Widespread small investment could bring much more instability in comparison with organised professional investment model.
Open-ended funds are expected to bolster the stock market stable growth, which would call for a great deal of effort from market’s members, said Henk Ruitenberg, general director of Eastspring Fund Management Company.
According to Eastspring Investments, current cash flows in the stock market could suffer substantial risks unless open-ended funds are established. Which risks are they and what are their impacts?
Sentimental issues and crowd psychology are the most likely factors to affect the stock market which could be hurt by a great deal of existing individual investment.
Apart from several insurance companies, the market is lacking proficient corporate investors such retirement funds and support funds which usually pursue long-term targets and normally not too sensitive to fluctuation.
Hence, overwhelming individual investment is more likely to bring about market instability compared to organisational model.
How do you think to expand open-ended fund model?
Favourable tax policies are considered an incentive to encourage investments to develop new investment instruments via exemption of tax on added value and dividends of those who contribute capital to open-ended funds
What is more, continuous investment training plays a key role in sustainable development of investment funds. Therefore, guidance on open-ended funds should reach end investors, fund distributors and other market members (fund management companies).
Which measures would you recommend to draw individual investors’ attention to this model?
What matters most is the market particularly investors should have confidence in this new investment channel. Importantly, Circular 183/2011/TT-BTC guiding establishment and management of open-ended funds has been built in accordance with international practices. The legal document guarantees close monitoring of the market’s members who take part in open-ended funds, which could therefore help circumvent potential operational risks.
Currently, only a few international banks have been providing assistance services for open-ended funds. What measures would you suggest to encourage local banks to develop such services?
State-of-art technology together with a great deal of complicated profession skill and experienced specialists is required to render such services, which could hardly found at new service providers in emerging markets. International practices have shown only a few businesses of this type.
International banks which are expert in open-ended funds distribution have modest operation and customer scale whereas domestic securities companies of wide network and plenty of customers have yet paid much attention to this model.
How would you suggest mitigating these shortcomings to scale up development of this type of funds?
Solid development could be achieved after a long time, during which market confidence must be built via appropriate policies, enhanced training and appealing tax policies.