Close-end funds to save themselves

Under the Item 4, Article 113 of the drafting Decree on executing the amended Law on Securities, close-end funds are allowed to convert into open-end funds in accordance with fund shareholders’ resolutions. The procedures will be guided by Ministry of Finance (MoF). The decree, drafted by State Securities Commission (SSC), is expected to come into effect on July 1.

In Vietnam all funds are regulated to operate as closed-end funds – the kind of funds which issue only a fixed number of shares until liquidating. The new regulation will enable them to buy back their own shares, hence supporting their share market prices.

Open-end funds, the kind of model allowing the fund issuing and redeeming shares freely, is not active in Vietnam given the nation’s fledging market.

Besides, the drafting circular which details the decree are being finished by the SSC simultaneously.

The official asserted that the circular would be submitted to the government within one to two months after the decree coming into effort. The circular, the final legal step for the new regulation, is expected to promulgate and come into effort by the end of this year.

Fund shares in Vietnam are sinking with the discounts hitting as high as 30 to 40 per cent, three-fold higher than that in the region of 10 to 15 per cent.

Of the fund shares falling the most, VFMVF1 of Vietnam Securities Investment Fund (VF1) is priced at VND9,900 compared with a net asset value (NAV) of more than VND18,000 per share up to May 16.

PRUBF1 of Prudential Balanced Fund closed at VND5,300 compared with NAV of VND8,499 per shares, while Manulife Progressive Fund’s MAFPF1 skimming at VND4,100 despite the NAV of VND6,882 per share.

As the stock market is expected to remain lackluster in near future, the discounts are likely to widen further.

“Those discounts are terrible. It can happen only in Vietnam,” said a manager for VFMVF4. “However, at the moment local funds can’t help themselves via redeeming shares because they are close-ended.”