Liquidation of Growth Fund to set example for asset managers

Asian Tiger Sandhani Life Growth Fund will be liquidated next week after the completion of 10 years, as the securities regulator has rejected the time extension appeal, a corrective move to change course from past mistakes.

Timely redemption will allow unitholders to recover their investments at the current net asset value (NAV) of the fund, a relief for them especially when units of listed MFs, including the Growth Fund, are trading at heavy discounts in the secondary market.

This is going to be the first time in a decade that investors of a close-ended pooled fund will redeem their units. During the time, the tenure of listed MFs was extended by 10 years after maturity to the frustration of unitholders.

This time the Bangladesh Securities and Exchange Commission (BSEC) did what had been recommended by the taskforce working on capital market reforms.

In its recent report submitted to the market watchdog, the taskforce suggested that all close-ended funds be redeemed on maturity and that no tenure extension be allowed.

Earlier, the Bangladesh General Insurance Company (BGIC), the trustee of the Sandhani Life Growth Fund, sought a time extension by 10 years but to no avail. Then the trustee informed the BSEC that the MF will mature on March 10 this year.

Following the news, the unit price of the Growth Fund jumped 4.6 per cent to Tk 6.80 each on Monday on the Dhaka Stock Exchange, still traded at a 32 per cent discount on the face value of Tk 10.

Md. Abul Kalam, a BSEC spokesperson, said a close-ended MF either can be liquidated or converted into an open-ended fund depending on the consent of a majority of the unitholders (75 per cent) in terms of unit value.

But the Growth Fund had no scope of conversion as the regulator asked the trustee to liquidate the fund.

"The regulator will not take any decision that will deprive unitholders of their due benefits. The decision will help restore investors' confidence in the country's MF industry," added Mr. Kalam.

Return on investment

Investors, who put money in the Growth Fund in 2015 and have held on to their holdings until redemption, will, however, have insignificant returns on investment.

The Growth Fund distributed 5-15.50 per cent cash dividends between 2015 and 2022. NAV per unit is Tk 8.22 at present, reduced by about 18 per cent from the face value.

Considering the dividend income and NAV, unitholder's average annual return comes around 4.5 per cent, much lower than inflation observed during the period.

The return from the fund is much lower than that of Sanchayapatra (government savings certificates), said Asif Khan, chairman of EDGE Asset Management. "But unitholders at least get an exit through fund liquidation."

However, those who purchased units at prices below Tk 10 may get a better return.

Skirmish between unitholders and asset manager

Sajid Rahman, a unitholder of the Growth Fund, said the asset management company (AMC) had missed the opportunity of converting the fund into an open-ended one as it did not hold the EGM (extra-ordinary general meeting) within the stipulated time.

That means the AMC had an intention to continue operating the fund as it is for another 10 years.

Mr Rahman said the unitholders had raised questions at the EGM about the AMC's performance when they found that the information regarding the fund's portfolio was not furnished properly.

He cited the AMC as saying in the meeting that it was trying to ensure returns for the unitholders by diverting investments to FDRs (fixed deposit receipts) from equities.

Unitholders retorted that they themselves could do so for a higher return.

The trustee was requested by the unitholders not to work in favour of the AMC just for a fee. It then sent letters to the securities regulator seeking its permission for liquidation of the fund.

"I'm happy that the unitholders are going to get back investments," Mr Rahman said.

What happens to Growth Fund in 10 years?

The size of the fund was Tk 1 billion, with a face value of Tk 10 per unit. But the fund was undersubscribed and so was reduced to Tk 600 million. Sandhani Life Insurance -- the sponsor -- provided Tk 200 million and pre-IPO fund collection was another Tk 200 million. The remaining Tk 200 million was raised through a public offer.

The Growth Fund's net asset value (NAV) is Tk 8.22 per unit based on the current market price.

Net assets of the Fund stood at Tk 508.18 million as of Monday, based on current market price of the underlying assets whereas the value of assets is Tk 629.71 million if all assets and liabilities of the Fund are taken into consideration.

A mutual fund is a professionally-managed collective investment scheme that pools money from a number of investors, usually for a decade, in order to be reinvested into stocks, bonds and other assets. Depending on the profits earned, investors are paid back in dividends.

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