Securities and Exchange Commission (Mutual Fund) Rules, 2001 (Updated until August 24, 2021)

Securities and Exchange Commission (Mutual Fund) Rules, 2001 [Updated until August 24, 2021]

Bangladesh Gazette
Extraordinary Issue
Published by Authority
Tuesday, July 10, 2001

Volume 8 -- Notifications and Notices issued by or on behalf of private persons and corporations.

Securities and Exchange Commission
Life Insurance Tower (15th and 16th Floor)
10, Dilkusha Commercial Area

Notification

Date, June 6, 2001

No. SEC/Reg:MF/2001-516/Admin-12-In pursuit of the powers conferred under Section 24(1) of the Securities and Exchange Commission Act, 1993 (1993 Act No. 15), the Securities and Exchange Commission, after previous publication, hereby makes the following rules:

Chapter I
Preliminary

1. Short title. - These rules shall be known as the Securities and Exchange Commission (Mutual Fund) Rules, 2001.

2. Definitions. - (1) Unless the context otherwise requires, in these rules:
   (a) "Money Market Instruments" shall include short-term commercial papers, commercial bills, treasury bills, certificates of deposit, and usance bills along with all instruments of the securities market; (b) "Affiliate" shall also include such a company:
   (i) which exercises direct or indirect control over the Trustee or Asset Manager, either alone or together with other persons; (ii) over which the Trustee or Asset Manager exercises direct or indirect control, either alone or together with other persons; (iii) over which direct or indirect control is exercisable by the following, namely:
   (1) individuals, or
   (2) relatives of the said individuals or persons, who exercise direct or indirect control over the Asset Manager or Trustee, either alone or together with others; Explanation: For the purpose of this sub-rule, "relatives" shall mean the wife, husband, brother, sister, son, daughter, father, mother, father-in-law, mother-in-law, and those members of the family who are dependent on the said individual, directly or indirectly; (c) "Act" means the Securities and Exchange Commission Act, 1993 (1993 Act No. 15); (d) "Unit" means each unit forming part of the interest of the investors in a Mutual Fund Scheme, representing an undivided share of the assets of such Scheme; (e) "Unit Holder" means the owner of any Unit of a Mutual Fund Scheme; (f) "Promoter" means any Bank, Financial Institution, Asset Manager Company registered by the Commission, Insurance Company, Registered Institution, Public Limited Company, Approved and Registered Trust Fund, Pension Fund, Provident Fund, Superannuation Fund, Domestic Fund approved by the relevant regulatory authority, which forms a Mutual Fund alone or together; (g) "Controlling Interest" means:
   (i) in the case of a single company, if an individual or group of individuals holds, controls, or possesses shares with voting power of at least ten percent in such company, directly or indirectly; (ii) between two companies, if the same individual or group of individuals holds, controls, or possesses shares with voting power of at least ten percent in each company, directly or indirectly; (h) "Trustee" means any Bank or Financial Institution, Registered Institution, or Company formed under the Companies Act, 1994 (1994 Act No. 18) for the purpose of holding the assets of the Mutual Fund in trust and registered by the Commission under Rule 20 of these rules; (i) "Investigation Officer" means any person appointed by the Commission as an Investigation Officer under Rule 86(1); (j) "Schedule" means any Schedule to these rules; (k) "Inspection Officer" means any Officer appointed by the Commission as an Inspection Officer under Rule 75(1); (l) "Reinvestment" means the distribution of the fund's profit through the issuance of new units based on the Net Asset Value; (m) "Form" means any Form provided in the First Schedule; (n) "Fixed Income Securities" means a type of capital market security with a maturity of more than one year, from which investors receive a specified amount of interest or profit at specified intervals, and upon maturity, the invested principal is returned; in this regard, securities that pay interest or profit at a fixed or floating rate shall be included; (o) "Person" shall include any body of individuals, any company, any Registered Institution, or any other institution; (p) "Advertisement" shall include all types of advertisements, which may be in the form of notices in newspapers, or in the form of displays, notices, symbols, labels, circulars, or organized lists, or as any other document, picture display, or photographic film, or through radio and television broadcasting, or by any other means; (q) "Sales Representative" means an institution (Bank, Financial Institution, Insurance Company, Merchant Banker, Stock-Broker) or person appointed by the relevant Asset Manager Company, subject to the Commission's instructions, who shall be a registered Certificate Holder of the Bangladesh Institute of Capital Market; (r) "Open-End Scheme" means any Scheme of a Mutual Fund which proposes to sell Units without determining a maturity date and the amount of the Scheme, and offers the facility of purchase and repurchase throughout the year except during the Book Closure; (s) "Mutual Fund" means any fund formed as a Trust, the purpose of which is to collect money from the public by selling Units under one or more Schemes for investment in Money Market Instruments or in accordance with these rules; (t) "Supervisory Board" means the Supervisory Board appointed by the Asset Manager; (u) "Capital Gain" means Capital Gain as used in the Capital Gains Tax Ordinance, 1984 (XXIII of 1984); (v) "Closed-End Scheme" means any Scheme which has a fixed
   maturity period, and the size of its fund can only change through Reinvestment; (w) "Asset Manager" means any Bank or Financial Institution, Insurance Company, Registered Institution, or Company formed under the Companies Act, 1994 (1994 Act No. 18) registered by the Commission under these rules for the purpose of conducting and managing Mutual Fund business and Institutional Client Fund business; (x) "Integrated Investment Scheme" means any Investment Scheme or business formed by the Commission in light of specific policies, through which money is collected from investors and invested in various types of assets under the supervision of the Asset Manager for the purpose of earning income or profit for the investors; (y) "Special Paper Fund" means any fund formed for a specific purpose, the formation of which requires prior approval of the Commission; (z) "Custodian" means any Bank, Financial Institution, Registered Institution, Depository, or Company formed under the Companies Act, 1994 (1994 Act No. 18) and registered by the Commission under Rule 37 of these rules, engaged in the custody of securities (for the purpose of delivering securities on behalf of the client or participating in the clearing system); (aa) "Short-Term Investment Scheme" means any Investment Scheme whose main purpose is short-term profit maximization and long-term capital appreciation; (bb) "Institutional Investor" means any Corporate Institution, Trust, Cooperative Society, Pension Fund, Provident Fund, Endowment Fund, and Private Institution.

(2) The words or expressions used in these rules for which definitions are not provided shall be used in the same sense as they are used in the Securities Act, 1969 (XXXVI of 1969), the Securities and Exchange Commission Act, 1993 (1993 Act No. 15), the Banking Companies Act, 1991 (1991 Act No. 14) and any rules or regulations made thereunder, and the Companies Act, 1994 (1994 Act No. 18).

Chapter II
Registration of Mutual Fund

3. Registration of Mutual Fund. - Every Mutual Fund shall be registered by the Commission in accordance with these rules, and no Mutual Fund shall be operated without such registration.

4. Application for Registration. - The Promoter shall submit an application to the Commission in Form 'A' for the registration of a Mutual Fund:
   Provided that, if any Promoter had previously submitted an application to the Commission for the registration of a Mutual Fund before the commencement of these rules, it shall be considered as an application under these rules and shall be disposed of accordingly.

5. Application Fee. - With every application submitted under Rule 4, an application fee of [One Lakh Taka] (refundable) shall be paid to the Commission by Pay Order or Bank Draft, otherwise no application shall be considered.

6. Application to be Complete. - Every application submitted under Rule 4 shall contain complete information according to the instructions specified in the prescribed Form, otherwise the application shall be liable to be rejected:
   Provided that, before rejecting any application, the applicant shall be informed in writing within seven days from the date of receipt of the application that any objection raised by the Commission shall be resolved within twenty-one days.

7. Demand for Additional Information or Explanation. - (1) If the Commission deems it necessary for the registration of a Mutual Fund, it may demand additional information from the Promoter regarding the information provided in his application or an explanation of the provided information.
   (2) If any information or its explanation is demanded under sub-rule (1), the Promoter or any authorized representative person may personally appear and provide the explanation of such information if necessary.

8. Consideration of Application. - The Commission shall duly consider all applications received under Rule 4 and shall give its decision regarding the application within thirty days from the date of receipt of the application:
   Provided that, if any additional information or explanation is demanded under Rule 7, the said thirty days shall be counted from the date of providing such information.

9. Disqualification for Registration Approval. - A Mutual Fund shall not be eligible for registration approval if:
   (a) it is not formed as a Trust and its Trust Deed is not approved by the Commission; (b) its Trustee, Asset Manager, and Custodian are not registered by the Commission under these rules; (c) the Promoter does not contribute at least 10 (ten) percent of the collected amount of any Closed-End Mutual Fund Scheme and at least 10 (ten) percent of the initial collected amount of any Open-End Mutual Fund Scheme:
   Provided that, the share held by the Promoter shall be: (i) in the case of Closed-End Fund Units, retained by the Promoter for up to 1 (one) year from the date of listing on the Stock Exchange and thereafter at least 10 (ten) percent of the retained share shall be retained by the Promoter until the maturity of the Fund, and (ii) in the case of Open-End Fund, it shall be retained for at least 3 (three) years from the date of formation of the Fund, and thereafter it may be transferred in favor of any institution eligible to be a Promoter with the prior approval of the Commission.

10. Registration Approval. - (1) If there is no disqualification mentioned in Rule 9, the Commission shall approve the application for Mutual Fund registration and register the Mutual Fund:
    Provided that, before such registration, the applicant shall deposit a registration fee of 20% of the fund amount to the Commission by Pay Order or Bank Draft.
    (2) If a Mutual Fund is registered, the Commission shall issue a Registration Certificate in Form 'E'.
    (3) The draft Prospectus for the public offering shall be submitted to the Commission within 3 (three) months from the date of registration of the Mutual Fund:
    Provided that, the Commission may extend this time limit if it deems fit.

11. Annual Fee.
    (1) Every Mutual Fund registered under these rules shall deposit an annual fee of 1% of the fund amount or [One Lakh Taka], whichever is higher, to the Commission by Pay Order or Bank Draft before the start of each financial year:
    Provided that, if the annual fee is not deposited within the specified time, an additional amount of the annual fee shall be paid as a fine from the Asset Manager's account to the Commission for each month or part thereof of delay. (2) If a Mutual Fund fails to pay the annual fee as per sub-rule (1), the Commission shall not consider any new Scheme of such Mutual Fund before the payment of the outstanding fee. (3) Without prejudice to any provision of these rules, if the Commission considers the reason for delay in fee payment satisfactory, it may permit any Mutual Fund to pay the relevant fee at any time within sixty days after the start of the financial year, based on its application.

12. Matters to be Observed by Registered Mutual Fund. - The Promoter, Trustee, Asset Manager, and Custodian of every Mutual Fund registered under Rule 10 shall:
    (a) abide by all relevant laws and provisions of these rules; (b) ensure internal supervision; (c) inform the Commission immediately in writing if any information previously submitted to the Commission is found to be materially false or untrue; (d) inform the Commission immediately if any material change occurs in any information or description previously submitted to the Commission in connection with the registration granted by the Commission; (e) provide full cooperation in this matter, including allowing the Commission to examine all its directors, officers, and other employees during any investigation; (f) submit to the Commission the account books, documents, and other necessary information required by the Commission for any investigation; (g) at the same meeting where the Trustee Board of the Mutual Fund accepts/approves the audited financial statements of the relevant fund or Scheme, it shall take specific decisions and announce regarding the distribution of dividends for the relevant year, determination of any entitlement (where applicable to any Mutual Fund or Scheme), and Record Date, which shall not be changed without the prior approval of the Commission:
    Provided that,
    (1) in cases where there is a requirement to obtain prior approval of the Commission for the proposal of dividend of a nature other than cash dividend for the Unit Holders or regarding any entitlement (where applicable to any Mutual Fund or Scheme), the Trustee Board shall announce at the time of announcing the said decision that the said decision shall be operative subject to the approval of the Commission, and if the approval of the Commission is obtained in favor of it, it shall be announced or circulated again immediately; (2) if the said approval of the Commission is not obtained, it shall also be announced or circulated immediately, and in that case, the Trustee Board shall issue and announce or circulate a notice requiring a re-decision, particularly regarding the payment of cash dividends, within 10 (ten) working days of receiving the said decision of the Commission; (3) all sensitive decisions taken by the Trustee Board shall be taken after the close of trading on the Stock Exchange or on any day that is not a working day, and each such decision shall be sent to the Commission and the Stock Exchange via Fax and special messenger within 30 (thirty) minutes and shall be published in at least 3 (three) widely circulated national daily newspapers on the following day. (h) Cash dividends declared shall be distributed within 30 (thirty) working days from the date of approval by the Trustee Board, based on the preference (Option) collected in writing from the Unit Holders, in the following manner:
    By sending to the relevant Bank for deposit into the Unit Holders' Bank accounts:
    Provided that, in this case, if the Unit Holder's Bank imposes any service charge, etc., it shall be borne by the Unit Holder:
    Further Provided that, when sending cash dividends to the Unit Holders' Bank accounts, a notification letter (Notice of Payment) shall be issued to the Unit Holders simultaneously, which shall contain details among others, such as withholding tax (if any), date of payment of cash dividend, amount, and name of the relevant Bank; Or In the case of Open-End Mutual Funds, by issuing cash dividend warrants to the Unit Holder at the name and address provided by the Unit Holder as Beneficiary on Name (BON).

13. Prohibition on Appointment of Officers, etc. - No Officer or employee appointed for the operation of a Mutual Fund shall simultaneously hold the position of Officer or employee of any Merchant Banker and Portfolio Manager, Stock Dealer, or Stock Broker.

14. Action in Case of Non-Approval of Registration. - (1) If the Commission considers any Mutual Fund application unsuitable for registration in light of the matters mentioned in Rule-9, the Commission may reject the application concerned.
    (2) If any application is rejected under sub-rule (1), the Commission shall inform the applicant in writing of the decision along with the reasons within thirty days from the date of receipt of the application.
    (3) Any person aggrieved by any decision taken by the Commission under sub-rule (2) may, within thirty days of being informed of the decision, request the Commission to reconsider the decision by submitting an application to the Commission. (4) If any application is received under sub-rule (3), the Commission shall reconsider it and, if necessary, provide the applicant with an opportunity for personal explanation or hearing, and within thirty days from the date of receipt of the application or, as the case may be, the date of receiving the personal explanation or hearing, the Commission shall inform the applicant in writing of its decision.

Chapter III
Formation and Management of Mutual Fund

15. Method of Formation of Mutual Fund. - (1) Every Mutual Fund shall be formed as a Trust under the Trust Act, 1882 (II of 1882) and the Trust Deed shall be registered under the Registration Act, 1908 (XXVI of 1908).
    [Provided that, the name of each Mutual Fund shall begin with the name of the relevant Asset Manager. The names of the Promoters may also be attached to the name of the Fund.]
    (2) The said Trust Deed shall be executed by the Promoter in favor of the Trustee.
    (3) The said Trust Deed shall be submitted to the Commission for approval before its registration, and the said Deed shall be registered only after obtaining such approval.
    (4) The said Trust Deed shall mention the matters specified in the Second Schedule of these rules.
    (5) The said Trust Deed shall not mention any matter which:
    (a) limits or terminates the liability and obligation of the Trust regarding the Mutual Fund or its Unit Holders; or (b) exempts the Trustee and Asset Manager from liability even if Unit Holders suffer loss and damage due to the negligence of the Trustee or Asset Manager or due to any act done or not done by them. (6) The said Trust Deed shall be kept open for public inspection at the registered office of the Mutual Fund, and a copy of the said Deed shall be supplied to anyone who asks for it at the prescribed price.

16. Management of Mutual Fund. - (1) For holding the assets of every Mutual Fund in trust, a Company, Bank, or Financial Institution, or Registered Institution registered by the Commission as Trustee under these rules shall be appointed as Trustee, and the Trust Deed executed under Rule 15 shall be executed in favor of such Trustee.
    (2) For the management of every Mutual Fund and the operation of its Schemes, a Company or Registered Institution registered by the Commission as Asset Manager under these rules shall be appointed as Asset Manager.
    (3) For the custody of the securities of every Mutual Fund, a Company or Registered Institution registered by the Commission as Custodian under these rules shall be appointed as Custodian.

Chapter IV
Trustee

17. Registration as Trustee. - Any Bank or Financial Institution, Company, or Registered Institution appointed as Trustee of a Mutual Fund shall be registered by the Commission in accordance with these rules, and no Company or Registered Institution shall be appointed as Trustee without such registration.

18. Application for Registration. - (1) For a Company or Registered Institution to obtain registration as Trustee, Form 'B' and a Pay Order/Bank Draft of [Fifty Thousand Taka] shall be deposited with the Commission.
    (2) Along with the application under sub-rule (1), a copy of the Memorandum and Articles of Association of the Trustee, or as the case may be, the relevant Act shall be submitted to the Commission.
    (3) The provisions of Rules 6, 7, and 8 shall apply to the application under sub-rule (1).

19. Disqualification for Registration Approval. - (1) No Company, Bank, Financial Institution, or Registered Institution shall be eligible for registration approval as Trustee if:
    (a) it does not have a paid-up capital of at least One Crore Taka and net assets of Eighty Lakh Taka; (b) it or any of its directors is a willful defaulter of loans; (c) it does not have a reputation for integrity in its transactions; (d) it or any of its directors is a Promoter or Asset Manager of any Mutual Fund, Stock Dealer, Stock Broker, Merchant Banker, and Portfolio Manager, or is a director of any Company or Institution under it or is connected with it in any way; (e) it does not have at least five years of experience in the relevant field of service in the main Executive Office in the financial market and relevant experience in other offices; (f) it does not have the necessary equipment for the place of business, office, and service provision. (2) The Commission may relax any of the provisions of sub-rule (1) for any Trustee in the public interest.

20. Registration Approval. - (1) If there is no disqualification mentioned in Rule 19, the Commission shall approve the application for Trustee registration within thirty days from the date of receipt of the application and register the Trustee:
    Provided that, before such registration, the applicant shall deposit a registration fee of [One Lakh Fifty Thousand Taka] to the Commission by Pay Order or Bank Draft.
    (2) If a Trustee is registered, the Commission shall issue a Registration Certificate in Form 'E'.

21. Action in Case of Rejection of Registration. - (1) If any disqualification mentioned in Rule 19 exists, the Commission may reject the application for Trustee registration.
    (2) If any application is rejected under sub-rule (1), the Commission shall inform the applicant in writing of the decision along with the reasons within thirty days from the date of receipt of the application.
    (3) Any person aggrieved by any decision taken by the Commission under sub-rule (2) may, within thirty days of being informed of the decision, request the Commission to reconsider the decision by submitting an application to the Commission. (4) If any application is received under sub-rule (3), the Commission shall reconsider it and, if necessary, provide the applicant with an opportunity for personal explanation or hearing, and within thirty days from the date of receipt of the application or, as the case may be, the date of receiving the personal explanation or hearing, the Commission shall inform the applicant in writing of its decision.

22. Annual Fee.
    (1) Every Trustee registered under these rules shall deposit an annual fee of [Fifty Thousand Taka] to the Commission by Pay Order or Bank Draft before the start of each financial year:
    [Provided that, if the annual fee is not deposited within the specified time, a fine of Twenty-Five Thousand Taka per month shall be paid to the Commission for each month or part thereof of delay.]
    (2) If a Trustee fails to pay the annual fee as per sub-rule (1), the Commission shall not consider any new Trusteeship for such Trustee before the payment of the outstanding fee.
    (3) Without prejudice to any provision of these rules, if the Commission considers the reason for delay in fee payment satisfactory, it may permit any Trustee to pay the relevant fee at any time within sixty days after the start of the financial year, based on its application.

23. Appointment of Trustee. - (1) The Promoter of every Mutual Fund shall appoint a Trustee registered by the Commission to hold the assets of its property in trust:
    Provided that, if more than fifty percent of the members of the Board of Directors of a Company are members of the Board of Directors of any Company or Institution under it, or are connected with it as Promoter or Promoter Company, such Company shall not be appointed as Trustee:
    Further Provided that, no Asset Manager shall be appointed as Trustee; however, Rule 36A shall be mentioned.

24. Duties of Trustees.
    (1) The Trust shall have the right to obtain any information related to the management of the Trust from the Asset Manager, and the Trustees may, from time to time, ask for interim reports from the Asset Manager.
    (2) If any Trustee ever feels that the operations of the Mutual Fund are not being conducted in accordance with the relevant laws or these Rules, such Trustee shall immediately take necessary measures to rectify the situation and inform the Commission regarding the same. (3) The Trustee shall ensure that all necessary documents are executed for any assignment and transfer on behalf of the Trust, and ensure that transactions by the Asset Manager are conducted properly and in accordance with these Rules. (4) The Trustee shall also be responsible for the Asset Manager's compliance with these Rules. (5) The Trustee, being empowered by the Trust Deed, shall enter into an agreement with the Asset Manager containing the matters specified in the Third Schedule and other matters necessary for the investment of the Mutual Fund's funds. (6) The Trustee shall supervise the assets of the Mutual Fund and keep them safe for the unit holders in accordance with these Rules and the Trust Deed. (7) The Trustee shall ensure that all transactions of the Mutual Fund are conducted in accordance with the Trust Deed and the Third Schedule of these Rules. (8) The Trustee shall be responsible for the accounts of any amount payable to the Mutual Fund and any amount received by the Mutual Fund on behalf of the unit holders in accordance with these Rules and the Trust Deed. (9) The Trustee shall examine the quarterly reports received from the Asset Manager regarding the operations of the Mutual Fund and submit such quarterly reports to the Commission within one month thereafter, along with a certificate that the Asset Manager is duly discharging their responsibilities. (10) The Trustee shall convene a meeting of unit holders in the following situations, namely:
    (a) When the Commission directs the convening of a meeting of unit holders for their interest; (b) When unit holders of one class or all classes representing three-fourths of the meeting request it; or (c) When the Trustee wishes to close any class, redeem units before maturity, or amend any class.

Chapter Five
Asset Manager

25. Registration as Asset Manager.
    No company or incorporated firm shall be appointed as the Asset Manager of any Mutual Fund unless it is registered with the Commission in accordance with these Rules, and no company or incorporated firm shall be appointed as an Asset Manager if not so registered.

26. Application for Registration.
    (1) For a company or incorporated firm to obtain registration as an Asset Manager, Form 'G' and a Pay Order/Bank Draft of [One Lakh Taka] in favor of the Commission must be deposited.
    (2) A copy of the Memorandum and Articles of Association or, as the case may be, the relevant Act or Order of the Asset Manager must be submitted to the Commission along with the application under sub-rule (1).
    (3) The provisions of Rules 6, 7, and 8 shall apply to the application under sub-rule (1).

27. Disqualification for Approval of Registration.
    (1) No company or incorporated firm shall be eligible for approval of registration as an Asset Manager if:
    (a) It does not have a paid-up capital of not less than 500 million Taka:
    Provided that, if any registered Asset Manager does not have the said amount of paid-up capital, it shall be collected within 1 (one) year from the commencement of this provision:
    Further provided that, if the net worth (assets minus liabilities) of an Asset Manager ever falls below 10% (ten percent) of its paid-up capital or more, the said reduced amount shall be increased through capital increase in the subsequent financial year. ---