DFIM Circular No. 05: Provision against unrealized loss for diminution of value of investment in Mutual Fund Units

Department of Financial Institutions andMarkets Bangladesh Bank Head Office Dhaka-1000 DFIM Circular No. -05 Date: 11 May, 2015 28 Baishakh,1422 Chief Executives/ Managing Directors All Financial Institutions in Bangladesh

Dear Sir,
Provision against unrealized loss for diminution of value of investment in Mutual Fund Units Financial Institutions (FIs) have to comply with the following instructions regarding the maintenance of provision against unrealized losses arising from investment in mutual fund units:
A. For Closed-end Mutual Funds:

1. FIs need not maintain any provision when the average cost price (CP) of a mutual
   fund is lower than or equal to the market value (MV) i.e., CP ≤ MV; or lower than or equal to 85% of the net asset value at current market price ((NAVcmp) i.e., CP ≤ NAVcmp * 85%);
2. If the average cost price (CP) of a mutual fund unit is greater than market value (MV)
   i.e., (CP > MV ); or greater than 85% of net asset value (NAVcmp) at current market price i.e., (CP > NAVcmp * 85%), FIs will have to maintain provision as following￾a. when MV ≥ NAVcmp * 85%, then￾Required Provision (RP) = CP - MV b. when MV <NAVcmp * 85%, then￾Required Provision (RP)= CP – NAVcmp * 85%
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   Website: www.bb.org.bd

B. For Open-end Mutual Funds:

1. FIs need not maintain any provision when the average cost price (CP) of a mutual
   fund is lower than or equal to 85% of net asset value ((NAVcmp) at current market price i.e., (CP ≤ NAVcmp * 85%).
2. FIs will maintain provision when the average cost price (CP) of a mutual fund is
   greater than 85% of net asset value ((NAVcmp) at current market price i.e., (CP>NAVcmp * 85%) as following￾Required Provision (RP) = CP – NAVcmp * 85% FIs will have to apply the latest NAVcmp calculated and disclosed as per article no. 60 of Securities and Exchange Commission (Mutual Fund) Rules, 2001. This circular shall come into effect immediately. Sincerely yours, (Md. Shah Alam) General Manager Phone: 9530178
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