FE REPORT |
Published: 29 Aug 2022 10:00:08
Asset management companies (AMCs) have made a number of proposals, including increasing the IPO (initial public offering) rate for mutual funds (MFs) to boost investor confidence in such funds.
The proposals were unveiled at a meeting at the Bangladesh Securities and Exchange Commission (BSEC) office on Sunday, chaired by BSEC Commissioner Dr. Submitted to Mizanur Rahman.
BSEC Chairman Prof. Shibli Rubayat Ul Islam and three other Commissioners were present at the meeting, which was attended by representatives of the AMCs and their trustees and administrators.
“We discussed MFs’ accounting and auditing standards, as well as dividend policies and ways to ensure greater transparency in how the funds are managed,” said BSEC Commissioner Mizanur Rahman.
Speaking to FE, a representative from a leading AMC said that the popularity of MFs has declined following a reduction in the IPO rate set for the funds.
“We have asked the BSEC to increase the IPO quota for the MFs,” he added.
Under the latest amendment to the public offering rules, the MFs will enjoy a 5.0 percent IPO rate using the fixed price method, while a 25 percent IPO rate will be set for EIs, including the MFs, using the bookbuilding method becomes.
Under the existing rules, EIs other than the accredited pension funds, accredited provident funds and accredited bonus funds are required to have a minimum investment of Tk 30 million in listed securities in order to benefit from the IPO quota.
The AMCs official said that closed MFs’ investments in listed securities are included in the IPO rate.
“But investments from open MFs are not taken into account in the case of IPO quotas. We suggested considering investments from both closed and open MFs,” he said.
According to the existing regulations, the tax-free dividend income is Tk 25,000 when realized from open-end mutual funds, but the amount is Tk 50,000 when realized as income from closed-end mutual funds.
“The AMCs have requested that both types of MFs be declared uniform tax-free dividend income of Tk 50,000,” said the AMC representative.
Under the existing rule, the MF’s single stock exposure is 10 per cent, meaning that 10 per cent of a fund can be invested in a single stock.
At the meeting, the AMCs called for individual stock exposure to be capped at 15 percent.
Under the existing regulation, mutual funds are required to pay dividends on a mandatory basis, and growth funds are required to pay out 50 percent of their realized income as dividends and mixed funds are required to pay out 70 percent of their realized income.
In this case, the AMCs requested that fund managers be allowed to pursue their own dividend distribution policy for open-ended MFs.
Under the AMCs, shareholders in the open MFs must pay 25 percent tax on dividend income in excess of the tax-free limit.
“Second, the NAV (Net Asset Value) of an open MF will be pressured after the dividend payment. So shareholders will benefit if they only realize capital gains as there are no taxes on such returns,” said the AMC representative, who attended the meeting.
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