The tenure of closed-end mutual funds, which are usually listed on the stock market, should not be more than 10 years, according to the capital market reform task force proposal.
The task force on Monday submitted two draft reports to the Bangladesh Securities and Exchange Commission, proposing an amendment to Margin Rules, 1999 and Mutual Fund Rules, 2001.
Earlier in 2018, the BSEC, led by the then chairman M Khairul Hossain, had allowed tenure extensions of closed-end mutual funds despite huge criticism from stock market analysts.
Several asset management companies, which manage these funds, did not take approval from unit holders for such extension, creating agitation among the investors.
The extension has allegedly deprived the unit holders of getting profits and principal amount of investment after selling those to the AMC as per rules.
A unit holder is an investor who owns units in a mutual fund.
The task force proposed that the closed-end mutual funds, which already completed their initial 10-year term and received a 10-year extension, must be liquidated after the extended period ended.
It also proposed that at least a year before the fund鈥檚 tenure expires, unit holders must hold a special meeting.
If at least three-fourths, of those present, vote in favour of converting the fund based on their ownership percentage, it can be changed into an open-end mutual fund, subject to regulatory approval.
A mutual fund pools money from many investors to purchase a diversified portfolio of stocks, bonds or other securities.
A closed-end mutual fund has a fixed tenure, which is liquidated after the fund鈥檚 tenure ends, while open-end funds allow continuous buying and selling.
According to the draft proposal, mutual funds can invest in listed securities on stock exchanges and transferable assets like government securities, bonds, and preference shares.
Preference or preferred shares are聽a type of stock issued to shareholders as priority recipients of dividends.
It recommended that equity mutual funds and growth funds must invest at least 51 per cent of their total assets. Currently, the minimum investment by such funds is 65 per cent.
Fixed-income funds must allocate at least 65 per cent to fixed-income instruments and cannot invest in equities except through initial public offerings, it suggested.
The taskforce also proposed that one-third of the boards of asset management companies must be comprised of independent directors.
The capital requirement for AMCs has also been proposed to be increased from Tk聽5 crore to Tk聽10 crore.
Trustees of a fund must have a minimum of Tk聽10 crore in paid-up capital and comply with BSEC Risk-Based Capital Adequacy Rules, it added.
Full compliance with International Financial Reporting Standards and International Accounting Standards should be mandatory to ensure fair value accounting and related party disclosures, the task force recommended.