The Performance Evaluation of ICB Mutual Funds: An Empirical Study

Abstract

In the context of development of capital market in Bangladesh, Mutual Funds of Investment Corporation of Bangladesh (ICB) play an important role. Very few researchers in Bangladesh work under mutual funds so far. Therefore, the present study tries to evaluate the performance of mutual funds in Bangladesh with a special reference of ICB. For this purpose, required data are collected from secondary sources. Mutual fund has a vital role to play in the economic growth and development of a developing country like Bangladesh through the development of capital markets. It is not so easy task to evaluate the performance of ICB Mutual Funds. However, attempts are taken to analyze the performance of ICB Mutual Funds. This work also examines and analyzes various aspects of mutual funds including concept of mutual funds, objectives and functions of mutual funds and so on with a view to observe what extent its basic operations are successful. It also finds out deviations, their causes and suggests the remedies. However, the specific objectives of the study are: (a) to analyze the growth and development of ICB Mutual Funds; (b) to evaluate ICB Mutual Funds' risk-adjusted returns with respect to market return; ( c) to analyze the selectivity, diversification and market timing ability of fund managers and ( d) to test the impact of some major determinants on mutual fund growth. The study is primarily based on secondary data and information in relation to the ICB Mutual Funds. The secondary sources of data are different annual reports of ICB Mutual Funds, different monthly, quarterly and annual reports of DSE, different relateddissertations, research articles, scientific papers, journals, such other articles and research reports on ICB Mutual Funds. Some basic techniques are used for data analysis such as mean, standard deviation, beta coefficient, coefficient of correlation and so on. For the analysis of results of specific objectives, different types of conceptual design are used. Sharpe Ratio, Treynor Ratio, Modigliani Measure, Sortino Ratio and Information Ratio are applied for evaluating the Risk-adjusted Performance of ICB Mutual Funds. Jensen Measure and Treynor and Mauzy Quadratic Equation are used for analyzing selectivity, market timing ability and diversification capacity of ICB Mutual Fund managers. For testing the impact of some major determinants on mutual fund growth, cross-section regression model and panel regression model are used. Different tests are applied in this study to find the stationarity among different variables in the cross-sectional/panel regression analysis. Levin, Lin and Chu test, and Im, Pesaran and Shin test, and ADF-Fisher test are used to test unit root among the variables. Kao cointegration test is used to observe the long-run relationship among different variables and Granger-causality test is applied to find the short-run relationship among the variables in a regression line. To interpret the findings of this study, Akaike information criterion, Schwarz criterion, Hannan-Quinn criterion and Durbin-Watson statistic are used. The findings explore that net assets value, earnmgs per share, dividend per share, price/earnings ratio and return on equity of ICB Mutual Funds are performing better year after year compared to the market performance in Bangladesh. The results again explore that the risk-adjusted performance ICB Mutual Funds are superior to market index. However, the selectivity and diversification capacity of fund managers are not good and the fund managers have lacking of market timing ability. The findings also explore that the asset turnover ratio and risk-adjusted return have significant positive impact and expense ratio has significant negative impact on the growth ofICB Mutual Funds.