Retirement products promise stable yields, to enrich mutual funds

A recent CSRC circular offering guidance on investment in target retirement funds is expected to help develop mutual funds offering such products and guide investors on long-term financial plans for a safe post-retirement life, said analysts.

In its circular, the China Securities Regulatory Commission said target retirement funds will become part of mutual funds, and will be offered to investors in the manner of fund of funds or FoFs.

Such funds often either target a date, usually the date of retirement, or target a risk (yields or losses). This is done to encourage investors seeking stable yields to hold the product over the long term. Target retirement funds have been popular tools for retirement plans in several countries such as the United States and Canada.

The CSRC has sought public opinion on the issue, indicating the market may be nearing launch of such products.

Analysts said if target retirement funds are offered to China's investors, the mutual fund industry as a whole would benefit as they add variety to market products. Such funds also are in investor interest and help investors understand the benefits of long-term investments.

"The guidance has specified that target retirement funds should be offered in the manner of FoFs－a mature and stable strategy that effectively diversifies risks," said Lu Jingxu, investment manager with GF Funds.

The guidance will also help FoFs to play their role in retirement plans, and channel more investor interest and capital into FoFs in the future, said Lu.

At the same time, investors can have a "third pillar" sup-porting pensioners' lives besides private savings and social security funds, said a research note from Puyi Fund, a fund distribution platform.

Currently, China has more than 4,000 mutual funds with a wide range of themes. The target retirement funds will add one more variety to investors' choices.

The launch of such funds will also encourage launch of more similar products that will eventually become a category for retirement plans.

FoFs in China are relatively young products in the market. Approvals for, and offerings of, such products began in recent years. By the end of November, some 80 FoFs were awaiting approval.

In the short term, the CSRC guidance is likely to bring more visibility for FoFs. Target retirement funds are long-term products, which match well with FoFs, which are widely known for stability, said a research note from Harvest Fund.

"If target retirement funds run well and step into a mature stage, then they are likely to be allowed to be offered with more strategies besides FoFs," said the note.

Wealth managers applauded the launch of target retirement funds because such funds help meet increasing demand for retirement plans.

"Many of my clients ask me if we can recommend 20-year term products, or those with even longer tenures, when they plan for a pensioner's life. I'll be able to say yes after target retirement funds are introduced," said Liu Hao, who is with the wealth management unit of Bank of Shanghai.

Currently, most of the wealth management products have 15-year terms or shorter. Some products, such as equity-backed funds, with relatively high fluctuation, are not well-matched with retirement plans that focus more on stability, said Liu.