All closed-end mutual funds must be redeemed on reaching maturity and no tenure extension will be allowed, recommended a government-formed taskforce.

However, such funds may get converted into open-ended mutual funds if three-fourth of unit holders, based on the percentage of ownership, vote for it, it said.

A host of recommendations for capital market reforms, formulated through consultations with stakeholders, were handed over to the Bangladesh Securities and Exchange Commission (BSEC) on Sunday.

Closed-end mutual funds are fixed amounts of money gathered from a number of investors, usually for a decade, in order to be reinvested into stocks, bonds and other assets.

Open-ended mutual funds are not listed with the stock market, but one can buy them from a fund manager's office on the basis of its net asset value.

Similarly, investors can sell off fund units at any time at prices based on its current net asset value.

All closed-end mutual funds whose tenures were extended earlier must be redeemed on reaching maturity, said the taskforce.

Amid huge criticism from stock market analysts, the BSEC had allowed tenure extensions of several close-end mutual funds in 2018, that too without taking approval from unit holders.

This decision agitated investors who had waited for long to avail good profits.

It even prompted a foreign investor to file a case against the BSEC. However, the courts upheld the BSEC decision.

The taskforce recommended amending the mutual fund rules aiming to bring back investor confidence by introducing new investment policies, improving governance standards, enhancing investor protection, and ensuring operational efficiency.

It recommended specifying how different types of funds should be utilised.

For instance, at least 51 percent of equity funds must be invested in listed equities, meaning those in stock markets, while 65 percent of fixed income funds in fixed-income securities, such as bonds.

At least 50 percent of balanced funds must be invested in fixed-income securities or listed equities.

A minimum of 60 percent of money market funds must be invested in fixed-income securities with maturity periods of less than one year.

At least 30 percent of Shariah-compliant funds must be allocated to listed Shariah-compliant securities.

"Investments in non-listed equities, non-listed bonds, preferred shares, and open-end funds or ETFs (exchange traded funds) are prohibited unless approved by the BSEC," said the taskforce.

It proposed to increase the single stock investment limit of a single fund from 10 percent to 15 percent, while the single sector limit from 25 percent to 30 percent.

The maximum shareholding by a single fund in a company should be reduced from 15 percent to 10 percent, it said.

Investment in Alternative Trading Board and Small Capital Board securities is limited to 10 percent.

Deposits in banks and non-bank financial institutions are capped at 30 percent, except for fixed income and money market funds where the limit is 40 percent.

One-third of the boards of asset management companies (AMC) must be comprised of independent directors.

The capital requirement for AMCs has also been proposed to be increased from Tk 5 crore to Tk 10 crore, with the existing AMCs given five years to comply.

Trustees of a fund must have a minimum of Tk 10 crore in paid-up capital and comply with BSEC Risk-Based Capital Adequacy Rules.

Full compliance with International Financial Reporting Standards and International Accounting Standards should be mandatory to ensure fair value accounting and related party disclosures.