An exceptional move in mutual fund sector

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Unit holders of Southeast Bank 1st Mutual Fund have given the go-ahead for VIPB Asset Management Company to convert the closed-end fund into an open-end one.

The development is being viewed by analysts as an exceptional and good move as most closed-end funds have had tenures extended instead of being liquidated, leaving investors unable to realise their gains once maturity is reached.

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The VIPB set an example in the mutual fund industry by allowing unit holders to decide the future of the tenure extension of its closed-end mutual fund.

Mutual funds pool together money from many investors and channel it into securities such as stocks, bonds and other assets.

The Southeast fund had a 10-year tenure. It could be extended by another decade as per a Bangladesh Securities and Exchange Commission (BSEC) notification.

In 2018, the BSEC allowed the extension of closed-end mutual fund tenures by another 10 years following calls from a few asset management companies.

Most fund managers extended the tenures of their funds without availing the opinion of their unit holders.

However, the VIPB swam against the tide by arranging an online vote for taking approval from unit holders on whether they wanted to liquidate the fund or transform it into an open-end fund.

The VIPB got 99 per cent of the votes in favour of transforming the fund into an open-end one, according to a special meeting on the issue on May 25.

Closed-end mutual funds are traded at the bourses on the basis of demand and supply, whereas, open-end mutual funds are traded on the basis of net asset value of funds.

Tenure extension of mutual funds impacted investor confidence so fund managers should liquidate their funds, said Abu Ahmed, a stock market analyst.

Transformation of closed-end mutual funds into open-end funds give a chance to investors to get back their funds at the net asset value, he said.

“This is quite better,” he said.

The stock market regulator should set a ranking of the funds so that general investors can choose the best from among all the open-end funds, Ahmed added.

About the fund’s transformation, Shahidul Islam, managing director of the VIPB, said he himself wanted to liquidate or transform the fund into an open-end one, for which he did not take the step to extend its tenure.

“As we raised the fund for 10 years so we wanted to value our commitment,” he said, adding that now investors could take back their money.

Open-end funds make up a majority of the mutual fund industry all over the world because it can accommodate many investors.

“So, we can attract more people to our fund now along with giving the chance on taking back the fund,” he said.

“We believe on our efforts and performances to attract investors so we prefer to transform into an open-end fund,” he added.

Units of the Southeast fund, which amounted to Tk 99 crore, traded at Tk 13.10.

The fund’s net asset value was Tk 13.89 per unit on the basis of current market prices.