Finance & Banking

Last updated: Wednesday, May 15, 2019


Open Fund: Long-term Move for Stock Market

Posted: Wednesday, August 03, 2016

Although the stock market did not flourish as expected in the first 6 months, a slight increase in stock market has partly regained the trust of investors. Particularly, the domestic open funds have exposed more positive signs. According to the State Securities Commission, in the first 6 months, the VN-Index rose by 9.19 per cent, VN30- Index by 4.4 per cent and HNX-Index by 6 per cent.
Impressive growth of investment funds
The fund management industry in general and the domestic funds in particular are opened gradually to regain its position on the stock market. 18 open-end fund companies managed by domestic fund managers, including 5 bond funds, 4 balance investment fund and 9 stock fund, are estimated by more than VND2,400 billion.
Positive results of the first 6 months of the stock market have affected positively the operations of these funds. The VCBF-BCF and VCBF-TBF of Vietcombank; VF1 and VF4 of VFM; SSI-SCA of SSIAM have achieved the growth rate of 12 per cent which was higher than the average rate of the whole market. Among the funds, only the VFMVFA has negative net asset value per fund.
Besides, the strategy investment funds modelled as BVFED or ETFs, SSIAMHNX30 VFMVN30 have achieved impressive business growth as BVFED NAV with growth rate of 5.9 per cent and 4.5 per cent of VFMVN30, higher than the 4.4 per cent of the increase rate of the VN30.
With open bond funds at the interest rate remained low from 2015 to date and having little volatility, the VND interest rate is also considered the lowest in the past 3 years, positively affecting the investment performance of the fund in the first 6 months. The fund has the highest growth rate with an increase of 4.84 per cent VFF and particularly, the MBBF has the lowest rate of 1.65 per cent. The BVBF of Bao Viet Fund, although having been operated for almost two months, has grown to 3.02 per cent.
Creating a mechanism to attract funds from the cash flow
Compared to 2015, the activities of the open-ended fund is considered more positive investment performance, better than the average of the market and raising the capital more efficient although most of the money have been raised from the organization's partner companies as MB Capital Fund management (MBVF), Bao Thinh bond investment fund (VFF) or the bank's funds. The fund has growth fast and the number of certificates issued in the first 6 months of 2015 has increased more than 20 per cent.
The outcomes of the investment funds come from the legal framework for the stock market in Vietnam. The investors are still hoping for new financial products that will soon be deployed. The completion of the stock market promises to place number of surplus funds for the development of the domestic open funds. According to the evaluation of a number of economic experts, despite prosperity of the mobilization of the open funds, this does not commensurate with the existing potentials. In terms of the macro-economic stability, the income of the middle class is growing strong and they tend to look for the financial investment products rather than focusing on the savings banks.
According to the study, the statistics from the OECD, the number of the middle class people in Vietnam are around 8 million and the average daily consumption of this group is ranging from US$10 to 100 per person/ per day. However, the number of people who know to buy fund products is still very small.
The operation of the open funds is more efficient and professional but the distribution channels have not developed. Most of the funds are reached to the customers mainly through brokers while most of the corporate customers are mostly the professional investors who want to invest themselves rather than sending money to the fund management company. According to the experiences of developing the management funds in some Asian countries, the distribution channels are thriving thanks to links with major commercial banks. Thailand has more than 80 per cent of the total value of the investment funds that are distributed through the banking system. In the Vietnamese market, the commercial banks are currently the largest organisation involved in the financial market with fairly broad distribution channels. So, if coordinated with the banking system to use their distribution system, this will bring huge advantages for the open funds.
Along with that, the deposit interest rate of the banks remains at a high level and the the deposits are kept safely at the bank. Therefore, if to sell the bond funds, the funds are facing many difficulties in attracting investors when the actual yields are not much higher and even as much as the interest rates. Besides, there is none of the support policy to the investment funds opened in Vietnam. If participating in the open fund, the individuals and organisations must pay taxes on the income they receive.
Tax incentives should be considered
The GDP growth has not reached the set objectives of the Government in the first 6 months but with the determination to accomplish the set goal of the whole year, Prime Minister Nguyen Xuan Phuc adopted support policies for the economy. Thereby, the interest rate will probably continue to be maintained at a low level to support the economy.
In a sense, the price of crude oil in the first 6 months remaining low partly helps stabilise the inflation at a low level and create a certain geographical balance for easing monetary policy. This has contributed to the growth of the stock market recently.
According to Nguyen Dinh Duy, Head of Strategic Research Department of the Bao Viet Asset Management Company, that the foreign investors focus on purchasing the stocks of the leading enterprises in recent years shows that foreign investors have confidence in the prospects for development of Vietnam's economy. First, it comes from TPP that is expected to be a boost for the economy. The TPP will help Vietnam to promote the reform of economic institutions to meet the requirements by which the transparency of the stock market will be raised, bringing the market closer to the general standards of the developed markets. The market will attract more foreign investment flows.
Anticipating the last 6 months in the stock market, Mr Duy said the market will have positive developments. To create confidence for the investors, the authorities should do a research on the development of income tax incentives for individual investors to invest in the fund in accordance with law. This will be the basis to attract the idle funds to invest in the stock market.
The preferential tax policy will be an important driving force to attract people to the cash flow in the long term. Besides, the tax incentives for the fund management industry will contribute to the transparency of the market, helping investors to look for a reliable address, instead of using a number of personal trust services through unorthodox activities.
Luong Tuan

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