BM Desk : A majority of publicly traded closed-end mutual funds (MFs) in the stock market have consistently been trading well under their Net Asset Value (NAV), signifying poor performance. To assist investors in this inactive scenario, the Bangladesh Securities and Exchange Commission (BSEC) has unveiled an important draft amendment.

Under the suggested amendment, if a closed-end fund is traded at a discount exceeding 25% of its NAV for six straight months, it will be required for that fund to either undergo liquidation or convert into an open-end fund.

This action is anticipated to offer assistance to investors who have been trapped since the duration of funds was prolonged in 2018. Prior to granting final approval, BSEC has requested public feedback and suggested pausing approvals for new closed-end funds.

According to the draft, if a fund’s six-month average trading price stays over 25% lower than the average NAV (whichever is greater between fair value or purchase price), the fund will undergo conversion six months following the gazette notification. At that time, the trustee is required to convene an Extraordinary General Meeting (EGM), where a three-fourths majority vote from unit holders will be necessary for a conclusive decision.

BSEC representative Md. Abul Kalam Azad remarked, “The market values of many funds are significantly lower than their NAV, indicating that their performance is lacking.” Transforming underperforming funds into open-end funds will enable investors to access their money whenever they wish.

If the amendment is implemented, Asset Management Companies (AMCs) will no longer be allowed to directly manage fund assets. Instead, custodians  who must have a minimum paid-up capital of Tk 2 billion will ensure the security of these assets. It has also been proposed to increase the custodian fee from 0.10% to up to 0.50%.

To prevent misuse of investors’ funds, the new regulation will only allow investment in listed and government securities, without imposing any upper limit on specific categories.

A senior BSEC official remarked, “Some fund managers treat investors’ money as if it were their inherited property. In this situation, strict action is the only option.”

Currently, 37 closed-end funds are listed, most of which are trading significantly below their face value. BSEC officials hope that once the new amendments are implemented, these funds will undergo a regulated liquidation or conversion process. This would offer investors a chance to recover at least part of their investment and send a positive message to the market.