Regulator moves to convert discounted closed-end funds into open-ended schemes

Farhan Fardaus | Published: May 07, 2026 22:06:39

The securities regulator has issued an order to convert deeply discounted closed-end funds into open-ended structures, subject to unitholders' approval, with the transition process set to begin on May 12.
The order aligns with the newly enacted Bangladesh Securities and Exchange Commission (Mutual Fund) Rules, 2025, which came into effect on November 12 last year.
As per the rules, any closed-end fund trading at a discount of more than 24 per cent to its NAV (net asset value) - calculated on a six-month rolling average - is required to either convert into an open-ended structure or wind up.
The BSEC has laid out a step-by-step process for the conversion or liquidation of the listed pooled funds.
Why is BSEC in favour of conversion?
The six-month timeframe will expire on May 12, requiring asset managers to take the next course of action.
The BSEC recommends conversion of the closed-end funds, saying it will help avoid selling pressure on the underlying securities in the market.
"In case of liquidation, unitholders will benefit less," said BSEC spokesperson Abul Kalam.
"The selling pressure from liquidation will reduce share prices, meaning unitholders may not recover the full NAV. They will also have to pay tax on the proceeds received."
After conversion, if units secure a NAV of Tk 15, unitholders will receive one and a half units at fair value, which is far better than the current situation where the units trade at a heavy discount.
They will also be able to redeem units of the open-ended fund at will, without the market having to absorb a large forced sale of securities.
"From the market's perspective, conversion would help avoid the selling pressure that liquidation would create," said the BSEC spokesperson.
Timeline for conversion process
Within 30 days after the end of the six-month period, the trustee must declare a record date, publishing the announcement as Price Sensitive Information (PSI) in at least two national dailies (one in Bangla and one in English), an online portal, and the stock exchange website.
The record date must be fixed with a notice period of not less than 14 market days and not more than 30 market days from the date of the board of trustees' meeting.
A special general meeting (SGM) of unitholders must be scheduled within 21 days of the record date.
Trading in the fund's units shall remain suspended from the record date onwards to preserve the integrity of the voting and conversion process.
The "Effective Date" - when administrative custody transfers to the trustee - must be fixed within three days of the trade suspension date.
If the SGM approves the conversion, the trustee must execute it within 90 days of that decision.
What happens at the SGM
Unitholders registered in the depository up to the record date are entitled to vote. A three-fourths (3/4) majority by number of units is required to approve the conversion.
If the required majority is not achieved, the outcome differs depending on which provision applies.
For funds falling under the NAV-discount clause, failure to secure approval for conversion will trigger mandatory liquidation.
For other closed-end funds, if conversion is not approved, trading resumes from the next market day and management reverts to the existing asset manager.
At least five working days before the SGM, the trustee must submit to the securities regulator a draft information memorandum covering the fund's latest portfolio (at both cost and market price), estimated conversion costs, dividend history, details of the conversion process, and options for selecting new or existing trustees, asset managers, and custodians.
Conversion and unit issuance expenses must not exceed 1 per cent of the converted fund's size. The asset manager's fee for conversion activities is capped at 0.5 per cent of the fund size, while the trustee's fee for a single conversion scheme is capped at Tk 0.1 million.
The registration fee for the converted open-ended scheme will be exempted.
If the conversion proposal is approved at the SGM, costs related to holding the meeting and trustee fees will be borne by the newly selected asset manager. If it is not approved, those costs will fall on the existing asset manager.
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