Asset Management Companies (AMCs) have made a set of proposals, including an increase in IPO (initial public offering) quota for mutual funds (MFs), to boost investors' confidence in such funds.
The proposals were placed at a meeting held at the office of the Bangladesh Securities and Exchange Commission (BSEC) on Sunday, with BSEC commissioner Dr Mizanur Rahman in the chair.
BSEC Chairman Prof. Shibli Rubayat Ul Islam and three other commissioners were present at the meeting attended by the representatives of AMCs and their trustees and custodians.
"We have discussed the MFs' accounting and auditing standards and the dividend policy and ways to ensure greater transparency in the management of the funds," BSEC commissioner Mizanur Rahman said.
Talking to the FE, a representative of a leading AMC said the popularity of MFs has declined following a reduction in the IPO quota set for the funds.
"We have urged the BSEC to increase the IPO quota for the MFs," he added.
As per the latest amendment to public issue rules, the MFs enjoy 5.0 per cent IPO quota under the fixed-price method while 25 per cent IPO quota is set for eligible investors (EIs), including the MFs, under the book-building method,
As per the existing rules, EIs other than the approved pension funds, recognised provident funds, and approved gratuity funds, must have a minimum investment of Tk 30 million in listed securities to avail of the IPO quota.
The official of the AMCs said the investments made by closed-end MFs in listed securities are taken into account when it comes to IPO quota.
"But investments by open-end MFs are not taken into account in the case of IPO quota. We have proposed considering investments made by both closed-end and open-end MFs," he said.
As per the existing rules, tax-free dividend income is Tk 25,000 when realised from open-end MFs, but the amount is Tk 50,000 when realised as income from closed-end MFs.
"The AMCs have demanded a uniform tax-free dividend income of Tk 50,000 be set for both types of MFs," said the representative of the AMC.
As per the existing provision, the MF's single-stock exposure is 10 per cent, meaning 10 per cent of a fund can be invested in a single stock.
At the meeting, the AMCs have demanded that the single-stock exposure be set at 15 per cent.
According to the existing provision, open-end MFs are required to disburse dividend on mandatory basis and the growth funds are to distribute 50 per cent of their realised income as dividend and the balanced funds distribute 70 per cent of their realised income.
In this case, the AMCs demanded that the fund managers be allowed to adopt their own dividend distribution policy for open-end MFs.
According to the AMCs, unit holders of the open-end MFs are required to pay 25 per cent tax on dividend income beyond the tax-free limit.
"Secondly, the NAV (net asset value) of an open-end MF gets squeezed following the dividend distribution. So, unit holders will be benefitted when realising capital gains only as no tax is applicable for such returns," said the AMC's representative who attended the meeting.
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