investment and is subject to 15% deduction of

source. In case of individuals, amount of

dividends exceeding Tk. 10,000 is subject to 10%

deduction at source.

Fresh units can be obtained at confessional rate

1 (One) taka per unit less on the opening sale

price by the existing unit holders through

option for reinvestment of their dividend income

under cumulative investment plan (CIP). No limit

of sale/holding of unit certificates shall apply

to those under CIP scheme.

70

The opening sale and repurchase price of units

are refined after declaration of dividend, which

comes into effect from 1st August each year.

6.2.5 Role and Performance of Unit Fund in the

Capital Market

Unit Fund is an open-end Mutual Fund, which the small

and medium savers get opportunity to invest their

savings in a balanced portfolio in a profitable way

with a relatively lower risk. Investment in unit fund

does not only contribute to the economic and

industrial development of the country buy also

broadens the base of the ownership in the securities.

So, its main objective is to accelerate the pace of

economic development particularly for meeting the

demand growing industrial development by way of

mobilizing savings of small and medium savers and

channeling those in the productive industrial sector.

The flotation of open-end mutual fund demand of

securities in the capital market.

Initially, to develop a healthy and well-organized

capital, open-end Mutual Fund played a significant

role in the securities segment of the capital market,

the investment corporation of Bangladesh (ICB)

started open end Mutual Fund. The investment

71

corporation of Bangladesh (ICB) has been successful

in secondary market merchandising through open end

Mutual Fund. It is the response is highly

satisfactory. The open end Mutual Fund has also

played a significant role in activating the stock

market. The investment corporation of Bangladesh

regularly participates in the trading on the floor of

Dhaka stock exchange (DSE) as its member to buy/sell

listed securities on behalf of ICB itself,

unit/Mutual Fund and of the investment account

holders. Infect, ICB has been the single larger

trader in the last few years. Hence, the activities

of open end Mutual Fund have provided the basis for

the demand of securities, which is interest part of

the development of capital market.

6.2.6 Comparative Position of ICB Unit Fund

ICB operated an open-end Unit fund since April 1981.

As a result of business of ICB Asset Management

Company LTD. From 1 July 2002 the corporation has

discontinued sale of Unit certificate. However, the

existing portfolio of ICB Unit Fund is being managed

by ICB.

Here below shown comparative performance of ICB Unit

Fund from year 2001 to year 2005. This table shows

72

performance of gross issue, repurchase, net issue,

investment costs, market price of investment, no. of

securities held in the portfolio, total amount of

dividend and dividend per unit.

Sl.No. Particulars

Year -2001

Year -2002

Year –2003

Year -2004

Year -2005

1 Gross Issue 28.75 29.26 17.44 17.97 17.092 Repurchase 41.99 34.54 18.60 20.79 23.463 Net Issue (13.24) (5.28) (1.16) (2.82) (6.37)

4Investment at Cost 423.55 397.76 431.33 604.59 637.09

5

Investment at Market Price 376.76 270.28 314.75 626.63 700.89

6

No. of Securities Held in The Portfolio 247 254 262 266 271

7Dividend Per Unit (Taka) 12 12.30 12.30 11.50 12.00

8 Dividend Amount 50.06 50.70 50.57 47.00 48.42Source: ICB annual report 2005-06.

From the above Table- shows that during 2004-2005, a

total of gross issue were Tk. 17.09 crore and Tk.

23.46 crore were repurchased under the Cumulative

Investment Plan (CIP). As on 30 June 2005, the net

issued stood Tk. 463.09 crore. In that year

investment at cost were Tk. 637 crore and market

value of investment were Tk. 700.89 crore. During

73

that time no. of securities held in the portfolio

were 271 and dividend per unit was Tk. 12.

6.2.7 Cost of Investment and Market price of

Investment of ICB Unit Fund


Above Graph- shows cost of investment and market

price of investment of ICB Unit Fund from year 2001

to year 2005. In year 2005 total investment at cost

of ICB Unit Fund was Tk. 637.01 crore, which is

highest investment cost in compare to other four

years. In year 2002 total investment at cost was Tk.

397.32 crore, which is lowest investment cost in

compare to other four years.

In year 2005 market price of investment of ICB Unit

Fund was Tk. 700.89 crore, which is highest market

price of investment in compare to other four years.

74

In year 2002 market price of investment was Tk.

270.28 crore, which is lowest market price of

investment in compare to other four years. From the

above graph we see that both cost of investment and

market price of investment were increase year to

year.

6.2.8 Gross Issue and Repurchase of ICB Unit Fund


75

Chapter 7

Portfolio Making and management

7.1 Making of portfolio

Portfolio management is the cornerstone of ICB’s

activities. Being a leading institutional investor,

ICB contributes significantly to the development of

the country’s capital market through active portfolio

management.

By pooling of funds from different sources especially

from the households investors ICB make portfolio to

invest the funds in the best possible opportunities.

During, 2005-06, a total investment of Tk. 87.03

crore was made in the portfolio of ICB including Tk.

2.5 crore in shares of two companies through

different tools.

7.2 Choosing investment areas

ICB pools fund from the different sources and invest

the fund, which will bring maximum benefit to the

investors. For this purposes, ICB continuously look

for different suitable areas where it can invest the

fund to procure the best benefits. Usually ICB look

for those areas which carry maximum amounts of yield.

76

7.3 Allocating funds in different investment

Once ICB find out the investment areas for the

investment purpose, the second step is to take

decision how much amount of fund will be invested in

the different areas. In this purpose, ICB follows a

criterion on the basis of the possible rate of return

from the investment areas. Firstly, ICB invest funds

in that sector which will carry maximum amount of

benefit. In the portfolio setting, then come the

subsequent investment proposals. So, on the basis of

the possible rate of return from the different areas

the weight is given.

As on 30 June 2006, the market value of the

securities of ICB’s investment portfolio was Tk.

394.35crore against the net investment value of Tk.

421.12 crore. 7.4 Pre IPO placements

7.4 Pre IPO placements

During the year 2005-06, a total investment of Tk.

87.03 crore was made in the portfolio of ICB

including Tk. 2.5 crore in shares of two companies

through pre-IPO placement, Tk. 2.22 crore in right

shares of eight companies, Tk. 15.51 crore in

77

debentures of 5 companies and Tk. 2.35 crore in the

preference shares of two companies.

7.5 Investment in marketable securities

Despite the sluggish trend prevailing in the

securities market in 2005-2005, ICB earned Tk. 48.67

crore as capital gains through sale of securities of

Tk. 41.62 crore out of its investment portfolio,

which was 31.0 percent lower than the capital gain of

Tk.70.53 crore made in the year 2004-05. During 2005-

06, an amount of Tk.19.04 crore was earned as

dividend on shares and interest on debentures as

against Tk. 20.67 crore in 2004-05,registering a

decreased slightly than that of the previous mainly

due to declaration of lower rates of cash dividend

and declaration of stock dividend by a number of

companies in lieu of cash dividend during the year.

78

Chapter 8

Dividend policy

8.1 Dividend or further expansion

The amounts of funds ICB collects from the investors

through different tolls are invested in different

areas. The yield from the investment ICB gets is

whether distributed to the investors or use the money

for further investment. If the amount is used for

further investments, then the investors do not get

the divined in cash rather in other way. For example,

ICB has three other subsidiaries namely: ICB capital

Management, ICB Asset Management Company Limited and

ICB securities Trading Company Limited. These are the

one sort of further investment projects, which are

owned by the investors.

8.2 Market Capitalization of ICB Mutual Fund in

the Capital Market

Nameof theMutualFund Year-2001 Year-2002 Year-2003 Year-2004 Year-2005

1stICB

7.50 7.50 8.37 12.50 13.28

79

MutualFund2ndICB

MutualFund 1.99 1.95 2.20 3.00 4.103rdICB

MutualFund 4.32 4.10 4.60 6.98 6.974thICB



MutualFund 7.99 8.10 7.95 9.72 10.89 7thICB


MutualFund 7.27 6.86 6.80 8.36 10.26


80


8.3 Dividend Declared By ICB Mutual Fund in the

Capital Market

Name of

the

Mutual

Fund Year-2001 Year-2002 Year-2003 Year-2004

Year-

2005

1st ICB

Mutual

Fund 170 175 180 200 2102nd ICB

Mutual

Fund 40 42 45 50 553rd ICB

Mutual

Fund 45 50 50 50 524th ICB

Mutual

Fund 38 40 40 45 48

81

5th ICB

Mutual

Fund 23 24 24 24 276th ICB

Mutual

Fund 17 17.50 17.50 17.5 18.5 7th ICB

Mutual

Fund 14 14.50 14.50 15 168th ICB

Mutual

Fund 13 13.50 13.50 14 15Source: ICB annual report 2005-06.


82

8.4 No. Of Certificate Holders of ICB Mutual Fund

Name of

the

Mutual

Fund Year-2001Year-2002Year-2003Year-2004

Year-

2005

1st ICB

Mutual

Fund 1129 1090 1100 1066 9732nd ICB

Mutual

Fund 1134 1087 1085 1074 9943rd ICB

Mutual

Fund 2908 3047 3030 2952 27484th ICB

Mutual

Fund 2528 2430 2390 2335 21525th ICB

Mutual

Fund 4320 4195 4172 4114 39236th ICB

Mutual

Fund 11067 10524 10382 10076 9712 7th ICB 3649 3459 3400 3335 3163

83

Mutual

Fund8th ICB

Mutual

Fund 9117 8811 8771 8694 7671Source: ICB annual report 2005-06.


84

8.5 Market price Per Certificate of ICB Mutual

Fund in DSE

Name ofthe

MutualFund Year-2001Year-2002Year-2003Year-2004

Year-2005

1st ICBMutualFund 1500 1500 1675 2500 2655

2nd ICBMutualFund 397 390 440 599.25 820

3rd ICBMutualFund 432 410 460 698.50 697

4th ICBMutualFund 390 340 362 500 564

5th ICBMutualFund 232 215 223.50 320 341

6th ICBMutualFund 160 162 159 194.50 217

7th ICBMutualFund 158 140 141.75 180 217

8th ICBMutualFund 145 137.25 136.25 167.25 205


85


8.6 Market Value of Portfolio of ICB Mutual Fund

in the Capital Market

Name ofthe

MutualFund Year-2001Year-2002Year-2003Year-2004

Year-2005

1st ICBMutualFund 7.89 6.92 7.74 11.15 13.09

2nd ICBMutualFund 2.75 2.41 2.80 3.37 3.12

3rd ICBMutualFund 3.49 2.38 2.42 4.21 4.73

86

4th ICBMutualFund 4.69 3.64 3.96 4.47 4.57







8.7 Dividend Per Unit Declared By ICB Unit Fund

87


Above Graph- shows dividend per unit declared by

ICB Unit Fund from year 2001 to year 2005. In year

2002 and year 2003 amount of dividend per unit was

Taka 12.30 respectively, which is the highest

dividend per unit declared by ICB in compare to other

four years. Lowest dividend per unit was made in the

year 2004, which was Taka 11.50.

88

8.8 No. Of Securities Held in the Portfolio


89

Findings:

As we know, the main objective of ICB was to

encourage and broaden the base investment, to develop

capital market and to mobilize savings from the

surplus unit and many other issues. Although there in

no doubts that, in the recent years the performance

if ICB was not that much satisfactory. In almost all

the areas, ICB’s performance was deterioration in

compared to the past few years. Some of the issues

are as follows:

Dividend payment in the year 2006 was not

increased in compared to the previous year. It

was a rate of 12.00% in both years.

Net operating income of ICB was decreased in the

year 2006, which was Tk. 592915361but in the

year 2005 net operating income was Tk.

985838483. So, net operating income in the year

2006 was tk. 392923122 less than the previous

year.

Operating profit also decreased in the year

2006, which was Tk.465114496 in the year 2006,

whereas in the year 2005, the operating profit

was Tk. 860445114.

In terms of sale securities, ICB’s capital gain

has also decreased in the year 2006 in compared

90

to 2005. The reason may be identifies as the

inept choosing of shares in the market.

The amount of its investment in the main

operational areas has also been decreased. In

terms of lease financing, Project commitments

etc the amount of allocation is decreasing.

In terms of recovery of loans and advances the

performance was not that much satisfactory.

From the above findings, it is seen that, in the

recent years performance of ICB is not that much

satisfactory in compared to the past few years.

Whereas almost in all the areas the performance has

been deteriorated compared to the past few years.

91

Justification:

In the justification part after the findings from the

previous page, it can be said that, in the recent years

the performance if ICB was not that much satisfactory..

Some clues under the following tables will help to give

the decision and to compare the performance:

2005-06

2004-05Incomes and gains

Net operating income 592915361 985838483

Total expenses 1191700000 827200000

Operating profit 465114496 860445114

Capital gains 86787866 94248972

Dividend payments 194008022 206698233

Performance ratios

Net profit to total income(%) 13.93 12.87

Return on investment(%) 10.68 9.27

Return on equity(%) 14.45 15.73

Earning per share(Tk.) 46.38 43.87

Dividend yeild(%) 8.45 6

Dividend payout ratio(%) 25.88 27.35

Price earning ratio(Times) 3.06 4.56

Current ratio 1.18:1 1.11:1

Debt equity ratio 26:74 32:68

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Recovery

Lease financing 16.92 5.06

Consumer credit 0.64 0.24

Recovery of project loans 4.47 14.1

Others 175.58 245.27

Total recovery 197.61 264.67

Appendix and references:

1) Annual reports published by ICB.

2) ICB’s official website-www.icb.gov.bd.

3) www.mhhe.com

4) www.google.com

5) And other materials (both from internet and

published).

93

http://www.google.com/

http://www.mhhe.com/

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