Innovation in the financial product domain is always scarce and more so in Bangladesh. Regulations, Target Group psyche vs need, distribution – there are some vital blocks to be placed just right to deliver an innovation that truly solves an investor's problem. But, without new solutions/products, new needs of the age remain unmet and there comes a stalemate – people keep putting their hard-earned money into financial products, devoiding them of the optimized potential of their money.
There are only a meager number of financial brands in Bangladesh that has innovation in their DNAs and IDLC has been a constant name in the league. In recent times, the asset management wing of the IDLC Group – IDLC ASSET MANAGEMENT LIMITED (IDLC AML) – has pioneered not just a product rather a whole new asset class. Let's know about it, initiating with the need gaps it deals with.
In terms of ease of availability and usability of investment avenues, it can be said that there are three major financial asset classes in Bangladesh till now. "NSC – National Savings Certificate" or "Sanchaypatra", "Savings Schemes" such as "FDR" and "Share" or "Stock".
These three investment avenues differ from each other in three major dimensions - return, risk, and tax rebate.
From the birth of Bangladesh till date, the most popular financial investment vehicle is "NSC or National Savings Certificate" or "Sanchaypatra". This is most suitable because it's a risk-free investment with a lucrative return and an eligible investment for maximum tax rebate. But, the individual investment limit of NSCs is an impediment. Since an individual can invest up to a certain limit in Sanchaypatra, there are a number of investors who have already exceeded this limit. Due to this limit constraint, despite lucrative return, maximum tax rebate, and risk-free investment, people had to explore other financial asset classes to meet their unmet investment need.
Though the risk of FDR is higher than NSC, and it falls under "moderate" risk category because of default risk (even in recent times, some weak financial intermediaries have defaulted and failed to return depositor's money), the investment limit constraint of NSC has pushed investors to invest in FDR and it has become the second-most preferred investment avenue among available financial asset classes. But two major problems persist with FDR investment – it provides a low to moderate return, sometimes even lower than inflation and as FDR is not an eligible investment for tax rebate, there is zero tax incentive!
So, for higher return, investors explore the stock market or share market - the 3rd financial asset class. But, the stock market is very volatile and investment in stocks falls under "high" risk category. As a result, this high volatility doesn't match the risk appetite of a lot of investors even though it provides maximum tax rebate.
The investment limit restriction of NSC, lower return and no tax rebate from FDR, and high volatility of the stock market eventually calls for a new financial asset class which is safer than share/equity, provides a higher return than FDR, at the same time, is capable of providing maximum possible tax rebate and without any investment limit like Sanchaypatra.
That is where comes to life Debt Mutual Fund as an asset class and IDLC INCOME FUND is the first-ever Debt Mutual Fund in Bangladesh which has passed its first year this June. The objective of the fund is to deliver stability by striking the optimum balance ofreturn, safety, and tax management. As the Fund predominantly (40%-60%) invests in Govt./Govt.-backed securities like Treasury bills, T-Bonds, IDLC INCOME FUND falls under "moderate" risk category. And other investment avenues of IDLC INCOME FUND are very high investment grade Corporate Bonds, FDRs of very well governed financial intermediaries, and IPOs. This fund does not invest a penny in the secondary share market.
Moreover, as per Income tax Ordinance, 1984, 6th Schedule, Part-B, Para- 10, 1, b), this fund is an eligible investment for tax rebate and as there's no investment limit to this fund, an investor derives maximum tax rebate from his/her investment to IDLC INCOME FUND.
Launched in June 2021, the fund has generated 7.51% return in its first year's journey including 3% interim dividend which was disbursed on 6th January 2022, after 6 months of the fund's inception. Compared to FDR, the return is higher and provided maximum possible tax rebate and investors did not have to shift to "high" risk category with their investment to derive much greater financial values!
IDLC INCOME FUND came into being quite quietly vanguarding the fourth financial asset class. And after its 1-year journey, it can be said that it is poised for generating a better return than FDR, delivering maximum tax rebate without elevating one's risk appetite to"high" risk category. In a nutshell, IDLC INCOME FUND is the next product after one has utilized the NSC limit.