Bangladesh is attempting its most ambitious overhaul of the mutual fund industry since 2001, introducing the Mutual Fund Rules 2025 as the sector remains structurally weak and underdeveloped.
The scale of the gap is stark. Mutual funds manage less than $1 billion in assets, under 1 per cent of GDP, across roughly 40 funds with Tk4,000–5,000 crore. In contrast, the United States oversees about $38.8 trillion, exceeding 150 per cent of GDP, India has crossed $600 billion or around 18–20 per cent, and Singapore exceeds $300 billion, reaching up to 70 per cent. Bangladesh, with AUM-to-GDP below 0.5 per cent, remains at an early stage.
The new rules address long-standing distortions. Closed-end funds trading below Net Asset Value will be phased out or converted. Governance improves through separation of CEO and chairman roles, higher capital requirements, independent directors, and stronger trustee oversight. Disclosure standards rise with daily NAV publication and quarterly portfolio reporting, while clearer separation between asset managers, trustees, and custodians reduces conflicts of interest. The result is a more credible regulatory foundation and stronger investor protection.
A structural gap too large to ignore
The framework, however, stops short of enabling growth. Portfolio flexibility remains constrained, with limited access to non-listed securities and no derivatives even for hedging, unlike in the US, India, and Singapore. The absence of an exchange-traded fund framework excludes Bangladesh from a key global growth segment. Fiscal policy is unchanged, leaving mutual funds at a disadvantage against bank deposits and National Savings Certificates, which retain tax benefits.
Distribution is equally underdeveloped. There is no functioning financial adviser ecosystem, limited bank-led sales, and weak digital access, constraining investor reach regardless of regulatory improvements. Compliance costs are also rising, particularly for smaller asset managers, risking market concentration.
With more than 80 per cent of financial intermediation flowing through banks, this imbalance reinforces systemic concentration and limits capital market depth. Mutual funds could diversify savings flows and provide long-term capital, but only if supported by .
Policy, not regulation, will determine scale
Targeted fiscal measures could shift behaviour quickly. A tax deduction of up to Tk300,000 annually for mutual fund investments would align incentives with long-term savings. Retirement Investment Accounts could introduce tax-deferred accumulation and employer participation. A revised capital gains structure, standard rates below three years, reduced rates between three and ten years, and full exemption beyond ten years, would discourage short-term speculation and reward patient capital. India’s expansion from about $100 billion to nearly $800 billion in 15 years reflects precisely this coordinated policy approach.
Bangladesh also holds an underutilised advantage in Islamic finance. With more than 90 per cent of the population Muslim, a large segment of savings remains outside capital markets due to Shariah concerns. Globally, Islamic finance exceeds $3 trillion, yet Bangladesh has few Shariah-compliant funds, no unified governance framework, and a shallow Sukuk market without a sovereign benchmark yield curve.
Establishing a central Shariah supervisory board, introducing dedicated fund rules, and launching a sovereign Sukuk programme would create the foundation for domestic mobilisation and foreign inflows, particularly from Gulf investors. A full product ecosystem, including Islamic equity, balanced and income funds, ETFs, retirement products, and real asset vehicles, could generate $10–15 billion in mutual fund assets and support a Sukuk market of around $20 billion within a broader $30–40 billion Islamic finance ecosystem by 2035.
A narrow window to build a $40 billion market
The growth trajectory is achievable with coordinated execution. Assets could rise to $3 billion by 2027 through regulatory stabilisation and fund conversion. Retail expansion, driven by systematic investment-style accounts, digital platforms, and low-entry products starting from Tk500, could push assets to $10–15 billion by 2030. Reaching $30–40 billion by 2035 will depend on institutional participation, particularly from pension funds, insurance companies, and provident funds, which account for 60–70 per cent of mutual fund assets in mature markets but remain negligible in Bangladesh.
Scaling the industry will require strengthening the ecosystem. Asset managers need capital bases of Tk20–30 crore, stronger compliance culture, and potentially an AMC rating system. Distribution must expand through banks, licensed advisers, and fintech platforms capable of delivering nationwide access. Stock exchanges will need ETF platforms, index funds, improved liquidity mechanisms, and support for SME-focused funds. Institutional integration remains essential to reduce volatility and anchor long-term capital.
The implications extend beyond the sector. A functional asset management industry would mobilise household savings, reduce reliance on banks, stabilise equity markets, and support long-term economic growth. It would also position Bangladesh as a regional hub for Islamic finance in South Asia.
The Mutual Fund Rules 2025 provide a credible starting point, but not a complete solution. Without aligned fiscal policy, distribution reform, Islamic finance infrastructure, and institutional participation, the sector will remain subscale.
Bangladesh has the demographics, savings potential, and market base to build a $30–40 billion industry within a decade. The opportunity is clear, execution will determine whether it is realised.
