At least three mutual fund management companies, HSBC Jintrust Fund Management, Fortis Haitong Investment Management Co and China Merchants Fund, are launching equity-focused funds aiming to raise 10 billion yuan (US$1.3 billion) each.

More fund launches will follow and a number of new fund management companies will be set up later this year as the stock market gears up for further expansion, driven by a flood of initial public offerings and new share sales.

If the three funds meet their targets, the total amount of mutual funds raised in the first quarter would exceed 100 billion yuan, triple the year-ago period, according to industry data cited in domestic media.

"Investors remain highly bullish about new fund subscriptions," said Zhou Liang, analyst at global fund intelligence firm Lipper.

The overall size of China's 1 trillion yuan mutual fund industry, however, is not growing as rapidly as the figures indicate, because part of the money used to buy new funds over the past two months had been redeemed from the existing funds.

"Redemption pressure is getting bigger as fund investors sell old funds with high net-asset value to buy new funds," said Li Yijun, a sales manager with China Asset Management.

Lipper's Zhou said that, based on his own observations, China's mutual fund sector has witnessed a net outflow since February. Accurate data will be available when funds release their quarterly results next month, he added.

The practice of selling existing funds to buy new funds is based on a mistaken belief among some retail investors, who account for the majority of fund buyers, that new fund units are a bargain compared with existing funds because they are sold at a par value of 1 yuan.

Most mutual funds have recorded hefty gains since the start of last year as Shanghai's benchmark stock index surged more than 160 percent, sharply raising the unit prices of mutual funds.

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