The sale of mutual funds in China is booming.

A total of 11 funds, valued at more than 100 billion yuan (US$12.94 billion), were raised in the past 40 days, according to Shanghai -based Wind Data statistics. The number is 10 times that for the same period last year.

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The Shanghai Securities News said on Friday the new funds, mainly invested in the stock market, have much larger scales compared to those sold last year. The funds have an average scale of 8.76 billion yuan, nearly double those of funds raised last year, which had an average scale of 4.68 billion yuan.

The new funds are selling at a rapid pace, some being sold out within one to three days, and none more than 15 days.

China's booming stock market, boosted by securities reform, has made mutual funds a very attractive investment tool since last year. By the end of 2006, a total of 53 fund management firms were running 321 equity funds (mainly invested in the stock market) with a combined value of 856 billion yuan, an 84 percent growth year-on-year , according to China Galaxy Securities.

The total return of mutual funds in 2007, however, will not match that of 2006 as those returns were based on an exuberant index growth of 130 percent in the A-share market. Analysts project a 30 percent average return for equity mutual funds this year.

Many fund companies are planning to issue more bond funds that cut risks and insure stable investments. These funds, which are initially invested in the bond market, will be used to buy shares in initial public offering s (IPO) and take profit after the shares start to trade.

Wen Ming, in charge of fixed income investment at the ICBC Credit Suisse Asset management Co Ltd, said that increased IPO activities in the A-share market is providing great opportunities for funds to make profit.

"Comparatively, the investment is more stable, and it has a quite lucrative return," Wen said.

These funds in 2006 witnessed an average return of 20 percent with the best performer hitting a return of 56 percent.

The A-share market in 2007 will continue to see increased IPO activities. Many H-share and red chip companies who listed overseas are also in the pipeline to issue A shares . Blue chips such as China CITIC Bank, Bank of Communications, PetroChina and CNOOC, are expected to list on the Chinese mainland in 2007.

"These high-quality blue chips will certainly add value to the A-share market, and attract more mutual funds to invest," Wen said.

To inform investors of the potential risks in buying funds, the China Securities Regulatory Commission (CSRC) has released a statement urging firms to help educate investors before they sell equity funds to individuals.

The CSRC requires that all fund firms set aside money to help educate investors and says firms should publish brochures and train their staff to better inform investors of risks.

(China Daily 04/14/2007 page10)

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