Task force recommends no further extension for closed-end mutual funds

The task force for capital market reform has proposed that closed-end mutual funds, which have completed their initial 10-year tenure and were extended for another 10 years, must be liquidated once the extended period ends.

On Monday (10 February), the task force submitted two draft proposals to the Bangladesh Securities and Exchange Commission (BSEC) outlining reforms for margin loan regulations and mutual funds. 

The task force recommended including this restriction in the upcoming Bangladesh Mutual Fund Regulations, 2025, according to the BSEC.

The proposed amendment suggests that the tenure of any closed-end mutual fund should not exceed 10 years. However, under specific conditions, these funds may be converted into open-end mutual funds. 

At least one year before the initial tenure ends, a special meeting of unit holders must be convened. During this meeting, if at least three-fourths (75%) of the unit holders present, based on their holdings, vote in favour of the conversion, the change will be approved, subject to regulatory commission approval.

In September 2018, the BSEC approved a 10-year extension for the tenure of closed-end mutual funds. However, funds that choose not to extend their tenure will continue to follow the original rules set by the commission.

Investment criteria

Mutual funds can invest in various sectors, including listed securities on stock exchanges, transferable securities such as government securities, bonds, and preference shares issued by listed A-category companies.

They can also invest in Shariah-based securities approved by the commission, as well as securities issued through information memorandums, placement memorandums, or other compliance-based securities.

Investment allocation

Mutual funds and growth funds must allocate at least 51% of their total funds to listed securities. Fixed-income funds are required to invest at least 65% in fixed-income instruments and are prohibited from investing in equities, except through Initial Public Offerings (IPOs).

Balanced funds must allocate 50% of their funds to a mix of fixed-income securities and listed shares on stock exchanges. Money market funds must invest at least 60% of their funds in fixed-income securities with a one-year tenure and are also prohibited from investing in equities except through IPOs.

Shariah funds must allocate at least 30% of their funds to listed Islamic securities, with the remaining invested in Shariah-compliant money market instruments. Additionally, a special audit is required whenever a new trustee assumes responsibility for any mutual fund.

On 7 October last year, the BSEC formed the task force to provide recommendations for the needed reforms in the capital market. 

The task force received 17 initial terms of reference (TOR), which may be expanded later, according to the BSEC.