Delays in MF conversion, liquidation trap investors' funds

Delayed conversion or liquidation of close-ended mutual funds (MFs) is preventing investors from recovering their investments on time and leaving funds idle for extended periods.
One of the funds, SEML Lecture Equity Management Fund, was scheduled to be converted into an open-ended fund by December last year. However, the Bangladesh Securities and Exchange Commission (BSEC) approved the conversion proposal only last week.
Iftekhar Ul Alam, a unit holder of the pooled fund, said the fund's trustee held a meeting with unitholders in October last year.
"Such unexpected delays in the conversion or liquidation of a close-ended fund leave unitholders in uncertainty. They are unable to decide how to further utilise their funds," Mr Alam said.
Meanwhile, officials of the Bangladesh General Insurance Company (BGIC), the trustee of the SEML Fund, said they have yet to receive the consent letter from the Commission.
"Upon receiving the letter, we will complete the conversion procedure within a short period," said a BGIC official who wished not to be named.
Unitholders of the Asian Tiger Sandhani Life Growth Fund had to wait more than six months to recover their investments.
Investors recover funds upon completion of a fund's liquidation. They can also withdraw funds after a mutual fund is converted into an open-ended instrument.
Mr Alam said investors either want to reinvest their money in the market or use it for other purposes. "No goal is achieved due to the long delay in recovering funds from a mutual fund."
The BGIC official said the regulator takes a long time to approve the conversion or liquidation of a fund. "The regulator raises queries. There may also be a shortage of manpower at the securities regulator," he added.
The BSEC is not legally bound to approve fund conversion or liquidation within a specific timeframe, whereas trustees are required to convene unitholders' meetings within a stipulated time and submit proposals to the market watchdog.
BSEC spokesperson Md Abul Kalam said the regulator needs to thoroughly examine documents and auditors' reports related to fund conversion or liquidation. In many cases, the BSEC raises queries regarding asset valuation or discrepancies in fund statements.
In the meantime, the securities commission has initiated steps to frame guidelines to ensure regulatory approval of fund conversion or liquidation within a specific timeframe and to address other issues, including fund mergers.
An order has already been issued to form a committee to draft the guidelines.
Under the revised rules for MFs, trustees must hold an extraordinary meeting with unitholders within 30 days of issuing a notice to obtain their consent.
A fund will be liquidated based on the votes of three-fourths of the unitholders present at the meeting, either in person or virtually. Upon receiving consent, the trustee will submit a report on the liquidation procedure to the Commission within 30 days.
At the same time, the trustee will publish advertisements in
two widely circulated newspapers (one English and one Bengali), outlining the reasons for liquidation, steps taken to offload underlying assets, net asset value, liquidation costs, and auditors' reports.
The same information will also be uploaded on the website of the asset management company.
After examining the report submitted by the trustee, the Commission will provide written consent for liquidation. The trustee will then distribute funds among unitholders within seven days of receiving regulatory approval.
Merger of funds
The issue of fund mergers has already been included in the revised mutual fund rules, which came into effect last November.
Once implemented, the guidelines are expected to help reduce the cost of managing pooled funds.
For example, an asset manager may operate 10 mutual funds, some of which may be small in size. However, the manager must bear separate costs for trustees, auditors, and custodians for each fund, ultimately reducing the value of the pooled assets.
Management costs can be lowered if funds managed by the same asset manager are merged into a single fund.
"In that case, it will also be easier for the securities regulator to monitor the operations of a
merged fund," said the BSEC spokesperson.
"The proposed guidelines for merger and conversion of mutual funds will help ease and expedite fund operations," Mr Kalam added.

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