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New rules to convert closed-end mutual fund in the offing

  • Published at 05:27 pm September 10th, 2013
New rules to convert closed-end mutual fund in the offing

The securities regulator will formulate new norms on converting process of closed-end mutual fund to open-end ones soon.

However, it has decided in principle to allow fund managers to transfer ICB AMCL Mutual Fund to open-end mutual fund from close-end mutual fund by December, 2013, for the first time in the country’s capital market history.

The commission gave nod fund managers to convert the close-end mutual fund into the open-end mutual fund in response to its request, said Bangladesh Securities and Exchange Commission in a statement on Tuesday.

A new norm on converting closed-end mutual fund from open-end mutual fund would be put in place soon, the statement said.

Two kinds of mutual funds—open-end and closed-end— are now operating in the market. Closed-end fund – an investment vehicle that issues a fixed number of shares – is listed with a stock market.

Open-end mutual fund, an investment vehicle that continuously issues new shares without restriction regardless of the number of investors, is not listed with a stock market. It will redeem shares at any time.

ICB AMCL First Mutual Fund, which is managed by ICB Asset Management Company, a subsidiary of the state-run Investment Corporation of Bangladesh, will be redeemed this month as the closed-end fund will complete its 10-year tenure.

With the redemption of the fund, it would be delisted from the stock market and transaction of the units would be discontinued from September 28.

Redemption means the unit holders of a mutual fund would get back the net asset value (NAV) per unit of the fund in cash, upon maturity or cancellation by the issuer.

The redemption of a closed-end mutual fund and transferring a closed-end mutual fund to an open-end fund is new for Bangladesh’s stock market and ICB AMCL First is the first of these kind.

Currently six open-end mutual funds are operating in the market. They are Prime Finance First Mutual Fund, MTB Unit Fund, Sandhani Life Unit Fund, ICB AMCL Pension Holders Fund, ICB AMCL Unit Fund and Bangladesh Fund. 

“Allowing conversion of closed-end mutual fund into open-end mutual fund is good for the market as it will create demand for shares,” said Moin Al Kasem, managing director of open-end Prime Finance First Mutual Fund.

He said closed-end mutual fund is gradually delisted from the world stock market. “For example, in our next door country India, closed-end mutual funds have turned into open-end mutual funds after their maturity period,” he said.

The BSEC has also decided to formulate a guideline on implementation of new market surveillance system. 

The investment in the new market surveillance system is part of efforts of the regulator to proactively step up its oversight function to ensure real time surveillance and any irregularities in trading are identified and curbed early enough.

A BSEC official said the regulator reaffirms its commitment to create, maintain and regulate a market in which securities can be traded in an orderly, fair and efficient manner.

He said the new surveillance system will enable us to monitor trading activities in the market on real time basis by providing early warning signs through the use of alerts.

The new surveillance system is also capable of undertaking multiple analyses by rapidly identifying abnormal trading behavior which will be saved in the system to assist in investigations and to gather further evidence for prosecution in cases of breach of securities rules, he said.