Mutual fund growth in turnover trebled in just three months, thanks to the increasing transactions in the investment sector on a positive verdict on a pending case by the middle of next month.

Mutual funds amounted to less than 3 percent of the total turnover on the Dhaka Stock Exchange (DSE), the premier bourse, at the end of June this year, while the figure rose to more than 8 percent by the end of August.

The case, filed more than a year ago, challenged the embargo on the stock dividend declarations by mutual fund operators. The case is expected to be resolved on October 15, a date fixed by the High Court for the next hearing, following two hearings in August.

Market analysts point to investors' expectation for an ending to the mutual fund distribution ban.

Mutual funds have gained momentum with ongoing and upcoming initial public offerings (IPOs), including the Grameenphone IPO, as those enjoy a 10 percent quota in every IPO, analysts added.

A mutual fund, considered a moderately risk-free investment tool, is a professionally managed collective investment scheme that pools money from many investors and invests in stocks, bonds and short-term money market instruments.

Mutual funds have witnessed growth in turnover, centring the case, said Yawer Sayeed, managing director of AIMS of Bangladesh, an asset management company.

"Until and unless the case is resolved, any price volatility will essentially be speculation-driven and therefore, risky," he said.

"If the case is not resolved, mutual funds, including the ones in the pipeline, will not be able to declare dividends for an indefinite period. This will remain as a serious crisis for the sector," he added.

In August last year, the High Court Division stayed the stock market regulator's ban on the issuance of bonus shares or rights issues for closed-end mutual funds.

The HC also stayed dividend declarations by all mutual fund managers until disposal of the case. The stay order came after three investors filed a writ petition with the HC, challenging modifications to mutual fund rules by the Securities and Exchange Commission (SEC) in July.

In July last year, SEC approved the changes to mutual fund rules that barred the closed-end mutual funds from offering bonus shares as dividends or right issues, in a bid to increase their capital base.

Mutual funds maintained their recent positive momentum with appreciation in prices and transactions, said Equity Partners Limited (EPL), an investment firm.

"Investors are optimistic about mutual funds ahead of the upcoming large IPOs, including Grameenphone," the EPL analysis added.

As of August this year, 18 mutual funds were listed on the DSE that accounts for 5.8 percent of the total market capitalisation.

sarwar