How Do Mutual Funds Work?

The process in five steps

1. You buy units. You invest through Bini or with the asset management company (AMC). Your money joins everyone else's in one pool.
2. Your units reach your BO account. They are transferred to your BO account within 14 working days. CDBL (Central Depository Bangladesh Limited) manages all BO accounts so it holds the record of what you own.
3. The AMC invests the pool. A professional fund manager buys shares, bonds or other assets that match the fund's strategy.
4. The custodian and the trustee keep watch. The custodian keeps the fund's securities safe. The trustee oversees the AMC on behalf of unit holders.
5. Your units change in value. Market conditions, company performance and interest rates move the portfolio and the value of each unit follows.

What is NAV and why does it matter?

NAV or Net Asset Value, is the price of one unit. The simple version of the formula is:

NAV per unit = Net assets of the fund ÷ Number of outstanding units

Say a fund has net assets of ৳ 10 crore and 1 crore units outstanding. Its NAV is ৳ 10 per unit. If the portfolio grows to ৳ 11 crore, the NAV becomes ৳ 11, assuming the number of units hasn't changed. Our NAV guide goes deeper.

Who decides where the money goes?

The AMC makes the calls, within the limits of the fund's objective, its prospectus and BSEC (opens in a new tab) rules. The trustee oversees the AMC on behalf of investors and the custodian keeps the fund's securities safe.

This is why two funds can behave so differently. One may put most of its money in shares and swing a lot. Another may hold mostly bonds and move slowly.

How do investors get returns?

• Growth in NAV. Your units are worth more than when you bought them.
• Dividends. Some funds distribute income to unit holders according to their policy.

Your own result also depends on when you invested and how much. Someone who bought at a NAV of ৳ 10 and someone who bought at ৳ 12 will have different returns from the same fund.

What does it cost to hold a mutual fund?

Funds charge fees to cover their running costs. These usually include a management fee and may include trustee, custodian and other expenses. These costs come out of the fund's assets so they reduce your return quietly over time. The NAV and the returns you see are already net of all expenses. Check the fee details on the fund page before you buy.

What is an exit load?

An exit load is a small percentage that the fund deducts when you sell units within a set period after buying them. If you stay invested for longer than that period you usually pay nothing. It is a charge on selling early and not a running cost of the fund. Exit loads differ from fund to fund so check the exit load on the fund page before you buy.

What happens when you want to sell?

Selling means redeeming your units. The AMC buys them back at a price linked to the fund's NAV and pays you the money.

Without Bini

1. Get the TRF form. The AMC provides it and you sign it physically.
2. Submit it to your brokerage house. Give the signed form to the brokerage house that holds your BO account.
3. Collect the DP40. The brokerage house issues it against your form.
4. Hand the DP40 to the AMC. This tells the AMC the units have been transferred.
5. Receive the money. The AMC transfers it to your bank account.

The whole process usually takes 4 to 5 working days.

With Bini

The entire process is digital. Click the Sell units button and Bini takes care of the rest. Your money usually reaches your bank account in 2 to 3 working days.

Why does diversification matter?

A fund holds many securities, so one bad performer does less damage to the whole. That's a real advantage over putting all your money in a single stock. It doesn't protect you from a broad market fall, though.

Frequently asked questions