VietNamNet Bridge – Open end funds will not be popular in Vietnam until 2015, economists say.

More than 90 percent of the assets of the investment funds in the world are being kept at open end funds. However, it is quite different in Vietnam.

Open end funds more “open” than close end funds

Shortly after the watchdog agency turned the green light on in March 2012, a series of open end funds have been set up. Ten have been licensed so far, while the Ministry of Finance is going to license five more in early 2014. VietFund, the first fund management company in Vietnam, has fulfilled the procedures to convert all of its four close end funds into open end ones.

What helps open end funds attract more investors than close end funds is the high liquidity. Investors can withdraw capital at any time, while the funds’ managers have to sell goods to refund cash to the investors.

Meanwhile, during their life circle of 5-7 years, close funds don’t have to take the duties.

Besides, when withdrawing capital from open funds, investors would get the money back in accordance with the NAV, no matter the fund certificate prices are lower or higher than NAV.

This explains why open and close funds target different businesses for their investment portfolios.

The former ones prioritize to invest in the assets easily salable or buyable, such as bonds or listed shares. VF1 and VF4, managed by VFM, for example, have been focusing on blue-chip and the shares of the companies where the foreign ownership ratios nearly hit the ceiling. VinaWealth focuses on bonds.

Meanwhile, a lot of close funds target equitized enterprises but have not listed shares on the bourse, or private businesses. The portfolios can bring unexpected attractive profits, but may bring high risks as well due to the lack of businesses’ transparency.

That is why close funds have “lost their luster” since the day open funds turned up. Thirteen close funds with the total chartered capital of VND7.5 trillion shut down in 2013. These included the big names such as Bao Viet Securities Investment Fund, Ban Viet Securities Investment Fund and SSI Vision.

Still cannot attract private investors

More and more open end funds have been set up, especially when only VND50 billion is needed to set up such a fund. However, Vietnamese investors still keep indifferent to the funds with many outstanding features.

Analysts have noted that of the 13 close end funds that got dissolved in 2013, a lot have turned into open end funds. The switching has raised the worry that the ineffective investment deals have been carried out from close funds to open funds. The investments in OTC shares and unlisted private businesses with low liquidity might have been transferred to open funds.

However, the more important reason that makes investors hesitant to contribute capital is that they don’t have confidence on the fund managers’ transparency and ability.

Tran Tai from Asiavantage Global Ltd. noted that investors usually consider the achievements the managers gained in the past to decide whether to contribute capital.

Meanwhile, the investment funds have not been performing really well in recent years.

NCDT