Written by The Banking Post
A growing number of mutual funds are facing liquidity stress as revised rules threaten conversion or liquidation if dividends are skipped for a third consecutive year.
Under the Bangladesh Securities and Exchange Commission’s Mutual Fund Rules, 2025, trustees may call a unitholders’ meeting if a fund fails to pay dividends for three straight years. With the consent of three-fourths of the unitholders, the fund may be liquidated or, if listed, converted into an open-ended scheme. Such a decision would be final.
The pressure is mounting after a prolonged slump in the equity market left many funds unable to distribute dividends in FY24 and FY25. To avoid triggering the new provision, these funds must declare at least a nominal dividend in FY26.
Mutual fund performance in Bangladesh is closely tied to the stock market. Regulations require funds to invest a minimum 60 per cent of assets in listed securities, including equities and bonds. In reality, most funds hold up to 80 per cent in equities, leaving them highly exposed to market downturns.
At least five funds managed by ICB Asset Management Company failed to pay dividends in the past two fiscal years. These include ICB AMCL Unit Fund, ICB AMCL Pension Holders’ Unit Fund, Prime Finance First Mutual Fund, Bangladesh Fund, and ICB AMCL Islamic Unit Fund. Prime Finance First Mutual Fund is a closed-end fund with tenure ending in 2029, while the others are open-ended.
Dividend droughts are not limited to one manager. Several funds run by other asset managers, including RACE, also skipped payouts. RACE’s First Janata Bank Mutual Fund last declared dividends in FY22.
Trustees typically convene unitholders’ meetings only in cases of fund conversion or liquidation. With equity-heavy portfolios, most closed-end funds failed to generate returns in FY24 and FY25, suffering sharp erosion in value.
The broader market downturn worsened the situation. The benchmark DSEX index fell 9.4 per cent, or 502 points, in FY24 and slid a further 16 per cent, or 1,015 points, in FY25.
The securities regulator says the revised rules merely provide a clear framework. “It would entirely depend on the consent of three-fourths of the unitholders,” said the regulator’s spokesperson.
Investors, however, see market implications. One investor said unit prices could drop sharply if dividends are skipped again, adding that the rule would likely force fund managers to declare at least token payouts this year. “Otherwise, the operational scope of many asset managers will be squeezed,” he said.
Meanwhile, open-ended funds are seeing rising unit redemptions. If the equity market fails to stage a meaningful recovery this year, the financial strain on these funds could deepen further.
