HA NOI — This year will be significant for fund management companies as they prepare to apply a new cycle of regulations on open-end funds, says VietFund Management Co general director Tran Thanh Tan.
An open-end fund is a collective investment scheme which can issue and redeem shares at any time. An investor generally purchases shares directly from the fund itself rather than from other shareholders, in contrast with a closed-end fund, which typically issues all of its shares at the outset, with such shares then being traded on an exchange or between investors themselves.
"With open-end funds, fund management companies can launch diversified products and investors have wider choices of investment types," Tan said.
About 80 per cent of investment funds worldwide were now open-end, he explained, with closed-end funds existing mainly in developing countries or countries with incomplete legal foundations for financial markets.
"The new model should not be considered a comprehensive solution for the financial market," Tan said. "Rather, it should only be regarded as a new legal basis for these companies to create new products that correct shortcomings of closed-end funds and create more equity for both investors and fund management boards."
New regulations on the establishment and operation of open-end funds in Viet Nam, adopted late last year, would allow investors to withdraw their capital periodically at a value close to the fund's net asset value (NAV), Tan noted.
The new rules would also make it easier for funds to increase their charter capital, allowing them to take advantage quickly of market rallies without facing cumbersome procedures to increase capital.
"The biggest problem in Viet Nam is that the margin between funds' market value and their NAV is very high," he said. "If there is not a substitutional model, domestic fund managers can hardly operate as investors have almost no motive to pour money into funds."
VietFund Management had anticipated the legal framework for open-end funds for four years and was well-prepared for it in terms of facilities and human resources, Tan said. VietFund expected to launch its first open-end fund in the second quarter with an initial capital of VND200-500 billion (US$9.5-23.8 million).
Tan also mentioned the possibility that VietFund would convert its VF1 and VF4 funds from closed-end to open-end this year, a plan he said would be presented in an upcoming shareholders' meeting.
"Such a conversion would be unprecedented on the Vietnamese stock market, and the biggest challenge will be the process of converting current share portfolios into cash in case market liquidity declines," he said.
With regard to market prospects, Tan said there were few positive forecasts about financial markets both at home and abroad and any recovery of the stock market would depend on the economy.
"Viet Nam can't stay apart from the global economic flow," he said. "Although there's hardly any chance in 2012 that the domestic stock exchange will see a sudden positive change, this year will be a foundation for a new cycle of growth."
This year, wholly foreign-invested securities and fund management companies were allowed to operate on the domestic market, in line with the nation's WTO committments, Tan noted, but he said that the next three years would not be a truly worrying time for domestic firms as to competition.
Foreign firms were also facing uncertainty on international markets, and it was not the right time for them to shift resources into emerging markets, especially the Vietnamese stock market, with its small scale, incomplete legal framework and low level of transparency, he said. — VNS