The Bangladesh Securities and Exchange Commission (BSEC) has issued a new directive that could trigger the conversion or liquidation process of several closed-end mutual funds within the next month if they fail to meet regulatory conditions.

Under the Mutual Fund Rules 2025, issued in November last year, a closed-end fund may be converted into an open-end fund or liquidated if its average market trading price per unit falls more than 25 percent below either the acquisition cost or the declared net asset value (NAV), whichever is higher.

According to the rules, if such a decline continues within six months of the publication of the regulations in the government gazette, trustees may call an Extraordinary General Meeting (EGM) to protect unit holders’ interests.

The six-month deadline is set to expire on May 12, meaning trustees must announce a record date by June 12 for eligible funds. Following this, the EGM must be held within 21 days of the record date.

In its latest directive issued on Thursday, BSEC said the tenure of existing closed-end mutual funds can no longer be extended under the new rules. However, they may be converted into open-end funds, which would be considered a fundamental change in the structure of the fund.

The directive states that asset managers may propose conversion before the maturity of a fund or under specific circumstances, subject to approval by both the asset manager and trustee boards.

Once a conversion proposal is submitted, trustees must make a decision at least 150 days before the fund’s maturity date. The record date must then be announced within 14 to 30 working days after the trustee board meeting. Trading of the fund’s units on the stock exchange will remain suspended from the record date until completion of the process.

To approve a conversion, at least three-fourths of the voting unit holders present at the meeting must support the proposal. If the proposal fails to secure the required support, the fund liquidation process will begin.

Under the rules, all assets and liabilities of the fund will come under the trustee’s control from the effective date of conversion or liquidation. Trustees will also be required to appoint an independent auditor to evaluate the fund’s assets and prepare an audit report, which must be submitted to the commission within 30 days of the EGM.

BSEC has also outlined cost-sharing rules for the conversion process. If the conversion proposal is approved, the newly selected asset manager will bear the meeting expenses and trustee fees. If rejected, the current asset manager will bear the costs.

The commission capped trustee fees for conversion at Tk 1 million, while the total cost of conversion and issuance of unit certificates cannot exceed 1 percent of the fund’s size. Asset managers’ fees will be limited to a maximum of 0.50 percent.

Commenting on the matter, BSEC Director and spokesperson Md Abul Kalam said there is a misconception surrounding the conversion of closed-end funds.

He said investors would benefit most from the conversion process because many closed-end mutual fund units are currently trading below face value. Following conversion into open-end funds, investors will receive units based on NAV, potentially increasing the number of units they hold. Investors will also be able to redeem their units at NAV after conversion.