Vietnam: Summary of expenses of private funds in securities investment

What are the expenses of private funds in securities investment? - Ngoc Yen (Tay Ninh, Vietnam)

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Regarding this issue, LawNet would like to answer as follows:

1. Fund’s investments and investment portfolio in Vietnam

According to Article 5 of Circular 98/2020/TT-BTC, the fund’s investments and investment portfolio in securities investment are as follows:

- The fund's investment portfolio must be conformable with its investment objectives and policies specified in the fund's charter and prospectus.

- The fund may invest in the following assets:

+ Deposits at commercial banks as prescribed by the Law on banking;

+ Money market instruments, including financial instruments and negotiable instruments as prescribed by law;

+ Government’s debt instruments, Government-backed bonds and municipal bonds;

+ Listed shares, shares registered for trading, bonds listed on SE, and public fund certificates;

+ Unlisted shares of issuers that are operating under the law of Vietnam; shares of joint-stock companies or stakes of limited liability companies;

+ Rights arising in connection with securities held by the fund;

+ Other securities and assets as prescribed by law.

- The fund management company shall only make deposits and invest in money market instruments as prescribed in Points a, b Clause 2 of Article 5 of Circular 98/2020/TT-BTC at the credit institutions approved by the fund’s representative board.

- Private funds are allowed to contribute capital to establish joint-stock companies or limited liability companies in accordance with regulations of the Law on enterprises.

If permitted in the fund’s charter and approved in writing by the General Meeting of Investors, the private fund may invest in eligible real estate as prescribed in the Law on real estate business.

- When managing a private fund, the fund management company shall:

+ Not use the fund’s capital and assets to make investments in that fund;

+ Not use the fund’s capital and assets to provide loans or loan guarantees; not underwrite the offering of securities;

+ Invest in public fund certificates and shares of public securities investment companies managed by other fund management companies, but ensure the following limits:

++ Not invest in more than 10% of total outstanding fund certificates of a public fund or total outstanding shares of a public securities investment company;

++ Not invest more than 20% of total value of its assets in fund certificates of a public fund or shares of a public securities investment company;

++ Not invest more than 30% of total value of its assets in public fund certificates or shares of public securities investment companies.

+ If permitted in the fund’s charter, the fund is allowed to get mortgage loans, overdraft facility or loans in other form from the custodian bank, borrow money to purchase securities (margin trading) according to the following principles:

++ Borrowing of assets must be conformable with regulations of law;

++ Borrowing limit shall be decided by the General Meeting of Investors, provided that total debts and amounts payable of the fund shall not exceed 30% of total value of the fund's assets at any time;

++ Organizational structure and operations of the credit department of the custodian bank must be separated from the fund’s depository department; credit activities are independent from depository activities and fall beyond the scope of the depository contract;

++ The fund management company shall provide information about rights and interests of the custodian bank and potential conflict of interest for the General Meeting of Investors for consideration.

- The fund management company and organizations contributing capital to establish the private fund are not allowed to use means of mass media for advertising or raising capital.

- Private funds may make indirect outward investments according to Clause 9 Article 24 of Circular 98/2020/TT-BTC.

2. Fund’s expenses in securities investment in Vietnam

Summary of fund’s expenses in securities investment in Vietnam according to Article 8 of Circular 98/2020/TT-BTC include:

- Fund management fees paid to the fund management company.

- Depository fees and supervision fees (if any) paid to the custodian bank or supervisory bank.

- Audit fees paid to audit organizations.

- Valuation fees paid to valuation firms (if any); costs of legal counseling service, quotation service, and other services, remunerations paid to the fund’s representative board.

- Costs of drafting, printing and sending the prospectus, summary prospectus, financial statements, and other documents to capital contributors; costs of information disclosure; costs of holding General Meeting of Investors, and meetings of the fund’s representative board.

- Asset transaction costs and other expenses as prescribed by law.

7. Costs arising from replacement of custodian bank, supervisory bank (if any) or other service providers.

Quoc Dat

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