China Galaxy Securities Funds Research And Assessment Center

Du Shuming

2003.6.18

Definition of securities investment funds

What is securities investment funds£¿
      An investment tool£¿
      A product or service£¿Funds investors are the consumers of fund products
      A structure of proprietary£¿Funds investors are the owners of funds
      A way of money management£¿Collecting money to buy securities
      The demand of securities investment funds£ºWhy we need to collect money to buy securities£¿The three factors of securities investment£º
      Firstly£¬he must have money,and the money can't too little
      Have kownledge and experience of investment
      Also have enough time and energy

Fundamental Characteristics of securities investment funds£¨1£©
      The investment objects are securities which have trading-prices on open market
      A portfolio investment tool
      An indirect investment tool
      On one hand, the funds take other financial tools as investment objects. On the other hand, the investors indirectly enter the securities market through holding fund shares
       Undertake exterior trust management
      Funds usually don't have their own employees£¬the sale¡¢investment and administration of the funds are entirely undertaked by other institutions.

Fundamental Characteristics of securities investment funds£¨2£©
      It is aimed at pure investments, not the control and management of enterprises
      The fund's ownership¡¢management and Custodian are separated from each other
      The investment portfolio is transparency
      The primary aim is the increaing of assets value
      The primary aim of banks and insurance companies is to prior guarantee the security of principal
      Fund managers and the investors are in an important separated state
      The main business of fund management company
      Fund sale
      Market research¡¢Fund design¡¢Fund sale¡¢Communication with investors
      Fund administration£ºon the stage and backstage
      on the stage:
      Recording the capital flow
      Opening and keeping accounts for fund investors
      backstage£º
      Fund's valuing and pricing¡¢recording investment businesses¡¢accounting the investment incomes and losses
      Checking the accounts with Custodian Bank
      Investment management: research and investment analysis¡¢securities selection and portfolio management

Fund management company£ºfocus or diversification£¿
      Securities companies in USA and Japan involve all businesses such as securities¡¢fund management and investment consulting service£¬instead of founding specialized securities management company.It is quite different from the present situation in China.

Fund management company supervision
      Minimum registered capital requirement
      Reason for support £º
      Ensure it has adequate capitals to develop fund businesses
      Compensate for litigation
      Prevent it from bankrupt risk
      Reason for objection
      The fund bussinesses do not need many capitals£»
      The fund bussinesses are not liability bussinesses

The main businesses of Custodian Bank
      The responsibilities of Custodian Bank adapt to the organizing structure of funds
      The main responsibilities
      Assets custody
      The supervision of fund managers' behaviors
      In Unit Trust£¬trustees take on this responsibilties
      In Mutual Fund£¬the board takes on this responsibilties
      In Unit Trust£¬usually has this requirment£¬but conflicts of interest maybe exist£¨exployees monitor employers£¿£©
      The necessity of fund's legislation and supervision
      Funds are public products£¬small personal investors are the main investors£¬it's easy to touch off several social problems
      Fund is a typical agency relation£¬it's easy to bring conflicts of interest
      Managing large quantities of funds is attractive to anybody

The starting point of fund legislation
      Securities laws particularly emphasize on the opening imformation and fair trading on security issue market and securities trading market
      Fund laws particularly emphasize on preventing from conflicts of interest which is caused by mutual investments and the justice of assets valuing
      The basic aim is protect fund holders' interest
      How does a rule come out?
      Firstly, the Regulation institution gives a draft, illustrates the draft's background¡¢topics for discussion and so on, for public discussing
      Regulation institution modifies the draft according to a combinition of different opinions
      Finalize the law, summarize different opinions, detailedly list suggestions from different sides, illustrate own attitude
      Main aspects of the basic laws
      Normally formulated by the legislation institution
      Vsually only refer to principle issues£¬without particular operating rules
      Main aspects:
      Definition and classify
      Fund structure
      Fees of funds
      Supervision institution
      Fund registered requirments
      The benefit related-parties
      Investment and debit and credit

The following are omited¡­¡­