Investors to benefit from mutual fund conversion: BSEC

The Bangladesh Securities and Exchange Commission (BSEC) said investors would benefit more if closed-end mutual funds are converted into open-end funds instead of being liquidated.

The regulator said the conversion process would allow investors to receive returns based on Net Asset Value (NAV), ensuring better protection of investments while also easing pressure on the stock market.

In an order signed by BSEC Chairman Khondoker Rashed Maqsood on Thursday, the commission issued detailed guidelines for the conversion process under the Mutual Fund Rules 2025.

According to the guidelines, the trustee must declare a record date within 30 days after the fund’s six-month period expires. 

The trustee board must fix the record date at least 14 working days and no more than 30 working days before the meeting. 

The matter must also be disclosed as price-sensitive information (PSI) in national newspapers, online portals, stock exchanges, and on the websites of the trustee and asset manager.

After the record date, an Extraordinary General Meeting (EGM) must be arranged with at least 21 days’ notice to obtain the opinions of unit holders. 

If three-fourths of unit holders vote against the conversion proposal during the meeting, the fund will move toward liquidation. In other cases, if the proposal is rejected, normal trading of the fund will resume.

The guidelines further state that unit trading will remain suspended from the record date, and the trustee will take control of the fund within three days of the effective date. 

The entire conversion process must then be completed within 90 days.

In addition, an information memorandum must be submitted to the commission before the EGM, including the latest portfolio details, NAV, estimated conversion costs, previous financial performance, dividend history, and the structure of the proposed new fund. 

Independent auditors will also prepare audit and valuation reports.

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The commission said that after conversion into an open-end fund, the units will remain in dematerialised (demat) form, and unit holders will be able to surrender units and withdraw money at any time. Conversion costs cannot exceed 1% of the fund size.

BSEC Director and spokesperson Abul Kalam said closed-end mutual funds had long been trading at deep discounts, depriving investors of the actual value of their assets.

“With the new guidelines, unit holders will now be able to enjoy NAV-based benefits through conversion into open-end funds and will also be able to surrender units whenever necessary to withdraw money. This will ensure greater protection of investors’ interests,” he said.

He further noted that after the declaration of the record date, market prices are likely to gradually move closer to NAV as investors realize that conversion into open-end funds offers them the opportunity to receive the actual asset value.

“As a result, investors are expected to benefit more from converting closed-end mutual funds into open-end funds,” he added.