Mutual fund
 
Overview
 
“Mutual fund management” refers to the management of mutual funds by an asset management company in accordance with the mutual fund’s objective and investment policy specified in the constitutive documents approved by the SEC. Mutual funds raise money by selling investment units of the fund to the public. The proceeds from the sale of investment units are pooled and invested in securities or other assets. Investment in a pooled fund provides an important investment vehicle for retail investors who have limited amount of money with a lack of investment knowledge and experience as well as the time to manage the portfolio.
 
Regulatory principles
 
-  Asset Management Company (“AMC”) shall manage the mutual fund with, integrity, care, and diligence to preserve the best interests of its unitholders with professional knowledge and competence.
-  AMC that wishes to establish a mutual fund and offer investment units to the public shall apply for approval from the SEC by submitting application for establishment of mutual fund where the mutual fund project shall consist of, for example, draft prospectus which outlines the fund objectives and investment policies, details of management fee and other associated fees involved in managing the mutual fund, and draft obligation between unitholders and asset management company.
- When investment units are placed on offer for sale, the selling agents must distribute a simplified prospectus to interested investors which is prepared with the use of clear language.
- In managing a mutual fund, the AMC must strictly comply with the governing regulations and the investment policy specified in the mutual fund project and prospectus. That is, the investment portfolio must be well diversified and in line with investment restrictions.
 
Fund manager (personnel)
 
A fund manager is assigned by the AMC to make investment decisions in line with the investment objectives and policies specified in the mutual fund project. Prior to performing such role, the fund manager must hold a license granted by the SEC whose qualifications include having passed a course relating to securities and exchange laws, applicable rules and regulations and ethics and professional standards arranged by the Association of Investment Management Companies (AIMC). Moreover, the fund manager must have one of the following qualifications and work experiences:
(a)    having passed CFA Level 1 or CISA Level 1 and having work experience in securities investment, risk management relating to securities investment or securities analysis for not less than 2 years within 5 years prior to the application date;
(b)   having obtained CFA Level 3 or CISA Level 3; or
(c)    being permitted by a foreign capital market regulator, which is accepted by the SEC, to perform the duties similar to fund manager.
 In addition, the fund manager shall not possess any prohibited characteristics as specified by related laws.
 
Sale persons (supporting agent)
 
Sale persons are responsible for selling investment units of mutual funds to the public. The person must be approved and meet the qualifications as specified by the SEC,  and shall perform his or her duties as prescribed in sales practices, such as recommending a fund that is suitable for the customer’s investment objectives.
 
Fund supervisor
 
Mutual fund supervisor (performing the roles equivalent to those of a trustee) is entrusted with fiduciary duties in that it shall act for the best interest of unitholders. The duties of a fund supervisor include ensuring that AMC manage the fund in accordance with the approved mutual fund project, verifying the net asset value (NAV) of the mutual fund, safe-keeping of mutual fund assets, administering the movement of and register mutual fund assets to ensure accuracy, monitoring the benefits arise from mutual fund investments, and filing a legal action in court on behalf of unitholders in case of noncompliance caused by the management company. Mutual fund supervisor shall be a financial institution approved by the SEC. The criteria are based on “fit & proper” principles. Fund supervisor shall not be connected to the management company either directly or indirectly nor have an interest in fund management which may affect its independence.
 
Fund registrar
 
Fund registrar is responsible for preparing a record of unitholders and keeping track of all rights and benefits of unitholders such as dividend payments and other benefits. The registrar must be a person approved by the SEC. An AMC can act as registrar of a fund under its own management. 
 
Auditors
 
  Auditors is responsible for auditing and giving opinions on the financial statements of a mutual fund in compliance with accounting standards. A fund auditor must be an SEC approved auditor.
 
Credit rating agency
 
Credit rating agency is an agency which rates mutual funds. The rating provides investors with the information for making investment decisions. The agency must be approved by the SEC and satisfied the “fit & proper” criteria.
 
Association of Investment Management Companies (“AIMC”)
 
AIMC is an entity registered with the SEC as an association related to securities business, having AMC as its members. The association’s objective is to determine the ethics and standard of practices for its members.