In a fund, many investors (generally thousands) pool their money and a designated organization (called a fund management company) invests that money into securities on behalf of the investors. All the money and investments belong to the investors, not the fund management company. The money is only invested into securities and other assets permitted by the government and is never invested into the fund management company itself. The fund management company is simply a service provider whose role is to manage the fund and invest on behalf of investors.
Today, the most common type of fund in Vietnam is the open-ended fund. The fund is called “open-ended” because it does not have a definite term, and investors may join and leave the fund any time. To join a fund, the investor simply opens an account and transfers money into the fund. When the investor wishes to leave the fund, the investor simply sends a request to withdraw his/her money from the fund. The price at which investors join and leave a fund is determined by the value of the fund at the time the investor joins or leaves.
The value of the fund is the total value of all the assets in the fund minus its fees and liabilities, or net asset value (NAV). In Vietnam, the law requires that the NAV be updated and published at least twice per month for all investors. However, most funds in Vietnam update and publish their NAVs at least once per week or more.
Open-ended funds offer investors the following key benefits
Mutual funds were introduced to Vietnam market as another investment option for investors
People who want to grow their money often look for ways to invest. Today, in Vietnam, there are multiple options for investments, including the following
When an investor wants to take their money out of the stock market, they can do that either by transferring stock ownership to another investor via direct transactions on the stock market or by settling off-market transactions.
The interest rate (coupon rate), principal amount will be paid to the bondholder prior to maturity or at maturity, and the payment varies from one bond to another. The bond duration is usually one (01) year, or up to twenty (20) years for some governmental bonds.
Risks of investing in securities
HOW ARE INVESTORS PROTECTED IN AN OPEN-ENDED FUND?
There are safeguards in place to protect investors as required by regulations on open-ended funds. A primary safeguard is the custodian bank and supervisory bank. A custodian bank and supervisory bank is a specialized financial institution responsible for safeguarding a fund’s assets as well as administer compliance with respect to the investment activities of the fund. The role of the custodian ensures the following:
Regulations related to investment objective, scope, rights and obligations of all parties involved in managing a fund are stated in the fund’s official documents, most notably the fund charter and fund prospectus. These documents must be maintained up-to-date and filed with the State Securities Commission of Vietnam (SSC). Investors can find the fund charter and prospectus of all open-ended funds managed by VinaCapital here.
The fund’s money and other assets belong soley to the fund’s investors and are safeguarded by the custodian. Fund management companies may not use a fund’s capital to pay for any expenses related to the fund management company.
When investors wire their investment amount to a target fund, they DO NOT transfer the money to the bank account of the fund management company; instead, they are transferring the money to the fund’s account at the custodian bank.
Fund managers must comply with the investment restrictions and other regulations stated in the official fund documents.
Supervisory banks have the right to stop all actions that are not in line with regulations and request rectification from the fund manager. The supervisory bank may also report breaches to SSC.