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2.2 Definition of Bond

A bond is debt instrument issued for a specific period for the purpose of raising capital by

borrowing. A bond is a long-term obligation. Generally, a bond is fixed interest financial

instrument issued by Government, Corporate, and other large entities. In other words, a bond is

an agreement to repay the principal along with the interest or coupon. There are some bonds

which carry a zero coupon or interest but have fixed term. These bonds are called as zero coupon

bond or deep discount bond bonds. These bonds are sold at a price which will be far below the

face value of the bond depending on the risk characteristics and prevailing interest rates in the

market.

Bonds are tradable and basically the price of a bond depends on the existing interest rates in the

market for a equally risky instrument and the coupon on the bond. A bond market has the role to

facilitate the flow of long-term funds from surplus units to deficit units.

Thus bond acts as a loan where the buyer or holder of the bond is the lender or creditor, the

issuer is the borrower or debtor and the coupon is the interest.

2.3 Types of BondsA simple way to classify bonds is based on the different kind of the issuers. The three main

issuers are government, governmental agencies, and corporations (figure 2.2).

Figure 2.2:

Bond Market in Bangladesh

3.1 History


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Currently Bangladesh bond market plays a small role in the economy. The bond market is very

thin compared to the neighboring countries. Government should take actions to improve the

scope of bond market in Bangladesh. At the end of 2006, the outstanding bond amount was only

2 % of GDP, compared to Sri Lanka (55%), India (35%), Pakistan (31%) and Nepal (10%). The

share of the Bangladesh bond market among South Asian countries was only 0.2% the smallest

among the five countries.

The market is dominated by the fixed income government debt instruments. The maximum

savings of small investors are mobilized by only one instrument name National Saving

Certificate. The interest on this saving certificate is higher than that of other bonds in the market.

Besides the national saving certificate, the other government debt instruments are treasury bills

and treasury bonds. In December 2003, government issued 5 and 10 years maturity treasury

bonds and 15 and 20 years bond were issued in July 2007. The capital raising pattern has been

changed from a focus in treasury bills to a noteworthy increase in treasury bonds. Consequently,

the ratio of treasury bills from about 20 : 80 in 2005 to 80 :20 in 2011. Bank an financial

institutions are the main buyers of treasury bonds. Commercial banks have obligation topurchase government securities as it is accepted security to meet their statutory liquidity

requirement (SLR) under the Banking Companies Act. This is still a small market. Banks and

financial instruments which have SLR obligations are the only participants in this market. The

government bonds are rarely traded on the exchange.

In September 2006, the Ministry of Finance started publishing the yearly treasury bills and bonds

auction calendar. The calendar shows the information of dates, types of instruments and amount

of each auction. Bangladesh bank also started publishing the auction results on its website.

Bangladesh corporate debt market is very small in size. The outstanding amount is only 0.2% of

GDP. Thus corporate bond market in Bangladesh is at a budding stage. During 1988-2011, only

3 corporate bonds and 14 debentures were issued by public offerings (Table-3.1). Many of thesebonds and debentures were partially convertible to common stocks. The biggest issue of

corporate bond was made first in 2007. It was a perpetual bond named IBBL Mudaraba

Perpetual Bond with a size of Taka 3,000 million (approximately US$ 40 million). It is an

Islamic bond on profit sharing basis since interest is prohibited by Sariah Principles. At the end

of 2011, three corporate bonds and eight debentures were outstanding. The corporate bond

market of Bangladesh faces manifold impediments although it has a good prospectus because of

an expected growth in financial market. It is believed that the availability of long-term

instruments is a prerequisite for developing an efficient market structure. 11

Money Market

Money market, the important segmet of financial market that basically channelizes the short term fund

in the country was quite active and vibrant with the participation of oboth banks and non-bank financial

institutions. The major participants in the money market were commercial banks, Development finance

institiutions and non bank fiancial institiutios operating in the country. Efficient monetary operation,

Especially the use of shorterm monetray insturments such as repo. reverse repo, collateralize

continuous liquidity


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Mutual Fund

A Mutual Fund is a professionally managed collective investment scheme that pools money

from many investors and invests typically in securities (stocks, bonds, short term money market

instruments, other mutual funds and other securities) on behalf of the investors/unit holders

and distributes the profits.

In other words, a mutual fund allows an investor to indirectly take a position in a basket of

assets.

Types of Mutual Fund

Open- Ended Mutual Fund :

An open-end fund is one that is available for subscription all through the year. These do

not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value

("NAV") related prices. The key feature of open-end schemes is liquidity.

Closed- Ended Mutu

A closed-end fund has a stipulated maturity period which generally ranging from 5 to 15 years.

The fund is open for subscription only during a specified period. In this case ,the total size of the

fund is limited by the size of the initial offer. This types of fund are always listed in the stock

exchange for liquidity.

Growth Fund

Capital Appreciation Fund

Growth and Income Fund

International and Global Fund

Specialty Fund

Index Fund

Fund of the Fund

Bond Mutual Fund Categories:

Income Fund

Tax Free fund

High-yield Bond Fund

International and Global Bond Fund


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Mutual Funds in Bangladesh

SL Name of the Mutual Fund Year of Floatation Face Value

Closed End Mutual Funds

01 1st ICB 1980 100

02 2nd

ICB 1984 100

03 3rd

ICB 1985 100

04 4th

ICB 1986 100

05 5th ICB 1987 100

06 6th ICB 1988 100

07 7th

ICB 1995 100

08 8th

ICB 1996 100

09 1st BSRS 1997 100

10 ICB AMCL 1st 2003 100

11 ICB AMCL Islamic 2005 100


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12 ICB AMCL 1st NRB 2007 100

SL Name of the Mutual Fund Year of Floatation Face

Value

13 ICB AMCL 2nd NRB 2008 100

14 AIMS 1st Guaranteed 2000 1

15 Grameen Mutual Fund One 2005 10

16 Grameen Mutual Fund Two 2008 10

17 Prime Finance 1st 2009 10

18 EBL 1st 2009 10

19 ICB AMCL 2nd 2009 100

20 ICB Employees Mutual Fund

One:Scheme One

2010 10

21 Trust Bank 1st 2010 10

22 Prime Bank 1st ICB AMCL 2010 10

23 DBH 1st 2010 10

24 IFIC Bank 1st 2010 10


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SL Name of the Mutual Fund Year of Floatation Face

Value

25 Phoenix Finance 1st 2010 10

26 ICB AMCL 3rd NRB 2010 10

27 Janata Bank 1st 2010 10

28 GreenDelta 2010 10

29 Popular Life 1st 2010 10

30 IFIL 1st Islamic 2010 10

31 PHP 1st 2010 10

32 AIBL 1st 2011 10

Open-End Mutual Fund

SL Name of the Fund Year of Floatation

1 ICB Unit Certificate 1981

2 ICB AMCL Unit Certificate 2003


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3 ICB AMCL Pension Holders Unit Certificate 2004

4 Prime Financial Unit Fund 2010

Current pattern of Insurance in Bangladesh:After the emergence of the Peoples Republic of Bangladesh in 1971, the governmentnationalized the insurance industry along with the banks in 1972 by Presidential OrderNo. 95.By virtue of this order, all companies and organization transacting all types of insurancebusinessin Bangladesh came under this nationalization order. This was followed by creation offiveinsurance companies in the life and non-life sector. Further changes were brought on14th May,1973. Through the enactment of Insurance Corporation Act VI, 1973 which led tocreation oftwo corporations namely Sadharan Bima Corporation for general insurance and, JibanBimaCorporation for life insurance in Bangladesh. In other words Sadharan BimaCorporation (SBC)emerged on 14th May, 1973 under the Insurance Corporation Act (Act No. VI) Of 1973as theonly state owned organization to deal with all classes of general insurance & re-insurancebusiness emanating in Bangladesh.Thereafter SBC was acting as the sole insurer of general Insurance till 1984.BangladeshGovernment allowed the private sector to conduct business in all areas of insurance forthe firsttime in 1984. The private sector availed the opportunity promptly and came forward toestablishprivate insurance companies through promulgation of the Insurance Corporations(Amendment)Ordinance (LI of 1984) 1984.The Insurance Market in Bangladesh now consists of two state-owned corporations,

forty threeand seventeen private sector general & life insurance companies respectively, a total of62insurance companies. Thus the insurance sector in Bangladesh has grown upsubstantially anddeepened remarkably with number of companies in both life and general segments.With the


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expansion of size of the insurance market, the volume of assets of the industry has alsoincreasedsubstantially.SBC is entitled to 50% of public sector business. Insurance Corporation (Amendment)

Act 1990

provides that fifty percent of all insurance business relating to any public property or toany riskor liability appertaining to any public property shall be placed with the SBC and theremainingfifty percent of such business may be placed with this corporation or with any otherinsurers inBangladesh. But for practical reason and in agreement with the Insurance AssociationofBangladesh SBC underwrites all the public sector business and 50% of that business isdistributed among the existing 43 private general insurance companies equally underNational

Co-insurance Scheme.In respect of reinsurance, the same act provides that fifty percent of a companysreinsurancebusiness must be placed with the Sadharan Bima Corporation and remaining fiftypercent may bereinsured either with this Corporation or with any insurer in Bangladesh or abroad. Atpresent,

nearly all the companys place 100% of their reinsurance busines with the SBC.

Real state

Most of the investor in bangladesh the most important asset in their portfolio is a

residential house.

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