New criteria for mutual fund loans

The stock market regulator yesterday set new criteria for margin loans for mutual funds after about two months of suspension.

To qualify for margin loans, mutual funds must trade in a limited range, according to the latest decision.

The funds that will trade 7.5 percent higher than their latest NAV (net asset value) will not qualify for the loans.

The new ceiling means if a mutual fund has Tk 100 in NAV per unit and trades only up to Tk 107.50 (7.5 percent higher than NAV), margin loans can be approved for the fund.

The decision will be effective from Sunday.

The Securities and Exchange Commission issued a directive yesterday withdrawing restrictions on margin loans for mutual funds, officials said.

In a circular on October 26, the SEC directed merchant banks, portfolio managers, brokers and dealers to suspend margin loans.

Market experts said only a few mutual funds would now qualify for margin loans under the new criteria.

The current market prices of most mutual funds are much higher than their NAV.

Currently, 19 mutual funds trade on bourses with their combined issued capital of around Tk 500 crore.