Role of Icb in the Development of Capital Market in Bangladesh

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INTERNSHIP REPORT Dept. of Business Administration Shah Jalal University of Science and Technology, Sylhet. INTERNSHIP REPORT Role of ICB in the Development of Capital Market in Bangladesh: A Performance Evaluation of ICB Sponsored Mutual Funds Supervisor Ms. Nafsaniath Fathemaf Lecturer Department of Business Administration Shah Jalal University of Science and Technology, Sylhet. Submitted By Muhamad Abul Lyse 4th Year 2nd Semester (2nd Batch) Reg No: 0099730014 Dept of Business Administration Shah Jalal University of Science and Technology, Sylhet Date of submission: July 06, 2006 Date July 06, 2006

It is an immense pleasure for me to certify that this internship report entitled ” Role of ICB in the Development of Capital Market in Bangladesh: A performance evaluation of ICB sponsored mutual funds” submitted to the department of Business Administration, Shah Jalal University of Science and Technology, Sylhet is an original work done by Muhammad Abul Lyse, a student of BBA 2nd Batch of Department of Business Administration, bearing the Registration number 0099730014. He has successfully completed the internship program at Investment Corporation of Bangladesh (ICB) and prepared this report on the aforesaid title under my supervision.

I wish him every success in his endeavors. Signature: ………………………… Ms Nafsaniath Fathema Lecturer, Dept. of Business Administration Shah Jalal University of Science and Technology Sylhet-3114. July 06, 2006 Ms Nafsaniath Fathema Lecturer, Dept. of Business Administration Shah Jalal University of Science and Technology Sylhet-3114. Sub: Submission of internship report Dear Madam, Have the pleasure in submitting my internship report titled “Role of ICB in the Development of Capital Market in Bangladesh: A Performance Evaluation of ICB Sponsored Mutual Funds .

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As an integral part of my BBA degree, I have been assigned to work on the topic, with a view to well integrate the theoretical knowledge I have learned throughout my four years of study and thus to fine tune these knowledge with practical work experience in a financial institution like ICB, the pioneer and largest Investment Bank of the country. The Internship Program was very much valuable as it helped me to gain a real life experience working in a professional environment. I tried my best to get an in depth coverage of the topic and emphasized on using authentic data

I am grateful to you for your kind suggestion and helpful advice in preparing this report. Once again, thank you very much indeed for giving me the opportunity to work under your kind supervision. Yours Sincerely Muhammad Abul Lyse Reg. NO: 0099730014 Department of Business Administration (2nd Batch) Shah Jalal University of Science and Technology, Sylhet. Contents part one Chapter one : iNTRODUCTION CHAPTER TWO: icb and ITS FUNTIONS CHAPTER tHREE: role OF ICB IN THE CAPITAL MARKET OF BANGLADESH CHAPTER FOUR: PERFORMANCE OF icb CHAPTER FIVE: SUBSIDIARY COMPANIES OF ICB part two CHAPTER ONE: ICB SPONSORED MUTUAL FUNDS

CHAPTER TWO: findings and recommendations of an actiOn an PLAN Detailed contents pART ONE CHAPTER 1: iNTRODUCTION 1. Objective of the Study1 2. Scope of the Study1 3. Methodology of the Study2 4. Limitations of the Study4 CHAPTER TWO: ICB AND ITS FUNCTION 1. Background of the ICB5 2. Objectives5 3. Functions of ICB6 4. Business Policy7 5. Capital Structure7 6. Share Price of ICB8 7. Share holding Position of ICB9 8. Products of ICB11 9. ICB at a Glance14 10. Investors Scheme of ICB16 11. Organization Structure of ICB20 12. ICB Mutual Funds22 13. ICB Unit Funds23 14. Development Activities of ICB27

CHAPTER THREE: ROLE OF ICB IN THE CAPITAL MARKET OF BANGLADESH 3. 1 Capital Market28 3. 1. 1 Role of Capital Market in the Economic Development of a Country28 3. 1. 2 Investment Process29 3. 2 Financial Market30 3. 2. 1 Objective of the securities Market30 3. 2. 2 The Role of Government30 3. 3 Financial Market of Bangladesh31 3. 3. 1 Money Market32 3. 3. 2 The non-Securities segment of the Capital Market32 3. 3. 3 The Securities-segment of the Capital Market32 3. 4 The Elements of Security Market33 3. 5 Creating a Supply of Good Securities in Market333. 6 The Origin and development of Capital Market in Bangladesh33 . 7 The Present Scenario of Bangladesh Capital Market35 CHAPTER FOUR: PERFORMANCE OF ICB 4. 1 Role of ICB in the Capital Market of Bangladesh36 4. 2 Operational Activities of ICB41 4. 2. 1 Consideration of Applications41 4. 2. 2 Commitment42 4. 2. 3 Disbursement 46 4. 2. 4 Loan Portfolio47 4. 2. 5 Trustee, Custodian, and Issue Manager48 4. 2. 6 Lease Financing49 4. 3 Portfolio Management50 4. 4 Other Operational Activities51 4. 4. 1 Advance against ICB unit and Mutual Fund certificates Scheme51 4. 4. 2 Consumer Credit Scheme52 4. 4. 3 Merchandising Operations52 4. 4. 4 ICB Mutual Fund52 4. 4. Transaction of Securities53 4. 5 Participation in International Activities53 4. 5. 1 ICB’s involvement with South Asian Development Fund (SADF)53 4. 5. 2 Investment in South Asia Regional Fund (SARF)54 4. 6 Financial Result of ICB 55 4. 6. 1 Total Expenditure56 4. 6. 2 Net Income56 4. 6. 3 Dividend57 4. 6. 4 Some Key Financial Ratios58 CHAPTER FIVE: THREE SUBSIDIARY COMPANIES OF ICB 5. 1 Subsidiary Companies of ICB595. 2 ICB Capital Management Limited (ICML)59 5. 2. 1 Background of ICML 5. 2. 2 Vision of the Company59 5. 2. 3 Mission of the Company60 5. 2. 4 Some Salient Features of ICML investors’ Scheme60 5. . 5 Advantages of ICML Investors’ Scheme61 5. 2. 6 Margin Loan61 5. 2. 7 Financial Performance of ICML63 5. 3 ICB Asset Management Limited (AMCL)63 5. 3 ICB Securities Trading Company Limited (ISTCL)66 PART TWO CHAPTER ONE: ICB SPONSORED MUTUAL FUNDS 1. Some key issues of Mutual funds 68 1. Definition of Mutual Funds 68 2. Types of Mutual funds 68 2. ICB Mutual Funds 69 1.

Nature of Business 70 2. How to buy existing Mutual funds 70 3. Management of the funds 70 4. Assets of ICB Mutual funds 70 5. Management fee, Charge etc. 71 6. Declaration of Dividend 71 3.

Operational Highlights of ICB Mutual Funds 72 4. Financial Statement Analysis of ICB’s Mutual Funds 76 1. Earnings Per Share (EPS) 76 2. Dividend Per Share 78 3. Dividend Payout Ratio 79 4. Earning Yield Ratio 80 5.

Dividend Yield Ratio 81 6. Price Earning Ratio 82 CHAPTER TWO: FINDINGS AND recommendation 1. Finding about The Capital market of Bangladesh83 2. 1. 1 Lack of Confidence83 2. 1. 2 Frequent Monetary Change83 2. 1. 3 Liquidity Crisis84 2. 1. 4 Volatile Market Situation84 2. 1. 5 Absence of good Securities85 2. 1. 6 Absence of Government initiative85 2. 1. 7 Market Maker85 2. 1. 8 Awareness85 2. 1. 9 Lack of knowledge85 2. 1. 10 Mass Participation86 . 2 Findings about Investment Corporation of Bangladesh86 2. 2. 1 Services stopped by ICB86 2. 2. 2 Unfair dividend Policy of Mutual funds86 2. 2. 3 Irredeemable Mutual funds87 2. 2. 4 Absence of efficiency in Portfolio management of MF87 2. 2. 5 Lengthy Processing87 2. 3 Recommendation of an Action Plan88 2. 4 Conclusion 90 Bibliography 92 Acronym and Appendices I. Appendix : Or anagram of ICB II. Appendix: Balance Sheet and Income Statement of ICB

Executive Summary Investment Corporation of Bangladesh (ICB), established in 1976, is virtually the only Investment Bank in Bangladesh. In a broader sense, ICB is both an investment Bank and Development Financial Institution. (DFI). ICB plays a pivotal role to encourage and broaden the base of investment and thereby to help to develop a vibrant capital market in Bangladesh. ICB caters to the need of institutional support to meet the equity gap of emerging new companies. ICB works with a view to mobilise savings of general public and inspires small and medium savers for investment in securities.

As s single entity, Government of Bangladesh holds majority shares of ICB (i. e. 27%). With diverse functions, ICB operates on commercial basis, provides financial assistance to projects subject to their economic and commercial viability and arranges equity and loans singly or through consortium of financial institution. Functions of ICB include; purchasing of shares and debentures including placement and direct participation, managing existing mutual funds and investment accounts, providing investment counseling to investors and helping government to its divestment programs.

The following report titled “The Role of ICB in the development of Capital Market in Bangladesh: A Performance Evaluation of ICB Sponsored Mutual Funds” contains a comprehensive overview of ICB with special emphasis on ICB’s role in the development of capital market in Bangladesh. Likewise, an analysis of ICB sponsored Mutual funds is made with detail financial analysis as ICB since its inception, have been performing a pioneering role in the capital market of Bangladesh by managing the portfolios of ICB’s eight mutual funds. Since 1980, ICB floated a total of eight mutual funds with paid up capital of Tk 17. 0 crore. After taken a restructuring program of ICB under Capital Market Development Program (CMDP) initiated by the government of Bangladesh and the Asian Development Bank (ADB) and in terms of power conferred in the ICB ordinance three subsidiary companies, namely (1) ICB Capital Management Limited (2) ICB Asset Management Company Limited and (3) ICB Securities Trading Company Limited have been created and made operational to carry out merchant banking, mutual fund operations and stock brokerage functions respectively. The report is divided mainly into two parts.

Part One contains a comprehensive coverage of ICB with its role in the development of capital market in Bangladesh and Part Two establishes part one by analyzing the ICB sponsored Mutual funds as ICB plays a central role in the capital market of Bangladesh by managing its eight mutual funds. Part One consists of Four Chapters. Chapter One includes the objective, scope, methodology and limitations of the study. Chapter Two describes historical background, objectives, business policies, functions, capital structure and products of ICB.

Chapter Three explain the financial market and various segments of financial market of Bangladesh. The chapter also establishes the role of ICB in the development of Capital Market in Bangladesh. Chapter Four illustrates the performance of ICB. Chapter Five includes a description of three subsidiary companies of ICB. Part Two consists of two chapters. Chapter one evaluates the ICB sponsored mutual funds. This chapter initially deals with some theoretical concepts of mutual funds and then an in-depth financial performance of ICB mutual funds.

Chapter two includes some findings of the study with recommendation of an action plan. The report ends with a bibliography and an appendix. Acknowledgments I would like to express my gratitude to Dr. Md. Nazrul Islam, Head and Associate professor of the Department of Business Administration of Shah Jalal University of Science and Technology, Sylhet and All of the Teachers of the Department especially to my supervisor Ms Nafsaniath Fathema who constantly inspired, supervised, and encouraged me with valuable advice and cooperation through the whole period of my internship Program.

I would also like to express my special regards to Ms Nasreen Sultana, AGM of the Personnel Department, who allowed and gave me the opportunity to work in Investment Corporation of Bangladesh, the pioneer Investment Bank of the country. I am also highly grateful to the authority of ICB and all the AGMs of various departments who helped me a lot and cooperated me during my internship period. I am in pleasure to the express my gratitude to the internship and placement committee of the Department of Business Administration especially to the oordinator of the committee, Mohammad Imtiaz Ferdous, also the Assistant Professor of the Department of Business Administration. I would like to extend my special thanks to Ms Sharmin, Senior Principal Officer of Personnel Department, Subashis Chakrabarti, Assistant librarian of the ICB and all the respective officers of ICB for their cordial cooperation and helpful advice. As the first work of my life, I would bear this fond memory of ICB for the rest of my life. | | | | | | | | | | | | | | | | | | |PART ONE | | | | | | | | |CHAPTER ONE | | | | | |INTRODUCTIONS | | | | | | | | | | | | | | | | | | | | | | 1. 1 Objective of the Study Learning by doing is an effective way of acquiring knowledge. To have a real life exposure, each student of Department of Business Administration, of Shah Jalal University of Science and Technology has to carry out an internship program as an integral part of his/her BBA degree.

Since, only the theoretical knowledge can not make one fit for increasing competitive situation of the world, the internship placement committee had placed me at ICB for a period of three months. Other objective of this study is as follows: ? To relate academic knowledge with real life business world. ? To have an overall idea about the role of ICB in the capital market of Bangladesh with a special emphasis on ICB sponsored Mutual Funds[1]. ? To analyse the profitability of ICB sponsored mutual funds. ? To find out prevailing drawback and lacking of ICB, if there is any, and recommend an action plan. 1. 2 Scope of the Study The scope of this report is only one organisation i. e.

Investment Corporation of Bangladesh (ICB) and specially the Mutual Funds as it is the focus area of this report. It has been mentioned earlier, the main objective of the study is to analyse the role of ICB in the development of Capital market in Bangladesh with an emphasis on ICB sponsored mutual funds. The report gives an overview of ICB followed by a part on financial involvement of ICB. The report establishes the theoretical and conceptual framework comparing with which the capital market will be judged. There is one elaborate part that deals with the ICB sponsored mutual funds. The study will also present some problems of ICB observed during the internship coupled with some recommended action plan. 1. Methodology of the Study Methodology can be referred as underlying principles and rules of organization or the philosophical systems that work at the backdrop of any study. It clarifies the problems involving the research in a very ordered and systematic fashion. Strategies are determined at this stage for future implementation. In conducting any formal survey and preparing any research paper two kinds of data i. e. Primary Data and Secondary Data, are used. I tried my best to collect both types of data and information and have firm intention to emphasis on primary data as it is often up-to-date and more useful than any published information.

Initially we collected raw data from departments of ICB and then sort out useful information relevant to my paper. Approaches and methods that have been used to prepare this report are as follows. 1. Personal interview: ICB has 25 departments and three subsidiary companies so far. I personally interviewed almost all AGMs of all departments and talked with the senior Principal Officer, principal Officer and other officer of concerned departments. 2. Briefing Session: Division heads (DGMs[2]) and department heads (AGMs) or their approved officials gave briefs about their respective departments. Information gathered from these sessions has been used in the report. 3.

Published reports: a large amount of data are taken from the published sources such as ICB’s annual reports of previous years, Annual reports ICB Mutual Funds, Monthly review of Dhaka and Chittagong Stock Exchange. 4. Selection of the sample: the sample area of this study covers the head office of ICB. Since the central financial activities are done under surveillance of the Head office of ICB, so the selection of sample of this study is justifiable. Data collected from different divisions of ICB are all equally important segments of sample used in this study. ICB as a national investment institution has added a tempo in developing the capital market of Bangladesh. As a result of this importance the selection of ICB as the sample area of this study is presumably the demand of the time. 5.

Time schemes: As stated earlier since the purpose of this internship program is an exposure to practical life, the ICB management has deputed me to all the division, departments, sections and cell to acquire hand-on-experience about each of them. I have visited the departments according to the following schedule. | |Name of the Departments |From |To | |  |  | |  | |1 |Personnel Department |27. 03. 2006 |28. 03. 006 | |2 |Secretary Department |29. 03. 2006 |  | |3 |Planning research and Business development Dept. |30. 04. 2006 |09. 04. 2006 | |4 |Management Information Dept. |10. 04. 2006 |12. 04. 2006 | |5 |Securities Analysis Dept. |13. 04. 2006 |16. 04. 2006 | |6 |Investor’s Dept |17. 04. 2006 |19. 04. 2006 | |7 |Shares Dept. and reconciliation Cell |20. 04. 2006 |25. 04. 2006 | |8 |Unit sales Dept. |26. 04. 006 |27. 04. 2006 | |9 |Unit registration and collection Dept. |30. 04. 2006 |02. 05. 2006 | |10 |Mutual Fund Dept. |03. 05. 2006 |07. 05. 2006 | |11 |Central Accounts Dept. |08. 05. 2006 |10. 05. 2006 | |12 | System Analysis Dept. |14. 05. 2006 |15. 05. 2006 | |13 |Programming Dept. |16. 05. 2006 |17. 05. 2006 | |14 |Loan Appraisal Dept/Lien Cell |18. 05. 2006 |21. 05. 2006 | |15 |SAARC Cell |22. 05. 006 |—- | |16 |Project Implementation Dept. |23. 05. 2006 |—- | |17 | Loan Recovery and Monitoring Dept. |24. 05. 2006 |25. 05. 2006 | |18 |Project Loan Account Dept. |28. 05. 2006 |—- | |19 |Public Issue Dept. |29. 05. 2006 |—- | |20 |Trustee Dept. |30. 05. 2006 |31. 05. 2006 | |21 |Law Dept. |01. 06. 2006 |04. 06. 2006 | |22 |Audit and Method Dept. |05. 06. 2006 |06. 06. 2006 | |23 |Department Control Dept |07. 06. 006 |—- | |24 |Establishment Dept. |08. 06. 2006 |11. 06. 2006 | |25 |public Relation Dept. |12. 06. 2006 |—- | |26 |ICB Asset Management Company Ltd |13. 06. 2006 |15. 06. 2006 | |27 |ICB Capital Management Ltd |18. 06. 2006 |20. 06. 2006 | |28 |ICB Securities Trading Ltd |21. 06. 2006 |26. 06. 2006 | Table 1. 1: Schedule of working at ICB 1. 4 Limitations of the Study Limitations are obvious in any study so do here.

Since this is an internship report, the limitations regarding the internship programm has acted as the limitation of the study. The findings we figured out, and the recommendation we made may not be 100% accurate and may not represent the exact situation. Eventually, in completion of my study, a number of constraints and limitations I faced. These can be considered as follows: ? Performance analysis of ICB and its mutual funds may not represent the current condition of the organisation and its mutual funds as all the analysis are based on the data of June 30, 2005. Since the current year financial disclosures are not public yet, so the analysis is a little backdated. ? Officials of ICB maintain a very busy schedule.

So they were not always able to provide enough time to enrich the intern students every time, even if they had the intention to do so. ? Due to security reasons and organizational privacy we didn’t have access to some core areas of ICB. ? I had to go almost every department of ICB during my three months internship programm at ICB. Three months is a very short span of time to get an in-depth knowledge about a giant organization like ICB. ? The area covered by the report “The role of ICB in the development of Capital Market in Bangladesh: A Performance Evaluation of ICB Mutual Funds” concerns a huge a number of activities and it is very difficult to sketch a total picture of the financial activities in a report of this short scale. | | | | | | | | | | | | | | | | | | | | | | | | | | | |CHAPTER TWO | | | | | |ICB AND ITS FUNCTIONS | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2. 1 Background of the ICB The investment corporation of Bangladesh (ICB) was established on 1st 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 companies. 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. Through the enactment of the Investment Corporation of Bangladesh (Amendment) Act 2000 (no 24 of 2000), reforms[3] in operational strategies and business policies have been implemented by establishing and operating subsidiary companies with ICB as the holding company. 2. 2 Objective

As the country’s Pioneer Investment Bank, ICB has been working to assist the small investors in mobilizing their savings. ICB works with a view to broaden the base of the investment of the country, ensure mass participation of general people in the capital market and thus to contribute towards the GDP of Bangladesh. ? To encourage and broaden the base of investments ? To develop the capital market ? To mobilise savings ? To promote and establish subsidiary companies for business expansion. ? To provide for matters 2. 3 Functions of ICB To develop the capital market of Bangladesh, and mobilise the savings of small investors, ICB carry out a range of diversified functions.

With a solid view to foster and accelerate the economic growth of the country, ICB provides all sorts of financial services to the potential sector. Ensuring equal distribution of economic benefits gained by the economy among the grass root level is one of the main objectives of ICB. Various functions of ICB can be mentioned as follows. Unlike any other financial institutions, ICB maintains a portfolio of the government comprised of different securities of listed companies and helps government advising regarding fiscal and monetary policy of the country. As a market maker it floats mutual funds, issues unit certificates, underwrites securities and manages issuance of securities. | | | |Underwriting of initial public offering of shares and debentures | | |Underwriting of right issue of shares | |Basic |Direct purchase of shares and debentures including Pre-I[4]PO placement and equity participation | |Functions |Providing lease finance to industrial machinery and other equipments singly or by forming syndicate | |Of |Managing investors’ Accounts | | |Managing Open End and Closed End Mutual Funds[5] | |ICB |Operating on the Stock Exchanges | | |Providing investment counseling to issuers and investors | | |Participating in government investment program | | |Participating in and financing of, joint-venture projects | | |Dealing in other matters related to capital market operations | | |Trusty, Custodian, Bank Guarantee | | |Consumer Credit | 2. 4 Business Policy The corporation has adopted a realistic business policy framework within which its operation is conducted.

The corporation, acts 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. | |Business |To arrange consortium of financial institutions including merchant banks to provide equity support to | |Policy |projects and thereby spread the risk of underwriting. | |Of |To develop and encourage entrepreneurs. | |ICB |To diversify investments in securities. | |To create employment. | | |To encourage Investment in IT sector. | | |To encourage Investment in joint venture capital/project. | 2. 5 Capital Structure | Capital Structure of ICB -as on June 30, 2005 (Tk in crore) | |Authorised capital |100. 00 | |Paid up capital |50. 00 | |Reserve |84. 11 | |Retained profit |5. 6 | |Long term govt. Loan |5. 25 | |Debentures |61. 80 | |Others |24. 89 | |Total |231. 41 | Source: Drawn based on the data of ICB Annual Report 2004-2005 Figure 2. 1 Capital Structure of ICB Share price of ICB Share price of for the last year was as follows: Fig 2. 2: 2. 7 Share holding Position of ICB

Equity participation from a range of institution along with the government of Bangladesh has made the capital structure of ICB as a unique. Nationalised banks, Private commercial banks, Bangladesh Bank including the general public have ownership in ICB. |Shareholding position of ICB (as on June 30,2005) | |Shareholder |No. of share holder |No. of shares |Percentage | |Governments of Bangladesh |1 |1350000 |27. 00 | |Nationalised Commercial Banks |4 |1137220 |22. 4 | |Development Financial Institution |2 |681550 |13. 63 | |Insurance Companies |3 |618286 |12. 37 | |Bangladesh Bank |1 |600000 |12. 00 | |Denationalized Private Com Banks |2 |454263 |9. 08 | |Private Commercial Banks |3 |28286 |0. 7 | |Foreign Commercial Banks |2 |26531 |0. 53 | |First BSRS Mutual Fund |1 |6900 |0. 14 | |Other Institution |9 |26949 |0. 54 | |General Public |927 |70015 |1. 54 | | Total|955 |5000000 |100. 00 | Table 2. 2: Shareholding Position of ICB

Source: Annual Report 2004-2005 [pic] Figure: 2. 3 Shareholding position of ICB 2. 8 Products of ICB Private Placements ICB is authorized to act as an agent of the issuers and investors for private placements 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 portfolio both in pre-IPO placement and equity investment. Underwriting[6] In order to raise long term equity from the primary market, the government bodies, enterprises, corporations or companies may seek intermediary assistance from ICB in the form of underwriting.

Because of its long and proven experience, reputation, asset back up and established network of regional offices, ICB is in an excellence position to attract the potential investors to the proposed issue of shares, debentures and other securities for successful flotation of IPO and placement. Custodian and Banker to the Issues To act as the custodian to the public issue of Open-end & Closed-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. Mergers and Acquisitions Companies willing to expand their business through mergers or acquisitions or o divestment projects that no longer viable into present capacity of operation can contact the Corporation. ICB provides professional services & advices in respect of shaping up the cost and financial structures to ensure best possible operational results. Besides, in case of divestment, the corporation, through network and established business relationship, bring buyers and sellers together, help them to negotiate final agreement and advice on the emerging corporate structure. Advance against Unit Certificates Scheme Advance against ICB Unit Certificates Scheme was introduced in 1998, especially designed for the ICB unit- holders to meet their emergency fund requirements. One can borrow maximum Tk. 5 per unit by depositing his/her unit certificates under lien arrangement from any of the ICB offices where from such unit certificates were issued. The rate of interest on the loan is reasonable and competitive. Corporate Financial Advice Government enterprises and Companies intending to go public issue often seek professional & financial advice on corporate restructuring & reengineering. ICB through its expertise provide such services through its expertise. Lease[7] Financing ICB Provides lease finance mainly for procurement of industrial machinery, equipment and transport. ICB provides professional advice and financial assistance to the intending clients.

The period of lease, rental, charges, and other terms and conditions are determined on the basis of type of assets and the extent of assistance required by the applicants. Since introduction of this scheme in 1999, good responses have been received from the intending lessees. Trustee to the debenture and Securities assets ICB is acting as a trustee to the debenture issues and asset-backed securitised bonds. ICB acted as trustee to the issues of 17 companies of which 7 companies has been redeemed successfully. Bank Guarantee scheme ICB introduced Bank Guarantee scheme in 2002-03. ICB provides (i) Bid Bond for enabling the business people to participate in any tender or bidding; ii) Performance Bond for helping the business community to continue their business smoothly by fulfilling their obligations promised by them to their clients; and (iii) Customs Guarantee for solving different disagreements between the customs authority and the business classes at the initial stage. The maximum limit of guarantee is Tk. 2. 00 crore and would be issued against at east 20% cash and 80% easily encashable securities or against 100% cash margin. Re-guarantee from other financial institution is required for guarantee against the amount exceeding Tk. 2. 00 crore. Consumer Credit Scheme As part of business diversification program, ICB has introduced “Consumers Credit Scheme” in 2003-04 considering at the need of various household commodities of different employees of govt. , semi-govt. autonomous bodies and some established private sector organizations. Under this scheme one can enjoy minimum Tk 1. 0 lac but maximum 5 lac credit facilities. The rate of interest on the loan is reasonable and competitive which is fixed by the board of directors of ICB considering the bank rate and with the guidelines of Bangladesh Bank. 2. 9 ICB at a Glance |Particulars |Cumulative up to June 30, 2005 (Tk in Crore) | |Authorized Capital |100. 00 | |Paid up Capital |50. 0 | |Financial Assistance to projects (Commitment) | | |No of projects |431 | |Amount |536. 87 | |Disbursement of project loan | | |No of projects |308 | |Amount |114. 2 | |Trustee to debenture issue | | |No of companies |17 | |Amount |184. 15 | |Trustee to issue of bonds | | |No of companies |5 | |Amount |134. 6 | |Custodian/Trustee to issue of Mutual Funds | | |No of funds |4 | |Amount |60. 00 | |Manager to the issue | | |No of companies |41 | |Amount |104. 9 | |Lease financing | | |No of projects |34 | |Amount sanctioned |92. 93 | |Public Issue (ICB Assisted) | | |No of companies |111 | |Size of issue (General public) |368. 3 | |ICB Investors’ scheme | | |No of accounts opened |77207 | |Investment made |760. 82 | |ICB Mutual Funds | | |Number |8 | |Capital fund |17. 0 | |Total market value of investment |67. 66 | |Dividend per certificate in eight mutual funds for the year 2004-2005, ranges | | |from Tk 15 to Tk 210) | | |ICB unit fund | | |Gross sale |940. 8 | |Rate of dividend for the year 2004-05=Tk12 per certificate | | |ICB’s Transaction in the Stock Exchanges including subsidiaries | | |DSE |769. 90 | |CSE |268. 73 | Financial Results (For the year 2004-05) (Tk in crore) |Income |170. 38 | |Net profit after Tax |21. 3 | |Dividend (Tk per share) |12 | |Manpower (as on June 0,2005) |396 | |No of shareholders ( as on June 30, 2005) |955 | 2. 10 Investors Scheme of ICB Investor scheme is one of the core functions of ICB. Through investors’ scheme, ICB ensures Participation of small investors in the capital market of Bangladesh. The Investors’ Scheme was introduced in 1977 with the objective of broadening the base of equity investment through mobilising savings of small and medium size savers for investment in the securities market.

In addition to Head Office, Investment Accounts are also operated at the 7 branch offices of ICB located at Dhaka, Chittagong, Rajshahi, Khulna, Barisal, Sylhet, and Bogra. However in view of strategic changes in policy reform, from 01 July 2002 ICB stopped opening new accounts and ICB Capital Management Ltd. started opening and managing investment accounts. ICB will continue to provide services to its existing accounts only. Table 2. 3: Comparative operational activities of the investors’ scheme in 2004-2005 and 2003-2004 |Particulars |04-05 |03-04 |Increase/Decrease |Cum as on June 30, 2005 | | | | |(%) | | |No. f accounts opened | — | — | — |72207 | |No. of accounts closed |807 |776 |4. 26 |28327 | |No. of net operative accounts |48880 |49687 |-1. 62 |48880 | |Deposit received |22. 7 |27. 31 |-16. 62 |314. 87 | |Loans disbursed |159. 5 |58. 73 |171. 58 |707. 8 | |Investment Made |118. 26 |62. 91 |87. 98 |760. 82 | |Interest accrued |25. 09 |30. 48 |-17. 68 |— | |Interest waived |19. 06 |31. 26 |-39. 03 |55. 52 | |Recovery of margin Loans |179. 6 |103. 14 |74. 13 | —| |Fund withdrawal |40. 18 |13. 09 |206. 95 | —|

Further steps were undertaken to enhance the quality and speedy service under the scheme like computerization of all activities and installation of merchandizing operation management software. This enables the management to offer better and quick service to the investors including instant supply of the financial statement, portfolio, balance of the accounts, etc. Installation of telephone banking system in Investors’ Account enabling investors to collect information and operate their account over telephone was at the final stage of operations. Besides, installation of Electronic display system of DSE online trading on the floor of ICB has been set up. Through investors’ scheme ICB provides the following services. Authority of Operation

An account may be operated by the account holder himself/herself or he/she may authorize to another A/c. holder of investors account of ICB by written consent in the prescribed form, some one else to operate the account on his/her behalf. In case of joint account holders, account may be operated by single or joint signatories or by authorised operator. Margin Loan Presently ICB grants loan up to two times i. e. at the ratio of 1:3 against the deposits of account holder(s) subject to a maximum of Tk. 3, 00,000. 00 to an account. However, management of ICB, at its discretion, may limit such loan. Loans are repayable as per repayment schedule given by ICB.

In the event of default of loan repayment, the outstanding amount may be recovered by sale of securities held in the account. Portfolio Management The account holder may use his/her equity and the loan to buy securities which ICB keeps as collateral. Purchase and sale orders are executed by ICB within the shortest possible time, subject to the availability of fund in the account and scope of matching of buyers/sellers and securities in the stock exchanges. An account holder or his/her authorized person may place purchase/sale execution order in the prescribed form, indicating whether, the order is a limit order i. e. an specifying the max. /min. rice at which he/she is willing to buy /sale, or at a market price i. e. without any limit of price. The purchase and sale orders are valid for seven and ten days respectively, if not revalidated / cancelled otherwise by the account operator. Withdrawal of Securities/Funds All or any amount of fund or securities may be withdrawn from an account subject to keeping of minimum credit balance of Tk. 5000. 00 in cash or in securities to keep the account running alive. Application against IPO All activities relating to application for securities and collection of allotment letter / refund warrant and certificates, as the case may be, against the IPO[8] are done by ICB on behalf of account holder.

Collection of Securities and Benefits Right shares, bonus shares, dividends, interest, converted shares etc. accruing to an account are collected by ICB from the respective companies. Registration and custodial services Registration of shares/ securities with the company is made before the closure of the company’s share / debenture transfer book, after completing all the required formalities, on behalf of the account holder. Volt and other custodial arrangement for assets of the account are provided by ICB. Counseling and data support In order to develop diversified and balanced portfolio to minimize risk and maximize profit, ICB provides professional advice to its clients.

Data support in the form of securities analysis sheet, daily purchase/ sale position, statement and portfolio of each account, etc. are provided on demand and on regular interval. Income Incomes from investments by way of dividend, interest, bonus shares, capital gains etc. are credited to the respective account. Expense Interest on loan (currently-12. 5%) and brokerage (0. 5% for non CDS & 0. 5250% for CDS) on sale/ purchase of securities are charged to the respective account. To encourage the small and medium savers, ICB at present does not charge fees for most of the services rendered by ICB to its customers, including fees for management, investment advice, custodial service(for non CDS securities),etc. Closing of Account

An account may be closed by written order subject to settlement of fees & dues, if any. There is no provision of revival of a closed account. Risk Management Risks of investments in the securities market are minimized through prudent & professional portfolio management. 2. 11 Organization Structure of ICB Management of ICB The head office of the corporation as per the requirement of the ordinance of ICB is located at Dhaka. The board of directors of ICB is very much rich as it consists of distinguished professional and managing director of other organization. The Board consists of 11 members including the Chairman and Managing Director. The Board of Directors consists of the following members. The Chairman and Managing Director (MD) are to be appointed by the government o The directors to be appointed by the government from among persons serving under the government. o One Director to be appointed by the Bangladesh Bank o The Managing Director of Bangladesh Shilpa Bank (BSB), ex office. o The Managing Director of Bangladesh Shilpa Rin Shnagsta (BSRS) o Four other directors to be elected by the shareholders other than the government. ICB- its Divisions and Departments Investment Corporation of Bangladesh split, into 25 departments and 11 divisions in its head office. Beside that ICB has seven branches in different districts. These are situated at Dhaka (local office), Chittagong, Sylhet, Rajshahi, Khulna, Bogura and Barisal. ICB is functionally divided into two broad wings.

One is operations wing and another is Administrative wing. The functions of operational wings involve the activities of project Financing, Planning Research and Business Development, Lunching Unit and Mutual Funds (launching if new funds is now stopped and currently the function is accomplished by ICB Asset Management Ltd), transaction and maintenance of Investor Accounts. The function of administrative Wing involve the activities of Account and Finance, Legal affairs, Implementation and Recovery, Project Implementation, Law and Public Issue. It is mentioned earlier, that ICB consists of 11 Divisions and 25 departments. The following table lists all the divisions and departments of ICB.

An appendix at the pf the report contains the full Organ gram of ICB. Table 2. 4 |Division |Department | |A. Administration |01. Personel | | |02. Establishment | |B. Loan Appraisal |03. Loan Appraisal | | |04.

Economic and Business Research | | |05. Securities Analysis | |C. Legal Affairs |06. Public Issue | | |07. Law | |D. Merchandising |08. Investors’ | | |09.

Shares | | |10. Transaction | |E. Funds |11. Unit sales | | |12. Unit Registration and Procurement | | |13. Mutual Funds | |F. Computer |14. System Analysis | | |15.

Programming | | |16. Management Information System | |G. Audit And Methods |17. Audit And Methods (Head Office) | | |18. Audit And Methods (Branches) | |H. Accounts and Finance |19. Central Accounts | | |20.

Project Loan Accounts | |I. Implementation |21. project Implementation | | |22. Recovery and Follow-up | |J. Secretary’s |23. Secretary’s | | |24. Public Relation | |K. Branch and Subsidiaries control Division |25.

Branch Control Department | 2. 11 ICB Mutual Funds It is a recognized principle that diversification of investment reduces risk. An individual may not have the time, expertise and resources to undertake such diversification. Here arises the advantage of a Mutual Fund. Mutual Funds pool the savings of a great number of investors and make investments in a wide array of securities. In Bangladesh ICB has pioneered Mutual Funds for the sake of investors and of the capital market. Mutual Funds are also known as close ended Mutual Funds. The issued capital of a Mutual Fund is limited, that is, a Mutual Fund offers a limited number of certificates for sale to the public.

The amount of capital and the number of certificates of each Mutual Fund remains unchanged. ICB Mutual Funds are independent of one another. Price of Mutual Fund certificates after IPO is determined on the Stock Exchanges through interaction of supply and demand. The market price of a Mutual Fund certificates is available in Stock exchange quotations and in newspapers. An investor can purchase any of the existing eight ICB Mutual Funds certificates through the Stock Exchanges at the prevailing Market Price. The Mutual Funds are managed by ICB as fund manager for which receives commission @1%. ICB Mutual Funds Certificates holders shall have unfettered ownership in the assets of the Fund to which they are related.

In case of winding up of the Corporation the assets belonging to any ICB Mutual Fund shall not be treated as the assets of the Corporation. At present management fee @ 1% on the paid up capital of the Fund is charged annually. No amount is charged on account of custodial and trust services. The net income received on investments of Funds on account of dividend, bonus, interest, capital gain etc. are distributed amongst the Certificate Holders as per decision of the Board of Directors of ICB. Board declares such income in the form of dividend at the end of July each year. Dividends declared by ICB in the past on the Mutual Funds were very attractive.

A detail analysis on ICB sponsored mutual fund will be followed on the second part of the report. 2. 12 ICB Unit Fund Sponsored by the Government of Bangladesh, ICB Unit Fund was established on April 10, 1981. Its main objective is to mobilize savings through sale of its units to small investors and invest these funds in marketable securities. The scheme provides a potential source of equity and debt to industrial and commercial concerns and thus contributes to the industrial development of the country. Unit fund is an open ended Mutual Fund. It provides an opportunity to the unit holders to invest their funds in a well managed and diversified portfolio with a high degree of security of capital and reasonable yearly returns.

Investment in Units is safe and ensures a continuous and regular source of income for the holders. Units are easily encashable. As such, investment in Unit is comparatively more attractive. By investing in this scheme an investor may derive personal benefit on the one hand and also contribute towards the economic development of the country on the other. ICB units are securities within the meaning of Trust Act. 1882. Issue, Transfer and Surrender of Unit Certificates (I) Units are available in 1, 5, 10, 50, 100, 500, 1000, & 5000 denominations. The names with addresses of the holders are recorded and dividends are dispatched to them accorded and dividends are dispatched to them accordingly. II) Units may be transferred through prescribed transfer form duly filled in and signed by the transferor and transferee. No stamp duty is required for such transfers. (III) Units may be encased by way of surrendering the certificates along with the prescribed surrender forms duly filled in and signed by the registered holders and no prior notice is required. The certificates are required to be surrendered at the prevailing Repurchase Price. Price Fixation: Changes in repurchase prices of units are notified through the newspapers and price of a Unit is fixed periodically by ICB as its fund manager. Among others, valuation of the assets of the Fund is taken into consideration while fixing price of a unit. Public Participation

The Fund is divided into units which are generally known as “ICB Unit”. Each Unit bears a certain value in the assets of the Fund. The Unit holders are the owners of the fund and only they are benefited from it. Unit certificates can be purchased in single or joint name (s). At present maximum of 10,000 Units can be purchased in a single or joint name(S) at a time. Units are not sold to institutions. Professional Counseling Professional Counseling is rendered to the prospective & existing investors who are eager to purchase ICB Units through ICB offices and authorized Bank branches. Presently this scheme is operated by ICB Asset Management Company Limited. Investment by Bangladeshi Citizens Abroad

The Bangladeshi citizens living abroad may invest in certificates on fulfillment of the following terms and conditions: (I) The value of Units purchased is to be remitted through bank channel, (II) The money invested in Units and benefits thereon are not allowed to be repatriated, (III) The investors must mention their local and bank addresses in Bangladesh for convenience of registration of Units. Investment by Foreigners Residing in Bangladesh The foreign nationals residing in Bangladesh may also invest in Unit Certificates, provided they produce certificates to the effect that money being invested are their own savings and is not borrowed as loan or overdraft from any bank. These certificates are to be collected from a Gazetted Officer or a Banker not below the rank or Deputy General Manager. Fund Management

The responsibility of managing the fund rests on ICB for which management fee @ Tk. 1. 25 per Unit (net outstanding) is charged. The Corporation also discharges the responsibility of loading and unloading of securities in and from the portfolio in the interest of the Unit holders. It is also the custodian of all assets of the fund. Dividend The total income earned on investment/ deployment of funds, net of expenditures incurred, in a financial year is distributed among the unit holders as dividend. Dividend is normally declared at the end of July each year by the Board of Directors of ICB. Dividend Warrants are dispatched soon after declaration of dividend.

Since launching of the scheme in 1981 till FY 2004-05 the rates of yearly dividend declared/ paid are as under: Figure 2. 4: dividend performance of ICB unit fund The graph shows that the fund provides an attractive cash dividend each year to the highest of 25% in 1988-89 and to the lowest of 11. 01% in 2004-2005. Figure 2. 5: Dividend yield on ICB unit fund The graph shows a dividend yield on opening price of the unit fund. Tax Benefits (I) Investment in Units enjoys the benefit of Investment Allowance under Sec. 44 of Income Tax ordinance 1984. (II) Units are treated as approved securities in accordance with the Section 2993 of the Companies Act. 1994 and Insurance Act,  1938. These are also treated as Securities as per Sec. 20 of the Trust Act, 1882. Cumulative Investment Plan (CIP) Under this scheme a holder instead of receiving dividend may reinvest such dividend income accrued for purchasing Unit at a confessional rate. In such case, Units are issued at Tk. 1. 00 less than the opening price of the financial year. 2. 13 Development Activities of ICB Equity support through consortium arrangement ICB inve