BSEC to compel mutual funds to inject more money into stocks
Asset managers oppose the idea that at least Tk1,500cr should enter into stocks as it would hurt their liquidity and flexibility
In an attempt to boost demand for stocks, the Bangladesh Securities and Exchange Commission (BSEC) has designed a way so that mutual funds inject more money in listed securities.
At present, mutual funds, other than a few which have secured fund-specific exemptions based on their nature and investment style, each have to park at least 60% of its assets in publicly traded securities.
The BSEC, in a statement on Thursday, said the commission is going to raise this minimum threshold to 80%.
BSEC Executive Director and Spokesperson Rezaul Karim said this move would create demand for the listed equities in the depressed market.
Already, some funds have invested more than the current minimum threshold of 60% and hence, the commission decided to make it 80% as it is trying to encourage investment flows into the bourses, he added.
The regulator's spokesperson, however, did not disclose when the change would come into effect.
According to analysts, the country's mutual fund industry has nearly Tk16,000 crore assets under management, and nearly 70% of it is estimated to be in listed company shares.
At least Tk1,500 crore of the mutual fund money should be injected into the bourses if the regulatory move comes into effect.
Asset managers oppose the idea
The decision would make asset managers' job of generating returns for their clients even harder, opined top officials of several asset management companies.
Different asset classes are lucrative for investment at different situations, and by prudently choosing among them is how smart asset managers generate better return for their investors, said Waqar Ahmad Choudhury, managing director of Vanguard Asset Management.
"If 80% of the funds is forced to be in listed securities, the flexibility to better navigate would be drastically hurt," added Choudhury who is also the vice president of the Association of Asset Management Companies and Mutual Funds.
The compulsion could make open-ended fund management even harder as most of the fundamentally sound stocks were stuck on the price floors, depriving investors of exit opportunities, believes Chowdhury.
Open-ended fund managers have to pay back investors on demand, and the previous 40% cash limit was offering them some breathing space to honour any fund withdrawal request from mutual fund investors.
"Right now your shares are not sellable in the bourses due to floor price. You are already struggling to pay clients back and on top of that, you are being asked to let more of investors' money be stuck in listed shares," said another asset management firm's CEO.
"We are supposed to serve our clients' interest, not to burn their funds to cheer up the entire market," the investment professional said, seeking anonymity.
The 80% mandatory exposure could make some sense as a temporary measure, if the market was fully liquid and stocks were extremely undervalued, which is not the case at all, he added.