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Trustees and custodians are often blamed for not securing interest of unit holders of mutual funds whenever embezzlement of any fund by a rogue asset management company (AMC) makes headlines.
Facing a situation like that, several trustees said they had little power to stop fund mismanagement as fund managers were the signatory of transactions and withdrawals of funds.
Considering the limitations, the taskforce of the country's capital market suggested making trustee and custodian signatories of the transactions conducted by AMCs
It made a set of recommendations in a report submitted to the securities regulator, aimed at bringing discipline to the mutual fund industry.
The MF industry in other countries, including neighbouring India, flourished over time as fund managers ensured good returns for investors.
But confidence in the local MF industry has dissipated due to scams and unethical activities committed by asset managers. Against the backdrop, reforms to the rules of MFs were a long standing demand.
KAM Mazedur Rahman, a taskforce member, said they addressed problems in the mutual fund sector before other issues, considering the development of the market.
Initially, general investors are supposed to invest in MFs managed by professional fund managers before they gather knowledge about equity investments. But they have no confidence in MFs as many AMCs committed crimes in the absence of proper governance, Mr. Rahman said.
Several AMCs siphoned off funds through investments in non-listed companies, many of which were owned by the fund managers themselves.
The reporting standards of non-listed companies are also not up to the market. As a result, the MFs' investments in non-listed securities do not reflect their true performance.
The taskforce suggested that asset managers refrain from injecting money into non-listed companies.
As per the existing rules, the AMCs are allowed to invest a maximum 40 per cent of a fund in non-listed investment vehicles and companies.
To facilitate diversification and returns, the taskforce suggested a maximum investment of 65 per cent in fixed income securities.
At present, the MFs are required to file financial statements annually and quarterly. The quarterly reports are un-audited while the annual reports are audited.
In many cases, the AMCs do not submit statements, keeping enough provision against losses.
The taskforce suggested IFRS (International Financial Reporting Standards) in financial reporting of MFs.
Mr Rahman said it would be difficult to follow IFRS in quarterly reports but "we will try to ensure IFRS in quarterly reports as such reports now are audited across the globe".
The taskforce has made another recommendation to ensure KYC (know your client) compliance by the Central Depository Bangladesh Ltd. (CDBL) for investors of MFs.
This provision has been proposed to contain hidden investments in MFs, made by unscrupulous individuals.
The taskforce has also recommended a minimum paid-up capital of Tk 100 million of AMC, increased from Tk 50 million.
Presently, all MFs declare NAV (net asset value) on a weekly basis.
The taskforce suggested declaring NAV on a daily basis by open-ended MFs.