Pavitra Venkateswaran870B.B.A; LL.B (Hons.)

PROFILE OF MUTUAL FUND MARKET IN

CHINA

A Mutual Fund is an investment company that pools the funds of many individual and institutional investors to form a massive asset base.   The assets are then entrusted to a full time professional fund manager who develops and maintains a diversified portfolio of security investments.  People who buy shares of a mutual fund are its owners or shareholders

WHAT ARE MUTUAL FUNDS?

An Asset Management Company is involved in the daily administration and also acts as investment advisor for the fund. An asset management company is promoted by a sponsor which usually is a reputed corporate entity with sound record of profits. An AMC typically has three departments:Fund Management Sales & Marketing Operations & Accounting

WHAT IS AN AMC

DIFFERENT TYPES OF MUTUAL FUND

SCHEMES

Open-ended schemes Close-ended schemes Interval schemes

BY STRUCTURE

Growth schemesIncome schemes Balance schemes Money Market schemes

BY INVESTMENT OBJECTIVE

Tax Saving schemes Special schemes Index schemes Sector specific schemes

OTHER TYPES OF SCHEMES

Your money is managed by experienced and skilled professionals

Your investment is automatically diversifi ed over a large number of companies and industries, thus reducing the element of risk

Your money is very liquid, especially in an open-end fund The potential to provide a higher return over the medium

to long term is better in a wide range of securities than in any one

The costs of research and investing directly in the individual securities are spread over a large corpus and thousands of investors thus minimizing individual share

There is a high degree of transparency in the operation of a mutual fund, so you can take investment decisions based on more information

You have a choice of schemes to suit your needs The industry is well regulated with many measures

oriented towards investor protection

BENEFITS OF A MUTUAL FUND

CLASSIFICATION

Mutual funds are classified into the following:  Stock fund- 90% of the fund is invested in stocks or

equitiesBalanced fund- 45% invested in stocks and 45% in

fixed-income instrumentsBond fund- 90% invested in fixed income

instruments such as government securities and corporate papers

Money market fund- placed in fixed-income short term funds

IN CHINA

China’s mutual fund industry has been largely stagnant over the past three years due to stock market volatility and increasing competition.

However, China is still viewed as a key area for the future growth of the asset management industry.

INTRODUCTION

China’s mutual fund industry will continue to witness rapid growth over the long term with the value of assets under management (AUM) of the securities investment fund management companies (FMCs) potentially set to triple to RMB 6 trillion within five years.

It is also worth noting that alternative investment schemes which provide either higher returns (with equally high levels of risk) or extremely conservative allocations have taken market share at the expense of the FMC offerings in recent years.

Current Chinese law does not provide a crystal clear definition of the term “asset management.”

Based on separate pieces of legislation, only limited categories of regulated institutions in China can offer certain kinds of asset management products,

act as professional service providers and manage clients’ funds in the investment of publicly traded stocks, bonds and other underlying assets.

BACKGROUND

the China Securities Regulatory Commission (CSRC) (the Chinese securities market regulator) is responsible for supervising and regulating the launch of securities investment funds (SIF) by FMCs and asset management schemes by securities companies;

the China Banking Regulatory Commission (CBRC) (the Chinese banking market regulator) is responsible for supervising and regulating the relevant investment trusts managed by trust companies and banks’ wealth management products; and

the China Insurance Regulatory Commission (CIRC) (the Chinese insurance market regulator) is responsible for supervising and regulating the insurance asset management companies.

REGULATORS

Foreign investment in the Chinese asset management market is generally restricted.

China’s commitments to the World Trade Organization do not permit foreign funds / asset managers to provide cross-border fund/asset/investment management services direct to clients in China.

The establishment of, or the participation in, the asset management industry in China by foreign investors is normally subject to stringent qualification requirements and foreign ownership restrictions.

FOREIGN INVESTMENT

Setting up (or investing in) an FMC is the primary route for foreign investors to participate in the Chinese fund management business.

As of 30 June 2011, 66 FMCs in China manage more than 900 funds with a total AUM of approx. US$ 370 billion.

An FMC is a limited liability entity with a perpetual term of operation in which the foreign equity investment must not, by law, exceed 49 per cent.

FUND MANAGEMENT COMPANIES

FMC is regulated and supervised by CSRC. It can launch and manage SIF products for

subscription by public investors and manage such funds’ investment in the securities market (similar to mutual funds in the USA).

In order to provide flexibility for the FMCs to broaden their business models and develop distribution channels outside the bank-dominated retail market, CSRC has also gradually allowed FMCs to manage enterprise annuities and multi-client segregated account business, known locally as Yi Dui Duo, for institutions, corporations and high net worth individuals

FUND MANAGEMENT COMPANIES

Subject to supervision by CSRC, a fully-licensed Chinese securities company may also launch collective asset management schemes through private off erings.

There is speculation that CSRC might consider allowing Securities JVs to engage in a broader range of business (including asset management business), though so far no specific timeline has been mentioned.

SECURITIES COMPANY

Traditionally, insurance asset management companies (Insurance AMCs) in China only provide asset management services to their insurance group companies.

With a view to widen the investment functions of such insurance asset managers, CIRC now regards Insurance AMCs as professional third party asset managers, whose responsibilities are to manage funds entrusted to them by principals.

INSURANCE AMCS

Commercial banks in the PRC are generally prohibited from dealing in securities or entering into commodity future transactions.

However, by complying with specific regulations, commercial banks may become indirectly involved in certain types of securities trading or derivative transactions by off ering wealth management products to retail clients in China.

COMMERCIAL BANKS

Trust companies incorporated in China can off er on a private placement basis “Collective Investment Schemes” (CIS), being unit trusts, to “qualified investors”. Such funds managed by trust companies can invest in various underlying assets (including publicly traded stocks, other securities, equity and real estate).

This CIS structure is subject to supervision by CBRC and constitutes an alternative to the SIF structure of CSRC-regulated FMCs.

In Chinese, it is called the Yang Guang Si Mu

TRUST COMPANIES