Unitholders reject conversion, seek redemption upon maturity

Another closed-end mutual fund - Vanguard AML BD Finance Mutual Fund One - is going to be liquidated next month after a majority of its unitholders voted against its conversion into an open-ended fund upon maturity.

The fund's trustee - Bangladesh General Insurance Company (BGIC) - at a recent meeting proposed the conversion after the end of the fund's tenure on December 23 this year, but most unitholders decided that the fund should rather be wound up.

Mir Ariful Islam, managing director of Sandhani Asset Management, said redemption would allow unitholders to recover their investments at the current net asset value (NAV), a relief for them, especially when units were trading at heavy discounts in the secondary market.

Following the news, the unit price of the fund rose 2.9 per cent over the previous session to Tk 7.1 on Sunday on the Dhaka Stock Exchange, still trading at a 29 per cent discount on the face value of Tk 10.

The fund has reported a net asset value (NAV) of Tk 8.75 per unit on the basis of the current market prices of underlying assets, as of November 20 this year, whereas the face value is Tk 10 per unit.

Investors who put money in the pooled fund in 2016 and have held on to their holdings until redemption will have insignificant returns on investment.

The fund distributed 2 per cent to 15 per cent cash dividends between 2016 and 2023. The net asset value per unit is Tk 8.75 at present, which is 12.5 per cent lower than the face value.

Considering the dividend income and NAV, a unitholder's average annual return comes to around 5.28 per cent until 2023, much lower than inflation during the period.

This is going to be the second instance in a decade that investors of a close-ended pooled fund will redeem their units upon maturity. Earlier, Asian Tiger Sandhani Life Growth Fund was liquidated in March this year as the securities regulator had rejected the time extension appeal.

Asset managers say unitholders who purchased units at discounted prices would benefit.

As per the latest amended mutual fund rules, close-ended funds must be redeemed on maturity - no tenure extension is allowed, a corrective move to change course from past mistakes.

However, such funds may be converted into open-ended funds if three-fourths of unitholders, based on the percentage of ownership, give approval.

Currently, there are 37 close-ended mutual funds on the stock exchanges. Of them, 34 are trading below the face value of Tk 10 per unit, with 24 among those trading below Tk 5 per unit.

Meanwhile, another close-ended fund - SEML Lecture Equity Management Fund, overseen by Strategic Equity Management - will also complete 10 years on December 23 this year.

However, 93 per cent of the unitholders at a recent meeting voted in favour of the fund's conversion into an open-ended fund.

The initial fund size was Tk 500 million, and the current net asset value stood at Tk 485 million. Trading in the fund units has remained suspended since October 30 this year, and the last closing price was Tk 7.4 per unit.

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