Mutual fund regulations updated to prohibit investment-based directorships

Trustees and asset managers now face higher paid-up capital requirements under the new rules

The interim government has amended the mutual fund regulations, barring directors from holding board positions in companies where their managed funds are invested.

“The Bangladesh Securities and Exchange Commission (Mutual Fund) Regulations, 2025”, took effect immediately upon publication on Thursday, closing the opportunity to announce any new fixed-term funds.

According to the gazette, “No one shall become a member of a company’s board of directors against investment made from any scheme or mutual fund operated under an asset management company.”

KEY CONDITIONS

• The paid-up capital of an asset management company must be Tk 100 million. Existing licensed companies with less than this amount will have to raise their capital to Tk 100 million within three years of the gazette notification.

• One-fifth of the members of the board of directors must be appointed as independent directors.

• The licence fee will be Tk 500,000, with an annual renewal fee of Tk 100,000 payable to the commission.

• The chairman of the board of directors and the chief executive officer cannot be the same person.

• No investment from any scheme or mutual fund managed under an asset management company may be used to become a director of a company.

• An asset management company cannot invest in shares, debentures, bonds, or any other instruments of its affiliated or associated companies, or companies related to its directors’ interests.

• Trustees must have a paid-up capital of at least Tk 2 billion. Existing trustees are required to raise their paid-up capital to this level within one year of the gazette publication.

• No new fixed-term scheme may be announced after the gazette takes effect.

• The tenure of existing fixed-term funds will remain as declared in the trust deed and prospectus. The tenure of an existing fixed-term scheme cannot be extended under any circumstances.

A fund, however, may shift to open-ended form six months after the gazette if three-fourths of unit holders back it by secret ballot at a special general meeting.

• In the case of fixed-term funds, at least 70 percent of the profit earned in a financial year must be distributed among unit holders as cash dividends.

• Investments must be made in ‘A’ category shares or securities. If the investment classification falls below ‘A’, it must be withdrawn within the following six months.

• Mutual fund money cannot be used in option trading, short selling, or carry-forward transactions.

• Investment, lending, or advances cannot be made in unlisted securities.