The Bangladesh Securities and Exchange Commission may not allow tenure extension to any more mutual funds without the permission of unit-holders.
A senior BSEC official said that the commission would issue a directive in this matter soon.
The regulator has recently returned a proposal submitted by a mutual fund for tenure extension and asked the fund to obtain consent from unit-holders in order to get approval, he said.
Earlier in September 2018, the stock market regulator gave permission to extend the tenure of closed-end mutual funds and handed over the rights to asset managers.
The BSEC also issued a directive in this regard at that time scrapping its previous directive on conversion or liquidation of closed-end MFs on completion of the ten-year tenure.
The directive said that the total tenure, including another term of ten years, of existing closed-end mutual funds would not be more than 20 years.
Closed-end mutual funds are investment funds that gather a fixed pool of money for 10 years from a number of investors and re-invest them into stocks, bonds and other assets.
The then commission had allowed the mutual funds to extend tenure by another 10 years despite the fact that any extension of the mutual funds’ tenure would be contrary to the trust deed and would create legal complexity.
The BSEC faced huge criticism over the decision.
Ten closed-end mutual funds managed by RACE Asset Management Company and six MFs under LR Global were given BSEC’s consent to extend tenure by 10 more years.
However, the current commission is not willing to leave the extension decision on asset managers alone but wants consent from unit-holders before approving tenure extensions.
The City of London Investment Management Company filed a writ petition on October 21 over tenure extension of mutual funds.
In the petition, CLIM said that the fund manager did not seek the unit-holders’ approval for extension, which was a violation of rule 50B of the Bangladesh Securities and Exchange Commission (Mutual Fund) Rules, 2001.
Moreover, the extension contradicted what is stated in the fund’s prospectus, it said.
The current commission also wants to avoid legal complexities and save the interest of the unitholders, BSEC officials said.
A number of funds sought the BESC’s permission to extend tenure by 10 more years, but the commission has put the decision on hold.
There are 37 closed-end mutual funds listed on the Dhaka Stock Exchange and more than 30 are trading below the face value.
Investors have been reluctant to invest in mutual funds despite a bullish trend on the market in recent weeks as they lacked confidence in the ailing sector.
Asset management companies of the mutual funds have failed to provide dividends to the unit-holders. Six mutual funds declared no dividend for the year ended on June 30, 2020.
The regulator also detected that some mutual funds had breached the rules and invested funds in non-performing entities for their own interests.
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