BSEC moves to overhaul weak mutual funds trading below NAV
Muhammad Ayub Ali :
The Bangladesh Securities and Exchange Commission (BSEC) has moved to reform the country’s struggling mutual fund sector as most closed-end mutual funds (MFs) have long been trading far below their net asset value (NAV), reflecting prolonged poor performance and waning investor confidence.
Many of these funds are currently trading at steep discounts—ranging from 40 percent to 60 percent below their NAV—leaving thousands of investors unable to recover their investments.
To tackle the problem, the BSEC has issued a draft amendment to the Mutual Fund Rules, proposing mandatory liquidation or conversion of non-performing closed-end funds into open-end ones.
Under the proposed rules, if the average market price of a fund remains more than 25percent below its NAV for six consecutive months, the fund must either be liquidated or converted into an open-end fund.
The trustee will then have to convene a special general meeting (EGM) within six months of the gazette notification and take a final decision with approval from three-fourths of the unit holders.
The reform is aimed at offering a long-awaited exit option to investors who have been locked into closed-end funds, particularly since the extension of fund tenures in 2018.
Before final approval, the BSEC has invited public opinion and also proposed a complete halt to the launch of new closed-end funds.
“The market price of most funds is much lower than their NAV, which clearly indicates underperformance,” said BSEC spokesperson Md Abul Kalam Azad.
“If these funds are converted into open-end structures, investors will finally have the flexibility to withdraw their money at their convenience.”
The amendment also introduces new structural safeguards.
Asset management companies (AMCs) will no longer directly manage fund assets; instead, custodians—with a minimum paid-up capital of Tk 2 billion—will oversee asset protection. The custodian fee will rise from 0.10 percent to 0.50 percent.
To enhance transparency and reduce risk, funds will be allowed to invest only in listed and government securities, eliminating exposure to speculative or unregulated instruments.
“Some fund managers have treated investors’ money as if it were their own inheritance,” a senior BSEC official remarked. “These measures are essential to ensure accountability.”
Currently, 37 closed-end funds are listed on the stock market, most trading well below their face value.