2. 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?
3. 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
8. Your money is managed by experienced and skilled
professionals
Your investment is automatically diversified 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
10. Mutual funds are classified into the following:
Stock fund- 90% of the fund is invested in stocks or equities
Balanced fund- 45% invested in stocks and 45% in fixed-
income instruments
Bond fund- 90% invested in fixed income instruments such
as government securities and corporate papers
Money market fund- placed in fixed-income short term funds
12. 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
13. 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.
14. 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
15. 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
16. 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
17. 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
18. 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
19. Subject to supervision by CSRC, a fully-licensed Chinese
securities company may also launch collective asset
management schemes through private offerings.
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
20. 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
21. 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 offering wealth
management products to retail clients in China.
COMMERCIAL BANKS
22. Trust companies incorporated in China can offer 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
