Directive on Maintenance of Provision by Merchant Bankers against Investment in Mutual Funds

Bangladesh Securities and Exchange Commission
Securities Commission Bhaban
E-6/C Agargaon
Sher-e-Bangla Nagar Administrative Area
Dhaka-1207, Bangladesh

DIRECTIVE

10 December 2018

No.BSEC/CMRRCD/2009-193/212: Whereas, the Bangladesh Securities and Exchange Commission (BSEC), in exercise of the power conferred by section 20A of the Securities and Exchange Ordinance, 1969 (Ordinance No. XVII of 1969), hereby directs all the registered Merchant Bankers to comply with the following instructions regarding the maintenance of provision against unrealized losses arising from investment in mutual fund units:

A. For Close- end Mutual Funds

1. Merchant Bankers need not to maintain any provision when the average cost price (CP) of a mutual fund is lower than or equal to the fair value (FV) i.e. CP ≤ FV; or lower than or equal to 85% of the net asset value at current market price ((NAVcmp) i.e. CP ≤ NAVcmp * 85%); which one is applicable.

2. If the average cost price (CP) of a mutual fund unit is greater than fair value (FV) i.e. (CP > FV); or greater than 85% of net asset value at current market price (NAVcmp) i.e. (CP > NAVcmp * 85%); which one is applicable, Merchant Bankers shall have to maintain the provision as following:

   a. when FV ≥ NAVcmp * 85%, then -
   Required Provision (RP) = Average cost price (CP) - Fair value (FV)

   b. when FV < NAVcmp * 85%, then -
   Required Provision (RP) = Average cost price (CP) - NAVcmp * 85%.

In order to assess the fair value of the mutual funds, the Merchant Bankers shall follow the BAS, BFRS along with the সিকিউরিটিজ ও এক্সচেঞ্জ কমিশন (মিউচ্যুয়ালফান্ড) বিধিমালা, ২০০১.

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B. For Open- end Mutual Funds

1. Merchant Bankers need not to maintain any provision when the average cost price (CP) of a mutual fund is lower than or equal to the latest repurchase price (RP)/ surrender value (SV) of the open-end funds.

2. Merchant Bankers shall maintain provision when the average cost price (CP) of a mutual fund is greater than the latest repurchase price (RP)/ surrender value (SV) of the open-end funds.

i.e. Required Provision (RP) = Average cost price (CP) – Latest Surrender Value (SV) (i.e. Not over 5% discount of NAVcmp)

Merchant Bankers shall have to consider the latest NAVcmp calculated and disclosed by mutual funds as per বিধি ৬০ and বিধি ৬১ of the সিকিউরিটিজ ও এক্সচেঞ্জ কমিশন (মিউচ্যুয়ালফান্ড) বিধিমালা, ২০০১ and further instructions thereof.

This Directive shall come into effect immediately.

By order of the Bangladesh Securities and Exchange Commission

Dr. M. Khairul Hossain
Chairman.

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