Technical Savings and Investments Information

INVESTMENT FUNDS
In the following sections, terms such as investment funds, mutual funds, or unit trusts are regarded as collective investment schemes under the Securities and Futures Ordinance (Cap. 571).

Since investment-linked long term insurance policies are mostly offered with their value directly linked to the performance of investment fund(s), the insurance intermediary selling these products should possess thorough knowledge on the features, benefits, and operations of investment funds.

Investment funds are a form of collective investment schemes through which a number of investors having similar investment objectives combine their money into a large central pool. The investment company then channels the funds from this pool into a diversified portfolio of financial instruments such as stocks and bonds. In return, the investors are entitled to any earnings that the company may generate.

There are a wide variety of funds created to suit different needs of investors. Investment funds can be classified according to the asset class they invest in such as stock funds, bond funds, money market funds, venture capital funds etc. They can also be termed as aggressive growth funds, growth funds, income funds, balanced funds etc according to their investment objectives. Some funds are set up for investment in specific industry (e.g. technology funds), or geographic areas such as global funds, American funds, European funds, Far East funds, China funds, Hong Kong funds etc.

The market for investment funds is huge. Researchers in the US estimated that mutual funds assets worldwide amounted to over USD18 trillion at the end of the first quarter of 2009. In Hong Kong, the number of SFC authorized mutual funds and units trusts as at 23 June 2009 was 2,123.

Investment funds are highly regulated in Hong Kong. Under section 103 of the “Securities and Futures Ordinance” (Cap 571), it would be an offence to issue advertisements, invitations or documents relating to certain investments, including collective investment schemes, to the public unless the issue is authorized by the SFC under
section 105(1), or exempted. Section 104 of the Ordinance provides power to the SFC to grant authorization for such collective investment schemes which include investment funds.

In addition, pursuant to the Ordinance, the SFC also published the “Code on Unit Trusts and Mutual Funds” in April 2003 (subsequently amended in July 2008) which established the guidelines for the authorization of collective investment schemes in the likes of mutual fund corporations or unit trusts. Some of the relevant issues will be discussed in the following sections.