Investing in fund certificates has gained attention as an accessible and professional investment option for both beginners and experienced investors. To evaluate whether fund certificates are a viable choice, it is crucial to understand their nature, interest rates, and potential benefits. This article delves into the core concepts of fund certificates and provides insights to help investors make informed decisions.
1. What is a Fund Certificate?
According to the 2019 Securities Law of Vietnam, fund certificates are defined as follows: “A fund certificate is a type of security that certifies the ownership rights of an investor over a portion of the contributed capital in a securities investment fund. The nominal value of a fund certificate offered to the public is 10,000 VND.”
From a fundamental perspective, fund certificates are similar to company shares in that they represent ownership rights, profit-sharing on contributed capital, and are listed on the stock market for trading among investors. However, there are distinct differences between shares and fund certificates:
- Firstly, shares are used to raise capital for a company operating in specific industries, whereas fund certificates serve as a means to establish an investment fund, which primarily focuses on securities investments.
- Secondly, shareholders of common stocks have voting and management rights within the company, while holders of fund certificates do not. Decision-making authority rests entirely with the fund management company.
- Thirdly, individual investors in shares or bonds must assess and monitor their investments independently. In contrast, fund certificate holders rely on the fund management company to make investment decisions and manage their portfolio.
In essence, a fund certificate is a type of security that confirms an investor’s ownership of a portion of the capital in a public fund. Public funds are established from contributions by investors with the goal of generating profits from the securities market. An investor must purchase a fund certificate to confirm their contribution to the shared fund.
- Initial Public Offering (IPO) Conditions for Fund Certificates: To issue fund certificates for public offering, the following conditions must be met:
- A minimum total registered value of fund certificates of 50 billion VND.
- A comprehensive issuance plan and investment plan for the capital raised, in accordance with the regulations of the Securities Law.
- Oversight by a supervising bank as stipulated by law.
- Fund certificates offered to the public must be listed on the securities trading system after the offering, except for open-ended fund certificates.
- Required Documents for Registering a Public Offering of Fund Certificates:
- Registration application for the public offering of fund certificates.
- Prospectus.
- Draft charter of the securities investment fund.
- Preliminary agreements between the supervising bank and the fund management company, distribution contracts, and contracts with related service providers.
- Commitment to underwriting the issuance (if applicable).
The establishment and public offering of fund certificates for public funds are carried out by the fund management company in accordance with the Securities Law and must be registered with the State Securities Commission.
2. What is the Interest Rate on Fund Certificates?
In light of economic and societal fluctuations, many individual investors are shifting their focus to fund certificates. This investment method enables both short-term and long-term profit generation depending on individual goals. While comparable to bank savings in terms of interest rates, fund certificates offer unique advantages evaluated through the following criteria:
- Profitability: In a stable market environment, fund certificates can yield returns of up to 10%, often outperforming bank savings. Over the long term, open-ended funds are regarded as having higher profit potential.
- Safety: While fund certificates can be risky, especially during market downturns, proper timing and selection of reputable funds can mitigate risks. Poor market timing or mismanagement can result in significant losses.
- Liquidity: Fund certificates are highly liquid as they are traded on the stock market, making them accessible to a wide range of investors compared to other investment vehicles.
Although interest rates on fund certificates are not fixed, they are influenced by market performance and the investment strategy of the fund management company. Reliable and well-managed funds can offer significantly higher returns compared to bank savings, particularly for long-term investments.
3. Should You Invest in Fund Certificates?
To determine whether investing in fund certificates is a suitable choice, consider the following benefits:
- Expert Management: Even without extensive knowledge of the economy or financial markets, investors can trust their investments to experienced financial professionals. Fund managers make strategic decisions to maximize returns based on market conditions and investor goals.
- Market Volatility Mitigation: Fund certificates are typically long-term investments, which helps mitigate the impact of short-term market fluctuations.
- Lower Risk than Other Securities: In cases where the market price of securities falls below their intrinsic value, the investor’s capital remains protected. Additionally, fund managers’ expertise ensures safer investment decisions compared to self-directed investing.
- High Liquidity: Fund certificates offer flexibility, allowing investors to withdraw part or all of their investment at any time. This ensures a consistent income stream and safeguards investor interests.
In conclusion, fund certificates are a promising investment option for individuals seeking professional management, long-term growth, and liquidity. By selecting reputable funds and timing investments wisely, investors can achieve returns that surpass traditional bank savings while minimizing risks.
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1. Lawyer Vu Thi Phuong Thanh, Manager of TLA Law LLC, Ha Noi Bar Association
Email: vtpthanh@tlalaw.vn
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Email: tmle@tlalaw.vn.
Dinh Phuong Thao