The securities commission has decided to allow open-ended mutual funds (MFs) to reinvest profits instead of distributing dividends, subject to approval from trustees.
The decision was taken at a meeting on Wednesday at the office of the Bangladesh Securities and Exchange Commission (BSEC).
The reinvestment is not mandatory. If an asset manager proposes reinvesting profits in a pooled fund, it will need approval from the trustee. The trustee may give its consent considering the interest of unitholders and the capital market.
The reinjection of cash will not involve the issuance of reinvestment units (RIU); rather, it will improve the fund's net asset value (NAV).
For example, if a fund earns a profit of Tk 1 per unit with a NAV of Tk 10, and the profit is reinvested, the NAV will increase to Tk 11 per unit.
BSEC spokesperson Md Abul Kalam explained how reinvestment will benefit investors.
The FY27 budget imposes a 15 per cent tax on dividend income but waives capital gains tax for mutual funds. Unitholders are required to pay Tk 0.15 in tax against dividend income of Tk 1.
In case of reinvestment, they will not pay the tax but will be able to redeem units at any time at the rate of the increased NAV.
The market will also benefit through fresh investments, said Mr Kalam.
In contrast, the scope of reinvestment previously offered to close-ended funds was detrimental to investors. Neither could they get dividends, nor could they surrender units at NAV. They saw their money stuck at heavily discounted market prices, with funds' maturity periods extended.
Presently, the number of open-ended funds stands at 94 while close-ended funds number 29. Total assets under management in the mutual fund industry stood at Tk 121.7 billion as of March 31, according to IDLC Asset Management.
The securities regulator imposed a bar on launching any new close-ended fund in the revised mutual fund rules, which were brought into effect last year.
Meanwhile, at Wednesday's meeting, the BSEC returned the authority to fix the limits of circuit breakers on the market prices of listed securities to the exchanges.
From now on, the exchanges will be able to determine market control mechanisms.
As per the securities rules and regulations, the stock exchanges can set market control parameters and operational requirements independently.
Nevertheless, the securities regulator created scope to intervene through a directive issued in June 2021.
"The exchanges should be allowed to exercise their authority in line with their rules and regulations," said the BSEC spokesperson.
The regulatory intervention had prevented the stock exchanges from exercising that authority. "That's why the regulator has made its previous directive null and void," Mr Kalam added.
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