Ten mutual funds are scheduled to be redeemed this year.
They are 1st BSRS, 1st ICB, 2nd ICB, 3rd ICB, 4th ICB, 5th ICB, 6th ICB, 7th ICB, 8th ICB and ICB AMCL1st mutual funds.
Bangladesh Securities and Exchange Commission (BSEC) last year extended the tenure of nine mutual funds considering the sluggish market situation, said an official.
“Now, they will have to be redeemed as soon as their respective tenures expire,” he added.
Redemption is the process of giving the unit holder the net asset value (NAV) per unit in cash with certain percentage deducted for the transaction cost in a predetermined year.
The funds would be paid off so that new funds could again be created and capital could be raised from the investors under a different instrument name.
Despite the market turmoil, the mutual funds sector has been very lucrative for several months now with most of the funds were trading at discounts, said an analyst.
Having the DGEN hitting the bottom, he said the discounted mutual funds looked lucrative for investment with minimum risks. This is because, when the market falls, the NAV of the units fall too.
All ten funds but two traded at premium yesterday, which might cause sudden losses for the unit holders if the funds get redeemed, he said.
Mutual fund redemption is new for the country’s capital markets and is going to occur for the first time this year.
In the year 2009, most of the mutual funds were traded at a premium which was on average more than twice the NAV.
Theoretically, there is no reason for a fund to trade above or below its NAV except for temporary or liquidity reasons.
As the mutual funds were regulated to redeem its funds at a particular time in future, the investors realised the importance of the NAV and that the funds’ units were greatly overpriced and are sure to lose value as the redemption year comes nearer, said another analyst.
The redemption can also be postponed if three-fourth of the units’ holders along with the sponsor company agrees to continue the current fund.
An interview with the Acting Head of Research in, Khandakar Safwan Saad shed some light over this situation and the process of redemption.
“It is very important that some of these old funds get redeemed quickly,” said Safwan Saad, a research executive of BRAC EPL Stock Brokerage Limited.
“Since the investors haven’t experienced the process yet in our market, they are unaware of it. It is necessary for the development of the sector. Investors will learn to value the use of NAV more rather than the market price.”