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| Investors watch market movements at the Ho Chi Minh City Stock Exchange__Photo: VNA |
A new draft circular from the Ministry of Finance (MOF) sets out regulations for establishing infrastructure bond investment funds and money market instrument investment funds, aiming to diversify fund products and better channel capital into the economy.
The proposals are introduced in a draft circular amending a number of articles of Circular 98/2020/TT-BTC of November 16, 2020 on the operation and management of securities investment funds.
The Ministry noted that Article 99 of the 2019 Law on Securities defines securities investment funds as including public funds and member funds, with public funds categorized into open-ended and closed-ended funds. Accordingly, the draft circular proposes classifying the Infrastructure Bond Investment Fund as a closed-ended fund, and the Money Market Fund as an open-ended fund. Since closed-ended and open-ended funds are already recognized under the 2019 Law on Securities, the introduction of the new fund types has a clear legal basis.
Infrastructure Bond Investment Fund
According to the MOF, the Infrastructure Bond Investment Fund is designed as a closed-ended fund for several reasons. First, closed-ended funds may be publicly offered and mobilize capital from a wide range of investors. Second, their capital scale remains stable, enabling investment in medium- and long-term infrastructure bonds. Third, closed-ended fund certificates may be listed and traded on the stock exchange, allowing investors to transfer their holdings without affecting the fund’s capital size.
Regarding the fund’s permitted investment portfolio, the draft circular proposes that the fund’s portfolio include corporate bonds issued specifically for infrastructure development. In addition, the fund may invest in other assets such as government debt instruments; government-guaranteed bonds; local administration bonds; deposits and certificates of deposit; money market instruments; and other securities permitted under general investment fund regulations.
Under the draft, as a closed-ended fund, the Infrastructure Bond Investment Fund must invest at least 65 percent of its net asset value (NAV) in infrastructure development bonds; government debt instruments; government-guaranteed bonds; local administration bonds; and deposits and certificates of deposit. The Ministry explained that the above-mentioned requirement ensures the fund’s main purpose of mobilizing capital for infrastructure development while giving the fund flexibility to adjust its portfolio based on the market’s supply of infrastructure bonds at different periods. The fund must also comply with investment limits prescribed in Article 110 of the 2019 Law on Securities.
Money Market Instrument Investment Fund
The draft circular states that the Money Market Instrument Investment Fund is an open-ended fund that invests in deposits, certificates of deposit, government debt instruments, and other fixed-income assets, with at least 80 percent of its NAV allocated to these instruments.
Explaining why the fund is structured as an open-ended fund, the Ministry of Finance notes that this model is appropriate because open-ended funds can be publicly offered and widely mobilized from retail investors; their operational mechanism is flexible, matching the needs of investors seeking to optimize short-term idle cash; and international practice generally treats money market funds as open-ended funds.
The draft proposes that the fund may invest in deposits and certificates of deposit; government debt instruments; government-guaranteed bonds; local administration bonds; listed corporate bonds; and units of other money market investment funds.
The fund must invest at least 80 percent of its NAV in deposits, certificates of deposit, government debt instruments, and other fixed-income assets with remaining maturities of 12 months or less (except for government debt instruments).
Regarding the 80-percent NAV ratio, the MOF explains that it is based on international standards. Malaysia and Hong Kong, for example, require money market funds to invest at least 90 percent of their NAV in deposits, certificates of deposit, and short-term debt instruments with maturities of under 12 months.
The Money Market Instrument Investment Fund must also comply with investment limits set out in Article 110 of the 2019 Law on Securities.- (VLLF)
