The finance ministry has recommended that the Bangladesh Securities and Exchange Commission should extend the tenure of around 30 closed-end mutual funds by another term of 10 years amid hectic lobbying by trustees of some of the funds.
The ministry in a letter to the commission last week made the recommendation after BSEC chairman M Khairul Hossain had sought the ministry’s advice on the fate of 36 mutual funds, which would be wound up or be made open-end funds between 2018 and 2028.
The ministry advised the commission to extend the tenure of 30 mutual funds which are scheduled to be wound up or be made open-end funds by 2023.
Commission officials said that any extension of the mutual funds’ tenure would be contrary to the trust deed and would create legal complexity as the Supreme Court, following legal challenges by investors, earlier struck down a move to extend tenure of a mutual fund.
Seeking advice, Khairul, in his demi official letter to finance minister AMA Muhith on June 18, said that the total size of 36 mutual funds was Tk 5,302 crore and the mutual funds helped stabilise the capital market as they invested around 60 per cent of their funds in the capital market.
Khairul in his letter to Muhith, however, highlighted legal challenges over extending the tenure of the mutual funds.
He said that the matter of tenure extension was against the trust deeds of the funds and there was a chance that writ petitions would be filed with the High Court against the move.
The ministry officials, in their note to Muhith, claimed that as a big number of mutual funds would be abolished by 2023, a big amount of fund would be withdrawn that would hit the stock market hard.
The note also said that the winding up of closed-end mutual funds could affect the small-scale investors as they might not get fair value after closing of the mutual funds.
Suggesting the minister to advise the commission for tenure extension, the note said if the tenure of the mutual funds is extended, they could play a positive role during any volatility at the market.
Muhith approved the note and advised the commission to extend tenure of the mutual funds which would be wounded up by 2023.
BSEC officials told New Age said that trustees of some of the mutual funds were lobbying the government hard for extension of the tenure.
They said that some of the mutual funds were not playing due role in the capital market and many of the
investors of the funds were facing losses.
Most of the mutual funds are being traded below their face value while investors do not get expected returns, they said.
The commission had set the tenure of any closed-end mutual fund at 10 years saying that it set the term keeping in mind the investors’ interest and the capital market development, BSEC officials said adding that any time extension would manifest the regulator’s lack of confidence.
Khairul in his letter to Muhith said that earlier 10 mutual funds were converted into open-end mutual funds and four others were wounded up under a BSEC notification which was issued in January 24, 2010 that limits the tenure of closed-end mutual fund to 10 years and Grameen One: Scheme One was abolished by the order of Appellate Division of the Supreme Court.
Earlier in 2014, the commission had turned down a time-extension appeal made by state-run Investment Corporation of Bangladesh and ordered to convert eight of its closed-end mutual funds into open-end ones.