Learn about mutual funds2019-01-29T02:22:11+00:00

What is an investment fund?

What is an open-ended fund?

A fund is a way for people to invest into securities. Rather than opening a securities brokerage account and selecting which stocks or bonds to buy directly, an investor may choose to invest into securities via a fund.

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

1. Low investment amount
Open-ended funds provide a way for investors to invest in smaller denominations.. The average investment amount for open-ended funds can be as small as a few hundred dollars (equivalent to a few million VND). Investors can purchase open-ended funds managed by VinaCapital, VFF and VEOF, for as little as VND 2 million.
2. High liquidity
It is relatively easy for investors to enter and exit open-ended funds. Investors can buy or sell (redeem) their units in these funds at any time. In contrast, when investors invest directly into stocks, entering and exiting can be more difficult, especially when investors invest in smaller amounts of money.
3. Risk minimization
All investments, including investments into securities, are subject to risk. One effective to minimize risk is by diversifying one’s investment portfolio. Open-ended funds provide natural diversification because these funds invest into a basket of stocks in various sectors. A typical open-ended fund in Vietnam usually has at least 20 different stocks. Such diversification can be difficult for individual investors since it requires more money, time commitment and deeper knowledge of the stock market. Funds provide an easier and more effective way for investors to enjoy diversification and minimize their risk.
4. Limited time requirement
Investing effectively generally requires a lot of time and effort. Funds provide a way for individuals to invest without spending so much time and energy researching stocks and making investment decisions. By investing into mutual funds, investors can spend time focusing on other priorities in their lives.
5. Simplicity
The process of investing into an open-ended fund can be as quick as opening a bank account. Paperwork is simple and investors may also open accounts and conduct investments online. Learn more about VinaCapital’s 5 simple steps for investing here.

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

1. Bank term deposit
The simplest, lowest risk and most popular way to invest is to put your money in the bank. The money is put into a deposit for a fixed amount of time (e.g, 3, 6, 12, 18 months), and the principal plus interest is paid back at the end of the term. For the most part, term deposits are quite safe, but their rates of return are generally low. Term deposits are generally appropriate for all types of investors.
2. Securities
Since the early 2000s, Vietnamese investors have also begun to invest into securities, most commonly stocks of public companies. Stocks are a way for investors to own a small part of a larger company. Bonds are a way for investors to lend money to a company. Investors may purchase stocks and bonds directly by opening a securities brokerage account at a securities company, or by investing into funds that invest into stocks and bonds. Securities investments are generally appropriate for most investors, but investors must think carefully whether they should invest directly, or via funds. Investors must also understand and accept that securities investments, like all other forms of investments, come with some risk.
3. Real estate
Many people who manage to save a bit of money (e.g. several hundred million or several billion dong) will choose to invest by buying real estate. People may buy land, houses or apartments. Because Vietnam’s economy is developing quickly, real estate prices are also rising quickly, especially in the cities, thus enabling most real estate investors to make money. However, real estate requires higher amounts of money and is risky, so is generally only appropriate for investors who have enough money and can tolerate some risk.
4. Gold, Foreign Currency
Some investors will choose to invest by buying gold or foreign currency such as USD or Euro. People who invest into gold or foreign currency tend to do so because they believe these assets provide a hedge against inflation and devaluation of the Vietnam Dong. Gold and foreign currency tend not to generate high returns.
5. Starting and owning a business
Many Vietnamese people like to open their own small business, or pool money together with friends and family to open a business. Investments into businesses tend to be highly risky and complicated, requiring fairly large amounts of money, knowledge and time to operate the business. Business investments are generally only appropriate for people who are entrepreneurial and can tolerate high levels of risk.
Stock is a type of security that signifies ownership in a company. When an investor invests in a company, the company shall issue a certificate that represents shares of ownership of the company. The certificate is called a stock certificate, and the company is referred to as the stock issuer. There are two main types of stock certificates, physical paper and electronic stock certificate. In Vietnam’s stock market, electronic registration is supplanting the paper stock certificate.

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.
A bond represents a loan made by an investor to a borrower. A bond could be thought of as an I.O.U between the lender and borrower (typically corporate or governmental). After receiving the funds under loans from the lender, the company/organization shall issue the certificate that signifies the loan amount that they need to pay the bondholder at maturity. The company/organization is referred to as bond issuer. The lender is called the bondholder.

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

1. Market risk
Market risk is basically a risk which may result in losses for any investor due to a poor performance of the market. This involves both upward and downward fluctuations. Stock price depends upon Vietnam and global economic conditions as well as business performance of listed companies. Investor expectations and therefore demand for particular stocks also impact stock price.
2. Liquidity risk
Liquidity risk stems from the lack of marketability of an investment that cannot be sold quickly when investors want to cash out. In order to turn stocks into cash, stock owners must sell their investments. However, under different market conditions, investor demand and supply may not meet. In many cases, investors may encounter various difficulties in selling their stocks and must settle by selling at lower than expected prices. Liquidity risk is less severe for listed equities; however, this risk cannot be eliminated and must still be considered when making securities investments.


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.