B Mirror Report: The Bangladesh Securities and Exchange Commission (BSEC) has issued a comprehensive guideline for converting closed-end mutual funds into open-end funds, aiming to enhance investor protection and improve market stability.

The new directive was published on Thursday through an order signed by BSEC Chairman Khondkar Rashed Maqsood.

According to the commission, converting closed-end funds into open-end structures instead of liquidating them would provide greater financial benefits and security to investors. Investors would be able to enjoy returns based on Net Asset Value (NAV), which the regulator believes is more beneficial and safer than fund liquidation. The move is also expected to reduce negative pressure on the capital market.

Under the Mutual Fund Rules 2025, particularly Rules 62(2) and 63, closed-end funds may be converted into open-end funds under certain conditions. The guidelines state that if the six-month average market price of a fund remains at a discount of 25 percent or more compared to its NAV, the trustee will be required to call a Special General Meeting (SGM) to seek opinions from unit holders.

The trustee must announce a record date within 30 days after the six-month observation period. The record date must be fixed at least 14 working days before the meeting and no later than 30 working days. The information must also be disclosed as price-sensitive information (PSI) through national dailies, online portals, stock exchanges, and the websites of the trustee and asset manager.

Following the announcement of the record date, an Extraordinary General Meeting (EGM) must be arranged with at least 21 days’ notice to collect unit holders’ opinions. If three to four unit holders vote against the conversion proposal, the fund will proceed toward liquidation. If the proposal is not approved, regular trading of the fund will resume.

The new guideline further states that unit trading will remain temporarily suspended from the record date, and trustees must assume control of the fund within three days of the effective date. The entire conversion process must be completed within 90 days.

Before arranging the SGM, trustees will be required to submit an information memorandum to the commission containing details of the latest portfolio, NAV, estimated conversion costs, historical financial performance, dividend history, and the proposed new fund structure. Independent audit and valuation reports must also be prepared.

BSEC said that after conversion, the units of the open-end fund will remain in dematerialized (demat) form, allowing investors to surrender units and withdraw funds at any time. However, the conversion cost cannot exceed 1 percent of the total fund size.

BSEC Director and spokesperson Md. Abul Kalam said investors had long been deprived of realizing the true value of assets because many closed-end funds were trading at deep discounts. He noted that the new framework would enable investors to receive NAV-based benefits and redeem units whenever needed, thereby strengthening investor protection.

He also explained that liquidation often creates selling pressure in the market because fund assets need to be sold off. In contrast, conversion into an open-end structure does not require selling underlying assets, helping maintain market stability while benefiting investors.

According to him, market prices may gradually move closer to NAV after the announcement of the record date, as investors would recognize the opportunity to realize the actual asset value through conversion into an open-end structure.

To formulate the guideline in line with the new Mutual Fund Rules, BSEC had earlier formed a five-member high-level committee led by Additional Director Sheikh Md. Lutful Kabir. Other members included Joint Director Sultana Parveen, Assistant Directors Md. Atikullah Khan and Md. Touhidul Islam Saddam, while Assistant Director Md. Sagor Islam served as member secretary.