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Key Messages:

  • In case a fund is to be terminated, you should have the options of switching to another fund, redeeming the fund, or receiving a fund's remaining net assets according to your holdings after its liquidation.
  • In some cases, an Extraordinary General Meeting may have to be called for investors of a fund to vote for or against a proposal to close a fund or merge with another fund.

Fund can be terminated for business reasons or merged with similar funds.

What are my rights if my fund is to be terminated?

The conditions for terminating a fund are set out in the constitutive document, and summarised in the offering document. Typical reasons:

  • the fund size drops below a certain level and it becomes uneconomical to manage. Here, a notice of termination must be given to all fund holders. The notice period is usually one month.
  • a business decision taken by the fund manager. If this is not a condition of fund termination specified in the constitutive document, an Extraordinary General Meeting (EGM) will usually be invoked. Here you can vote on the termination proposal. Before you vote, read through the relevant circular, which gives reasons for the fund's termination as well as particulars of the EGM.

A fund manager must follow the legalities of liquidation. The fund's auditor or an appointed liquidator will monitor the process. Before the termination is effective, you can choose to redeem the fund. Otherwise, the fund will distribute its remaining net assets to you according to your holdings after its liquidation. Investors should be offered the option of switching to another fund in the fund manager's portfolio.

What should I do when a fund proposes to merge with another fund?

A merger is an exchange of shares in fund 'A' for shares in fund 'B', followed by liquidation of fund A. Fund A investors become fund B investors, to a value equivalent to their fund A holdings. Generally, a merger will take place only if both funds have similar investment objectives. An EGM should be called if a fund merger is not a condition for closing the fund. Read the EGM circular carefully for reasons for the merger, effective date and background information.

Remember: If you don't like the proposed merger, you can vote against it, or sell.