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Investment Options in Bangladesh: Risk, Return & Liquidity Assessment

The investment trend in Generation Z has increased a lot globally. Stock and Cryptocurrency trading platforms, like Robinhood and eToro, have gained massive popularity due to the huge role played by Generation Z. On the other hand, the tendency of investing in startups is growing too. However, the socio-economic condition of Bangladesh has not changed much. The country still lacks a proper education system with proper mentoring or discussion on investment. Besides, not only is the market of Bangladesh relatively small, but the number of investment options is also quite low. That is why in this article, we are going to talk about the available investment options in Bangladesh, as well as the risk factors associated with them and the potential return an investor can expect.

Based on asset class, available investment options in Bangladesh can be differentiated into three categories.

Category 1: Fixed Income

1. National Savings Certificate or NSC & Post Office Savings Scheme

The National Savings Certificate is the most popular investment option in the country. Savings Certificates can be purchased from Savings Offices or bureaus managed by the National Savings Directorate, Special Bureau of National Savings, post offices under the Postal Department, Bangladesh Bank, and commercial banks. Currently, there are a total of 11 schemes under the Department of Savings. They are: 

  • 5-Year Bangladesh Savings Certificate 
  • 3-monthly Profit-bearing Savings Certificate3
  • Pensioner Savings Certificate 
  • Family Savings Certificate
  • Bangladesh Prize Bond 
  • Wage Earner Development Bond 
  • US Dollar Premium Bond
  • US Dollar Investment Bond 
  • Post office Savings Bank Ordinary A/C 
  • Post office Savings Bank – Fixed Deposit 
  • Postal Life Insurance

However, there are some restrictions when investing in these schemes. For instance, only female National Identity Card holders of Bangladesh can invest in family savings certificates. Whereas non-residents of Bangladesh can only attain USD Premium and Investment Bonds. Other than that, there are also options to invest in the 5-year National Savings Certificate as well.

Of the 11 schemes, all except the US Dollar Premium and Investment Bond, and Postal Life Insurance are tax-deductible on profits. Also, there is an investment limit in all the schemes except bonds. Apart from the life insurance scheme, you are able to withdraw your investment from every other scheme. But in that case, a penalty is applicable. For instance, some schemes do not give out any profit if the money is withdrawn before the due date.

2. Fixed Deposit Receipt or FDR

Fixed Deposit Receipt or FDR is a fixed amount of money deposited in a bank, from which interest is paid at a fixed rate, and can be withdrawn at different times of the year. There are two types of FDR accounts for both individuals and organizations. When opening a fixed deposit account in a bank, a large amount of money is usually required, which varies from bank to bank. For example, in the case of Dhaka Bank, the minimum required deposit is BDT 50,000. Currently, you have the option of keeping a fixed deposit in your bank for 2.0-9.0% interest. Fixed deposits can be kept for about 3 months to 3 years. Some banks can also renew the deposit at the end of 3 years and keep it for a longer period. There are even banks that offer FDR schemes where you can keep the money for 1 month, 2 months, or even 100 days. On the other hand, some banks offer the opportunity to take a loan against the FDR account. Similar to savings certificates, investments can also be withdrawn before maturity, but in that case, different types of penalties may apply.

FDR is one of the safest investments available. It is a far better option for personal wealth maximization than savings accounts. Additionally, FDR yields much higher returns than regular savings instruments. However, you should not open a fixed deposit account just because of the high returns.

3. Deposit Pension Scheme or DPS

Deposit Pension Scheme or DPS is an installment-based savings scheme for individual investors. A DPS account can be opened in almost any bank after the completion of necessary formalities. In this case, a certain amount of money has to be deposited every month for a certain period of time. The monthly installment varies from bank to bank. For example, in Bank Asia, a monthly deposit of BDT 500-10,000 can be kept for 3-10 years. Whereas Dutch Bangla Bank gives you the option to pay a monthly installment of BDT 500-50,000.

DPS is a good investment option for those who are studying at university or are just starting their career and want to save a certain amount of money every month. But if a deposit is not made for a particular month, then a penalty or account suspension can be imposed after the specified time.

4. T-bills and Bonds

Treasury bills and bonds are debt securities issued by the government. Banks and Non-Bank Financial Institutions (NBFIs) mainly invest in Treasury bills and bonds by themselves. Individual investors can invest in these debt securities through the Treasury Departments of different banks. However, in that case, you have to make a separate Business Participant or BP account. But the return generation of the investment in T-Bill or bond depends entirely on the institution through which the investment is being made.

Category 2: Stock Investment

1. Investment in Stock Market

A stock market is a place where individuals and institutional investors trade shares of various public limited companies. Many people refer to the stock market as a secondary market. Shares of a private limited company can be traded even before it is listed in this secondary market. However, the buying and selling of these shares are limited to a handful of private investors. A private company can raise capital by issuing new shares to public investors. This method of entering the stock market by offering shares to public investors is called Initial Public Offering or IPO.

The stock market has now become an electronic marketplace due to the inclusion of technology. There are two stock exchanges in Bangladesh for trading shares – Dhaka Stock Exchange or DSE and Chittagong Stock Exchange or CSE. The Bangladesh Securities and Exchange Commission is there to regulate various policies of the stock market. Investors can invest directly by buying shares of companies listed on the stock market. In this case, there is an opportunity to trade shares by opening a Beneficiary Owners account or BO account in any stock brokerage house.

The process of opening a BO account in a brokerage house is similar to opening a bank account. It is possible to open a BO account both online and offline from various brokerage houses. The biggest brokerages in the country are working towards bringing the whole process online.

A total of 342 companies from different sectors, 2 corporate bonds, and 36 mutual fund companies are listed on the Dhaka Stock Exchange. There are also 221 treasury bonds listed but they cannot be traded. Although the stock markets of other countries have several asset classes like equity, bond, currency, commodity, derivative, mutual fund, the stock market of Bangladesh is mainly dependent on equity trading.

Investors in the stock market can invest at relatively low risk by seeking advice from fund managers and analysts from various brokerage houses. But at the same time, the investors should also be well-informed about the companies they want to invest in. It is also important to know the status of the sectors in which the companies are doing business, the economic situation of the country, and the changes that the government and sector-based regulators have brought about at different times. The investment decision should be made by considering various parameters which include the stock price movement, quarterly and annual earnings, and financial ratings.

2. Mutual Fund 

When trading in the share market, investors have to spend a lot of their time as well as get personally involved when investing. But for various reasons, many do not have the chance to get directly involved and invest after gaining the right amount of knowledge. In that case, there are opportunities to invest through various mutual funds. A mutual fund is an entity that is coordinated by a fund management company, which gathers a large sum of money from investors and invests it in shares of different listed companies, bonds, IPO shares, etc.

There are two types of mutual funds – closed end and open end. Open end funds are not traded in the stock market whereas closed end funds are. Investing in mutual funds means investing in open end mutual funds because closed end funds are traded in that stock market, so investors have to be involved in the stock market. Investors do not have to be directly involved in open end funds, which further ensures diversification of their investments.

Experienced fund managers manage a portfolio of mutual funds in exchange for a management fee. According to the historical track record, well-managed funds in Bangladesh have generated returns of approximately 12-15%.

Category 3: Alternative Investment

1. Real Estate

There are three options when investing in real estate – land, plots, and flats. In most cases, investors use their personal network to buy land. Whereas real estate developers present the option to buy and sell plots and flats. There are also opportunities for group buying when it comes to expensive land or flats. But since large sums of money have to be invested for a longer period of time, investing in real estate can be quite illiquid and risky.

2. Startups & SMEs

Many people also invest in startups and SMEs. However, mainly professional and sophisticated investors invest in these companies. In these cases, investors have to be a lot more careful as there are several risk factors associated with startups and SMEs, and these companies have a much lower chance of being successful. Moreover, the business model of such companies differs a lot from the business model of traditional companies and investors need to invest in these companies for a long period of time.

When investing in Startups and SMEs in Bangladesh, different angel investors invest separately or by forming different angel networks or investment syndicates.

3. Peer-to-peer Lending or P2P Lending 

Peer-to-peer lending or P2P lending is a loan given to an individual or organization without the participation of any financial institution. In this scenario, P2P platforms do not give out any loan, but rather act as a marketplace through which the borrower and the lender are connected. Anyone can register as a borrower and place a loan requirement after being subjected to various conditions. One or more lenders can give out a loan after meeting the required conditions. In that case, the required credit analysis is done by checking and sorting through the customer’s loan carrying and repayment capacity.

P2P lending is not very popular in Bangladesh yet. However, people are slowly getting used to this marketplace model. Several companies, like fintech startup Shadhin, are working to develop P2P lending.

Risk, Return & Liquidity Assessment Based on Asset Class

We can differentiate the asset classes into three dimensions of characteristics: 

  • The risk associated with the asset
  • The return on the asset
  • The liquidity of the asset

One of the most common financial theories is that the higher the risk, the higher the return. So, if an investor is investing in a risky asset, naturally they would want a higher return on investment. Among the three categories, the risk for fixed income investment is relatively low. That is why the return is quite low as well. This means the upside of it is very limited as it will not give more than a certain level of return on the fixed income investment.

As for equity or stock investment, we are taking a higher risk because we are taking ownership of the loss as well as the profit. So, both the risk and return are high.

Also, we can categorize quite a few assets under the alternative investment category such as peer-to-peer, startups, and real estate. All of them have their own unique characteristics as some of them have higher risk and return while for others it is low.

Now if we look at some practical examples, for instance in fixed income investments, we can invest in savings certificates or government bonds. As we are lending money to the government, it has the lowest risk of investment. Then if we look at other options like fixed deposit or DPS, we can invest through a bank or financial institution. In these cases, the risk associated is a bit higher than lending the money to the Government. But as we are taking a higher risk, the return on FD and DPS is higher. On the other hand, if we invest in an NBFI instead of a bank, then the return is comparatively higher there. Here we can see how perfectly the financial theory is applied as the higher risk leads to a higher return.

But sometimes there are some exceptions that are created from time to time. One of its biggest examples is savings certificates. The risk for savings certificates is very low, but instead of making the return on investment market-driven, the Government has set a fixed rate of return which can range from 10-11% depending on the savings certificate. But as the return rate is comparatively higher than the standard Bangladesh market return rate, it is quite popular. So if you are thinking about investing in fixed income, it is definitely a very good option to consider.

When investing in stocks, you should keep in mind that just because both the risk and return are high, it does not mean that the return is guaranteed. So, in these cases when we say that the return on investment is high, it does not mean that by investing for 3 or 6 months, you are guaranteed to get a higher return. These returns can take a long time to be profitable. If you want to get a return on these risky asset classes, then you will have to invest in them for the long term. Even while making these investments you have to follow certain rules as well. It’s not like you can simply invest in 3 stocks and it will become profitable. Only by following a certain system will you be able to get a return on these risk categories.

Coming to the alternative investment category, if we compare the risk of investment in startups to peer-to-peer, the risk is much higher than both fixed income and stock investment as the failure rate of startups is quite high. In that case, since the risk is very high, so is the return.

Now that we have discussed the first two dimensions, let’s talk about the final dimension of characteristics – liquidity. It is defined as how easily you can get your money back after you make an investment. So, if we take some time to think and research about the liquidity of these asset classes, then we can gain a lot of clarity. First, let’s take a look at fixed deposits. If you need to make an emergency withdrawal after making a fixed deposit, most institutions allow for early encashment. But it comes at a price as you will have to forego some interest. As for savings certificates, the government provides a decent interest rate while also keeping the risk factor very low, but it can be quite difficult to liquidate this investment before at least a year.

Then if we look at the stock market, both the risk and return are high, if it is done correctly, and the liquidity is also high. Most shares are being traded on a daily basis and if someone wants to sell their stock, then they are able to do so quite conveniently.

If we extend this example and consider the alternative investment class, we can discuss the one asset class we haven’t talked about yet: real estate. The risk for real estate is lower than stock. Whereas the return can sometimes be more than stock and other times be less. But the liquidity is comparatively lower than most other asset classes because the market price is generally much higher as it is not traded in an organized market like the DSE or CSE. That means you will need to first find a suitable buyer which can take a few months or even a year.

Another example is – startup. When investing in a startup in its early stages, it is impossible to exit the investment easily. So, investors have to consider that before investing as they are not going to be able to withdraw their investment before at least 4 to 5 years. That means they have to accept that they are not going to be able to get any emergency funds if they decide to invest.

How can we use this now that we have established a framework for these assets and asset classes? The first thing we can do is compare the characteristics of these asset classes to our own personal lives. For example, let’s say you have a savings of BDT 300,000 but you may need that amount at any moment. In that case, you would want to invest in those assets that have high liquidity. But if you are fearful of taking a loss on your total investment when withdrawing it, then you should only invest in less risky and safe asset classes such as a fixed deposit of 3 months. In another scenario, take for instance that you have BDT 1,000,000 where you may need BDT 200,000 at any moment, then you should split it into BDT 800,000 and BDT 200,000. You can invest the BDT 800,000 into a savings certificate and the rest of BDT 200,000 into a short-term instrument.

If we were to look at a more complex example where someone has a few crores worth of assets as well as having a monthly income, then that person has a lot of assets, high cash flow, and is more capable of taking risks. Those who can take on higher risks are also able to have higher returns. So, in their case, they can go for a more complex investment portfolio where they can invest BDT 5,000,000 into a savings certificate, invest another part of their wealth into a startup, invest some parts of it into the stock market, and some into making an FD at a bank. That way, they can have a proper comprehensive portfolio of investments.

The main reason for discussing all of these things is so that you can have a better understanding of how to make an investment plan properly. Since these are financial products, they can come off as being very complex to many. But if you follow the rules and regulations, then it is possible to do it without any issues. If you want, you can take advice from some of the most respectable and reputable companies in the financial market. Or you can also consult with one of your friends and family who have adequate knowledge about investment. Nowadays, the amount of research people do before buying a consumer product, like a phone or a TV, is way more than  the research they do for financial products. This issue is not limited to Bangladesh as this data has been collected worldwide, including from the US. The key takeaway from this article is that this financial knowledge is important for every person to have, as it will be necessary for the rest of your life. Whether you have a job, are a student, or retired, investing some of your time in learning more about the financial market is crucial.

Joy Bhattacharjee
Joy Bhattacharjee
Financial Product Manager at iFarmer, Former Equity Analyst at IDLC Securities Ltd.




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