SBLAW would like to provide you some information of Legal frame on establishment and operation of investment fund with foreign investment capital in Vietnam as follows:

1. Legal basis:

– Law on securities No.70/2006/QH11 dated June 29, 2006 and Law No. 62/2010/QH12 dated November 24, 2010, amending, supplementing a number of articles of Law on Securities (hereinafter is referred as “Law on securities”);

– Decree No. 58/2012/ND-CP dated July 20, 2012, stipulating in detail and guiding the implementation of a number of articles of the securities Law and the law amending and supplementing a number of articles of securities Law amended by Decree No. 60/2015/ND-CP date June 26, 2015 (hereinafter is referred as “Decree No. 58/2012/ND-CP”);

– Circular No. 186/2010/TT-BTC dated November 18, 2010, guiding the offshore remittance of profits earned by foreign organizations and individuals from their direct investment in Vietnam under the investment law (hereinafter is referred as “Circular No. 186/2010/TT-BTC”);

– Circular No. 183/2011/TT-BTC dated December 16, 2011, guiding the establishment and management of open-ended funds (hereinafter is referred as “Circular No. 183/2011/TT-BTC”);

– Circular No. 224/2012/TT-BTC dated December 26, 2012, guiding the establishment and management of closed funds, member funds (hereinafter is referred as “Circular No. 224/2012/TT-BTC”);

– Circular No. 123/2015/TT-BTC dated August 19, 2015, providing guidance on foreign investment activities on Vietnam’s securities market (hereinafter is referred as “Circular No. 123/2015/TT-BTC”);

–  Circular No. 15/2016/TT-BTC dated January 20, 2016 amending and supplementing several articles of the Circular No. 183/2011/TT-BTC dated December 16, 2011, guiding the establishment and management of open-ended funds (hereinafter is referred as “Circular No. 15/2016/TT-BTC”);

– Other relevant legal documents.

2. Establishment of investment fund in Vietnam with foreign investment

2.1 Ability to set up investment fund

Foreign investor may establish investment fund with foreign investment in Vietnam. However, the investor is not permited to directly establish investment fund.

The investment fund must be established by a fund management company. Hence, in order to set up a fund with foreign investment in Vietnam, the investor has to establish a fund management company first.

A fund management company can be set up with 100% foreign investment capital. However, the investor must meet these conditions as follows

– Being organization operating in banking, securities, insurance area with a minimum of 02 years of operation preceding the year participating in capital contribution for establishment, share purchase and contributed capital;

– Availablity of bilateral or multilateral cooperation agreement on information exchange, management cooperation, inspection and supervision of securities activities and securities market signed by and between the specialized management and supervision agency in foreign country in the area of banking, securities, insurance and the State Securities Commission;

– Profitable business operation in 02 preceding years;

– Not being in a state of operational control, special control or other warning status at the same time fulfilling the conditions to participate in contribution of capital and investment.

In case the investor meet these mentioned requirements, the investor may establish a fund management company with 100% foreign investment. After that, the Client shall set up an investment fund through the fund management company.

However, according to our practice experiences, one of current policies of the State Securities Commission is not to allow the establishment of new fund management companies. Therefore, the investor may consider cooperate with or acquire an available fund management company to set up a new fund.

2.2. Types of investment fund and procedures to set up each types

There are 2 types of investment fund in accordance with Law on securities of Vietnam, which includes:

2.2.1    Public fund

A public fund is a securities investment fund which conducts public offering of fund certificates. A public fund must satisfy these following conditions:

– At least one hundred investors, excluding professional securities investors, buy fund certificates;

-The total value of sold fund certificates reaches at least VND 50 billion.

A public fund shall be organized under the form of open – ended fund or closed fund. Accordingly, an open – ended fund is a public fund whose certificates, which have undergone a public offering, should be bought back at the request of investors

Meanwhile, a closed fund is a public fund whose certificates, which have undergone a public offering, should not be bought back at the request of investors.

The procedure to establish an open – ended fund shall be briefted as follows

2.2.2. Open – ended fund:

Step 1:Initial public offering of the fund certificates

The fund management company register for the initial public offering of the fund certificates to the State Securities Commission. A dossier of registration for the initial public offering of open-ended fund certificates includes:

–           The written application for the public offering of the fund certificates;

–           The Fund’s Charter;

–           The prospectus, the Simplified prospectus;

–           The list enclosed with personal profiles of the fund management staff;

–           The principle contract on the supervision; the principle contracts signed with relevant service providers (if any); the principle contracts signed with nominal agents; the principle contracts for the fund certificate distribution; the principle contracts to provide fund administration services (if any). In case the service providers are distributors or nominal agents who have not been issued with Certificates of registration of the fund certificate distribution, such service providers must provide the documents about the registration for the distribution of open-ended fund certificates;

–           The advertising documents and introduction of the fund (if any);

–           In case the Fund Management Company does not organize the first Investors’ General Meetings, it must provide the additional documents for consulting the investors , including:

+          The list enclosed with personal profiles and other valid documents proving that the Board of Representatives satisfy the requirements;

+          Documents related to other issues that need to be consulted by the investors.

Within 30 days from the date on which complete and valid dossier is received, the State Securities Commission shall issue the certificate of registration of the public offering of open-ended fund certificates.

The initial public offering of the fund certificates shall be carried out after issuance of the Certificate of registration for offering fund certificates. The fund management company must complete the distribution of fund certificates for a period of ninety (90) days from the effective date of registration certificate for selling offer of fund certificates to the public.

Step 2: Registering with the State Securities Commission.

Within 10 days after the date on which the initial public offering is finished, the Fund Management Company must send the dossier of registration for the fund establishment to the State Securities Commission, including:

–           The written application for the Fund establishment;

–           The report on the offering results;

–           The Supervisory bank’s written confirmation on the money gained from the offering;

–           The list of nominal agents and all investors including the investors trading via the nominal accounts;

–           The summary of investors’ opinions  in case the Fund Management Company does not organize the first Investors’ General Meetings.

Within 10 days from the on which the complete and valid dossier is received, the State Securities Commission shall issue the Certificate of the fund establishment registration.

2.2.3. Closed fund

Step 1:            Initial public offering of the fund certificates

The fund management company register for the initial public offering of the fund certificates to the State Securities Commission. A dossier of registration for the initial public offering of closed fund certificates includes:

–           The written application for the public offering of the fund certificates;

–           The Fund’s Charter;

–           The prospectus and summary prospectus;

–           The contract in principle regarding supervisory, supervision activities between the custodian bank and fund management company;

–           The contract in principle on the distribution of fund certificate between the fund management company and the distribution agents;

–           A list together with the personal records, copies of certificates of fund management practice of at least two (02) fund administrators;

Underwriting commitments (if any).

Within thirty (30) days from the date of receiving complete and valid dossier as prescribed in Clauses 4 and 5 of this Article, the State Securities Commission issues a first offering registration certificate of fund certificates to the public.

Step 2: Registering with the State Securities Commission.

Within 10 days after the date on which the initial public offering is finished, the Fund Management Company must send the dossier of registration for the fund establishment to the State Securities Commission, including:

–           The written application for the Fund establishment;

–           The report on the offering results;

–           The Supervisory bank’s written confirmation on the money gained from the offering;

Within ten (10) days from the date of receipt of complete and valid dossier, the State Securities Commission shall issue the certificate of fund establishment registration

Member fund

A member fund is a securities investment fund which consists of at most thirty capital-contributing members being organizations. A member fund has to satisfy following requirements:

–           The fund’s minimum contributed capital is VND 50 billion;

–           There are at most thirty capital-contributing members being legal persons;

–           The fund is managed by a fund management company;

–           The fund’s assets are deposited at a depository bank independent from the fund management company.

The procedure to establish a member fund shall be described as follows:

The establishment of member fund must be reported to the State Securities Commission by the Fund Management Company. Report dossier on the establishment of the member fund must include the following documents:

–           Application for registration of the operation of the member fund made by the Fund Management Company;

–           Fund charter;

–           The prospectus, the cover page of the prospectus must be stated clearly the principle of operation of the fund: “This fund must not comply with the provisions of the law governing investment activity of securities investment fund implementing selling offer of fund certificates to the public.

The  investment in this fund is only suitable for the organizations willing to accept a potential high level of risk from the investment of the fund. Organizations investing in this fund should consider carefully before contributing capital, making investment decision”;

–           Asset depository contract;

–           Minutes of capital contribution agreement, a list of organizations to contribute capital;

–           A certified copy of the establishment decision, business registration certificate or other equivalent document of limited partners. For members as foreign organizations, a copy of the business registration certificate or equivalent document must be certified by the agency where the organizations registered not exceeding six (06) months before the date of completion of dossier registering for fund establishment and must be translated and notarized public in accordance with relevant laws;

–           Minutes of the meeting and the decision of the general meeting of shareholders or the Management Board, the decision of the Council of members or the owners in accordance with the provisions of the company charter of the organization to contribute capital on the capital contribution to the fund, on appointment of authorized representative of contributed capital together with the personal records of this person;

–           A copy of the certificate of registration of securities trading code of the foreign organization;

–           Depository bank’s certification on the scale of contributed capital.

Within fifteen (15) days after receiving a complete record, the State Securities Commission notifies in writing to confirm that the fund management company has reported on the establishment of member fund

3.Capital mobilization of investment fund

In accordance with Law on securities and guidance documents, an investment fund may mobilize for capital by these following methods:

–           Raising additional capital from existing members;

–           Raising additional capital from the new members;

–           Issuing fund certificates applied only for the public funds;

–           Loan of assets applied only for the member funds.

4. Legal restrictions applied for the fund

Restriction on investment portfolio

Public Fund

a) Open – ended fund

Investment portfolio of open-ended fund must adhere to the following rules:

–           Except for deposits in the demand account of the fund opened at a supervisory bank, it is not allowed to invest more than forty-nine percents (49%) of the fund’s total asset value in deposits at commercial bank or foreign currency, money market instruments including valuable papers and negotiable instruments. This provision shall not be applied to bond funds;

–           Do no invest more than 30% of the fund’s total asset value in (i) deposits at commercial bank; (ii) foreign currency, money market instruments including valuable papers and negotiable instruments; (iii) listed shares, registered shares, listed bonds; (iv) shares, bonds to be listed or registered; (v) corporate bonds issued by listed organizations for which payment security is provided by credit institutions or which issuing organizations undertake to repurchase; (vi) listed and registered derivatives at Stock Exchanges as a hedge, which are issued by the same company or by a group of companies that have mutual ownership relations, including the investment in derivative securities which is the value agreed upon in the contract;

–           Do not invest more than 20% of total asset value of the fund in outstanding securities of an issuing organization, including valuable papers, negotiable instruments, bonds (except government bonds), voting shares, non-voting shares, and convertible bonds;

–           No investment in securities of an organization issuing more than ten percents (10%), or fifteen percents (15%) (in respect of an index fund or exchange-traded fund) of the total value of outstanding securities of that issuing organization, except for government bonds;

–           Do not invest more than ten percents (10%) of the total asset value of the fund in the assets provided for in shares, bonds to be listed or registered or corporate bonds issued by listed organizations for which payment security is provided by credit institutions or which issuing organizations undertake to repurchase;

–           The total value of major investments in the fund’s investment portfolio must not exceed forty percents (40%) of the fund’s total asset value, except in the case of the bond fund;

–           At any time, the total value agreed upon in derivative securities trades, outstanding loans and other payables of the fund must not exceed the net asset value of the fund;

–           No investment in securities investment funds, shares of securities investment companies that are established and operated within the territory of Vietnam;

–           No direct investment in real property, precious stones and metals;

Hold securities issued by at least six (06) issuing organizations, except in the case of the bond fund.

b) Closed fund

The fund’s portfolio structure must conform to the provisions in the fund charter and must ensure:

–           Do not invest in the securities of one issuer more than fifteen percent (15%) of the total value of the outstanding securities of that organization, except for government bonds;

–           Do not invest more than twenty percent (20%) of the total value of the fund’s assets in deposits in the commercial bank or monetary market instruments including valuable papers, transfer instruments issued by the same organization, except for government bonds;

–           Do not invest more than thirty percent (30%) of the total value of the fund’s assets in deposits in the commercial bank; monetary market instruments including valuable papers, transfer instruments; shares listed or registered for trading and bonds listed; shares unlisted, shares unregistered for trading of public company; unlisted bonds; shares of joint stock companies, contributed capital in the limited liability company; the securities and other assets issued by an organization or a group of companies having ownership relationship together;

–           Do not invest more than ten percent (10%) of the total value of the fund’s assets in real estate and shares unlisted, shares unregistered for trading of public company; unlisted bonds; shares of joint stock companies, contributed capital in the limited liability company;

–           Do not use capital and assets of the fund to provide loans, guarantees for the loans, except for investment in deposits in the commercial bank; do not use the assets of the fund to implement the margin trading (loan for buying securities), short sales (securities loan for sale);

–           No investment in its fund certificates, invest in the securities investment funds, securities investment companies established and operating in Vietnam;

Member fund:

In the activity of member fund management, the fund management companies must ensure that:

–           No investment in their own funds and other securities investment funds, including securities investment companies, real estate investment funds;

–           May not use capital, assets of the fund to provide loans, guarantee the loan of any third party; do not guarantee the issuance of securities.

Restricion on foreign invested funds

The foreign invested funds in which foreign ownership reach to more than 50% of total capital shall be subject to restriction of foreign ownership limitation when it make any investment into companies in Vietnam.

There is no common limitation of foreign ownership in all investment sectors in Vietnam. Such limitation shall be varied depending on each specicific industry. Until now, Vietnam Law removed limitation of foreign ownership in almost of investment sectors except for several conditional industries such as tourism, transportation, advertisement, custom declarance, banking, Hr Outsourcing etcs.

Restriction on mobilization of capital

With regard to the member fund, there is a limitation on the fund’s mobilization. The fund may call for investment from a new member. However, the maximum number of its member is 30 members. In other words, the member fund may not call for investment from more than 30 investors, including domestic organizations and foreign organizations.

In terms of the public fund, the fund may issue fund certificates to public, which means there is no limitation on capital mobilization from investors. Besides, the foreign investors may make unrestricted investments in certificates of securities investment fund. Therefore, there is no restriction for a public fund to receive the investment from foreign investors and domestic investor

Ability and conditions of profit remittance

In terms of the open – ended fund, the fund management company may distribute profits to investors as prescribed in the fund’s charter and the profit distribution policy announced in the prospectus. Distributed profits shall be extracted from remaining profit of the fund. The fund management company has to meet these following conditions to distribute fund’s profits to investors:

–           The fund management company shall only distribute profit when fund has fulfilled or is financially capable of fulfilling tax obligations and other financial obligations in accordance with law;

–           Has set aside sufficient funds in accordance with the provisions of the fund charter;

–           After the profit is distributed, the fund must ensure the settlement of due debts and other financial obligations.

With regard to the closed fund and member fund, the investors are received incomes from the funds according to profit distribution policy provided for in the fund charter and according to the division plan adopted by the latest general meeting of the investors. Incomes paid to the investors are drawn from the profits in the period, or profits accumulated after making the full appropriation of funds (if any) as specified in

the fund charter and meeting all tax obligations of tax, finance (if any) in accordance with the law provisions. The payment of income of the fund must ensure the principles of:

–           Made after the fund has fulfilled its tax obligations and other financial obligations as prescribed by law;

–           Has set aside sufficient funds in accordance with the provisions of the fund charter (if any);

–           After making payment, the fund must still have sufficient funds to pay all the due debts and other financial obligations and ensure that the net asset value is not less than fifty (50) billion VND;


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