Open-Ended Conversion More Profitable Than Liquidation
Graphics: Agamir Somoy
The regulatory body, the Bangladesh Securities and Exchange Commission (BSEC), has issued detailed guidelines for converting close-ended (fixed-term) mutual funds into open-ended (non-term) funds. The information was published on Thursday (May 7) through an order signed by BSEC Chairman Khondaker Rashed Maqsood.
According to the commission, converting close-ended mutual funds into open-ended structures instead of liquidating them would benefit investors more. It said that through conversion, investors would receive benefits based on net asset value (NAV), which is more secure and profitable compared to liquidation. It would also reduce negative pressure on the market.
The order states that under Rules 62(2) and 63 of the Mutual Fund Rules 2025, a close-ended fund may be converted into an open-ended fund under specific conditions. In particular, if the six-month average market price of a fund is at least 25 percent below its NAV, the trustee must call a special general meeting (SGM) to obtain unit holders’ opinions.
Under the guidelines, the trustee must announce a record date within 30 days after the six-month period ends. The trustee board must set the record date at least 14 and up to 30 working days before the meeting. The information must also be disclosed as price-sensitive information (PSI) in national newspapers, online portals, stock exchanges, and on the websites of the trustee and asset manager.
After the record date, an extraordinary general meeting (EGM) must be held with at least 21 days’ notice to obtain unit holders’ views. If 3-4 holders vote against the conversion at the meeting, the fund will move toward liquidation. Otherwise, if the proposal is rejected, normal trading of the fund will resume.
The guidelines state that unit trading will remain suspended from the record date, and the trustee will take control of the fund within three days of the effective date. The entire conversion process must be completed within 90 days.
It also requires that a memorandum of information be submitted to the commission before the SGM, including the latest portfolio, NAV, expected conversion cost, past financial performance, dividend history, and the structure of the new fund. An audit and valuation report prepared by an independent auditor is also required.
The commission further said that after conversion into an open-ended fund, units will be held in dematerialized form, and unit holders will be able to surrender units and withdraw funds at any time. Conversion costs cannot exceed 1 percent of the fund size.
BSEC Director and spokesperson Mohammad Abul Kalam told Aagamir Somoy that close-ended funds have long traded at deep discounts, preventing investors from realizing the true value of assets. He said the new guidelines allow conversion into open-ended funds, enabling unit holders to benefit from NAV-based valuation and redeem units at any time as needed, thereby better protecting investor interests. He added that liquidation requires selling fund assets, which can create selling pressure in the market, whereas open-ended conversion avoids forced asset sales and helps maintain market stability while offering better returns for investors.
He also noted that after the record date announcement, market prices are likely to gradually move closer to NAV, as investors will realize the potential benefits of NAV-based valuation through conversion. As a result, investors in close-ended mutual funds are expected to gain more from conversion into open-ended structures.
Guideline: https://sec.gov.bd/slaws/Final_Conversion_Order.pdf
