The Bangladesh Securities and Exchange Commission has finalised a guideline for conversion of close-end mutual funds into open-end mutual funds as nine mutual funds under the Investment Corporation of Bangladesh move to grab the scope of conversion. The BSEC issued a directive in this regard on Thursday. Earlier in July an amendment to the Mutual Fund Rules-2001 allowed all the close-end mutual funds to convert into open-end mutual funds.
A mutual fund is one type of professionally-managed scheme which pools money from many investors and is supposed to invest money in the stocks on behalf of the investors.
The conversion guideline said the asset management company and the trustee of the fund have to approve the conversion proposal before 90 days of traded suspension and the decision would be treated as price sensitive information.
The AMC has to publish the notice of conversion proposal on at least two national dailies and the notice has to be circulated at least 30 days before the effective date, delisting.
As per the guideline, the asset management company of the mutual fund has to organise unite holders’ meeting in order to get its approval for convection, within 10 days of delisting.
The AMC has to give a communication format to its unit holders during the meeting. The format includes segment-wise latest portfolio of the fund, estimated cost for the conversion process, last five years’ financial performance, details of the conversion process, selection of trustee, AMC and custodian of the open-end fund, nature of the unite fund and unite issue process under conversion.
If the unite holders approve the proposal of conversion, then the newly-appointed AMC will bear the cost otherwise the existing AMC has to bear the cost of holding the meeting.
The BSEC in the guideline gave exemption to the existing sponsors of the fund from legal requirement. The existing unite holders will be treated as initial subscribers of the fund.
The commission will issue final approval of the conversion process after getting audit report, valuation report and other documents which has to be disclosed on at least two national dailies and web sites of the exchanges within three working days after getting approval from the regulator.
The new AMC of the converted fund shall issue letter of entitlement within seven working days of conversion approval and issue unit certificate to the unite holders as per the Mutual Fund Rules-2001.
The amendment to the Mutual Fund Rules-2001 also enabled any close-end mutual fund to issue stock dividend as reinvestment to its unit holders which will not be less than 70 per cent of its profit.
Presently 43 mutual funds are listed with the stock exchanges.
Earlier on January 8 the commission amended the Mutual Fund Rules 2001 to give scope to the mutual funds in issuing stock dividend as re-investment.
Four mutual funds have taken the facility so far.
Nine mutual funds of the ICB — First ICB Mutual Fund, Second ICB Mutual Fund, Third ICB Mutual Fund, Forth ICB Mutual Fund, Fifth ICB Mutual Fund, Sixth ICB Mutual Fund, Seventh ICB Mutual Fund, Eighth ICB Mutual Fund and ICB AMCL First Mutual Fund — which will face redemption this year have decided for conversion into open-end mutual fund.
The ICB in August filed two separate applications with the BSEC. Of the applications, one sought permission from the BSEC to convert ICB AMCL First Mutual Fund, a listed closed-end mutual fund, into an open-end fund and the other application sought permission for the proposed merger.
The commission, as per the latest amendment to the mutual fund rules, allowed ICB AMCL First Mutual Fund to be converted into an open-end mutual fund in August but rejected the second application.
Earlier in 2009, the BSEC asked the mutual funds, which had no maturity period and passed 10 years after listing, to pull them out from the market by December 2011.
-With New Age input
