The number of pending proposals to float open-end mutual funds (MFs) has increased substantially with such MFs more popular than the closed-end ones, according to the officials and experts.
The officials of Bangladesh Securities and Exchange Commission (BSEC) said a number of factors, including the scope of surrendering units as per net asset value (NAV) and tax benefits etc, are prompting the fund managers to float open-end MFs.
The fund managers also termed the tendency of floating the MFs 'very expected' like the global trend of MF industry.
According to BSEC information, the number of proposed unit funds is 12, whereas the number of pending IPO (initial public offering) proposals for closed-end MFs is only three.
In 2016, the securities' regulator approved trust deeds and prospectus of seven open-end funds, whereas the number of closed-end MFs was three.
"The unit-holders of open-end MFs are able to surrender their units at a discount of only 3.0 per cent of NAV. That's why, the investment in open-end MFs is more lucrative than in the closed-end ones," said a senior BSEC official.
The scope of realising gain from the closed-end MFs has reduced due to their poor market prices, he added.
Of the 34 closed-end MFs, the market prices of 26 funds are presently below their face value of Tk 10 each.
He said the securities' regulator is also facilitating the fund managers by approving at least two open-end MFs every month.
"The ongoing trend of open-end MFs is the real one. The unit-holders are able to realise 10-12 per cent dividend yield by investing in the open-end MFs," the BSEC official added.
The open-end MFs which are awaiting the regulatory approval are: Assurance AAML Unit Fund, SEML IBBL Shariah Fund, SEML FBLSL Growth Fund, UFS IBBL Shariah Unit Fund, CAMP IBBL Islamic Unit Fund, Credence First Growth Fund, Zenith Annual Income Fund, IDLC Balanced Fund, Shanta First Income Fund, UFS Sun Life Unit Fund, UFS Pragati Life Unit Fund, and Alif Islamic Income Fund, according to BSEC.
The initial sizes of these open-end MFs vary from Tk 200 million to Tk 2.0 billion.
Among the proposed open-end MFs, UFS IBBL Shariah Unit Fund will be floated with the highest size of Tk 2.0 billion.
Shahidul Islam, managing director of VIPB Asset Management Company, said the rise in number of closed-end MFs indicates that the country's MFs industry has started following the global trend.
"Except Bangladesh, the MF industry is mostly comprised of closed-end MFs. So, the recent trend of floating open-end MFs is very positive and expected."
He also said the benefit of investing in the open-end funds is that the unit-holders can surrender their units at real prices. "The open-end MFs are a kind of saving tool."
The dividend income of the MFs is tax-free up to Tk 25,000, as permitted by the Finance Act. Three closed-end mutual funds which got the regulatory approval in 2016 are: Vanguard AML Rupali Bank Balanced Fund, CAMP BDBL Mutual Fund One, and SEML IBBL Shariah Fund.
The open-end MFs which were approved in 2016 are: UFS Pragati Life Unit Fund, ATC Shariah Unit Fund, ICL Balanced Fund, LankaBangla 1st Balanced Unit Fund, UFS-Padma Life Islamic Unit Fund, VIPB Accelerated Income Unit Fund, and Peninsula AMCL BDBL Unit Fund One.
In 2015, the number of open-end MFs was nine, and at the end of 2016 the number stood at 19. The number of closed-end MFs, which are also listed with the stock exchanges, is 34.
According to the BSEC officials, the total size of the MFs, including the closed-end ones is around Tk 130 billion.
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