Draft amendment to MF rules remains shelved for two and a half years

The securities regulator has not yet finalised the proposed amendment to the rules of mutual funds (MFs) despite it had approved a draft more than two and a half years ago.

The Bangladesh Securities and Exchange Commission (BSEC) had earlier moved to restore investors' confidence in the MFs through amending the rules.

In this regard, the regulator had approved the draft of the proposed amendment to the MFs on December 7, 2015.

The BSEC was supposed to finalise the amendment after taking public opinion. But the regulator is yet to do it despite about two and half years already passed by now.

Meanwhile, the BSEC finalised some other amendments to the securities rules.

Officials concerned at the BSEC declined to comment about any update on finalising the amendment to the rules of MFs. Top BSEC officials could not be reached for their comment.

Asked, Faruq Ahmad Siddiqi, a former BSEC chairman, said the securities regulator itself approved the draft in the board meeting.

"That's why, the commission should have been finalised the amendment unless any change took place in their decision," he said.

Shahidul Islam CFA, Chief Executive Officer of VIPB Asset Management Company, said that a revised rule is required for operations of the MFs. "There is no logic to keep it pending for a long time," he said.

Presently, there are 37 closed-end MFs listed with the stock exchanges.

Following the declining market trend and investors' shaky confidence, the units of the most of the MFs are being traded below their respective face value.

Of the MFs, the market prices of 31 remain below their face value of Tk 10 each.

The trading of the units of these MFs closed at prices ranging between Tk 5.40 and Tk 9.90 per unit on Thursday last.

Among the proposed amendment provisions, the fund managers were supposed to recommend RIU (re-investment unit) as dividend after taking the regulatory permission.

This provision was included in the proposed amendment following mass issuance of RIU by some fund managers amid declining trend of the capital market.

Due to disbursement of RIU, the management fees of fund managers would go up in line with the increased size of the MFs. But the unit holders failed to realise profits as the market prices of most of the MFs are below their face value.

Three MFs did not recommend any dividend for the year ended on June 30, 2017. Other MFs recommended dividends ranging from 2.50 per cent to 18 per cent in the form of cash and RIU, and only cash.

Seven MFs recommended dividends in the form of both cash and RIU and the amount of RIU would be higher than the amount of cash dividend.

The management fees of the asset management companies (AMCs) and trustees were also supposed to be restructured.

As per another proposed provision, the condition for cutting the management fees would be included if the AMCs fail to give dividends.

At the same time, the AMCs will be eligible for offering performance bonus if they could give cash dividends above stipulated rates, according to another proposed provision.

The chief executive officer (CEO) of an AMC is also supposed to be appointed with prior consent by the BSEC.

The regulator is also supposed to incorporate a mandatory provision of publishing complete information about the fund for the greater interest of the investors.

The regulator proposed to cut management fees of fund managers due to failure in issuing dividends.

"Net Asset Value (NAV) of the MFs will have to be calculated daily instead of weekly basis," according to the draft amendment to the MFs.

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