Establishing Investment Funds to Attract Investors and Launching New Products, Derivative Securities Market Products to Prevent Risks

secondary market for corporate bonds. Therefore, although corporate bonds have very high interest rates, they are not liquid and are not attractive to many investors.

For the stock market, a stock index can reflect the value of stocks in a basket of stocks. These stocks often have a common feature such as being listed on the same market, operating in the same industry, and having similar capitalization. Stock indices can be constructed on a number of bases:

- Average price basis: based on price fluctuations of stocks in the basket of stocks. A price fluctuation of a small stock can have a big impact on the index;

- Average market capitalization basis: based on the price and capital size of the enterprise. A price fluctuation of a small stock does not have a big impact on the index.

- Adjusted average market capitalization basis: based on the market capitalization of the enterprise but only counting the number of shares with unrestricted trading for the public to take into account the level of liquidity.

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3.2.4. Establish investment funds to attract investors and launch new products, derivative securities market products to prevent investment risks as well as create financial leverage, speculation or risk structuring.

3.2.4.1. Establishment of new investment funds

With the advantage of being able to access corporate bonds from the parent bank, the Vietnam Joint Stock Commercial Bank for Industry and Trade, the Company can establish an open-end bond fund with a portfolio including corporate bonds and government bonds, government-guaranteed bonds, money market instruments and other assets to mobilize capital indirectly from investors. The Company also continues to promote the establishment of REITS funds and voluntary supplementary pension funds.

Real Estate Investment Trust (REIT):

- REIT 1: Investing in resort real estate, targeting foreign investors, especially wealthy individuals. Through working with foreign investors, the author realizes that the investment demand of foreign investors in resort real estate in Vietnam is very large and the supply of resort real estate in Vietnam is increasing rapidly, but to develop this type of fund, the Company needs to research and answer the following issues: legality of fund structure and investment assets, hedging against exchange rate risks; related taxes and fees; profit rate calculated in USD for investors.

- REIT 2: Investing in offices for lease, targeting domestic investors. To develop this type, the Company needs to increase its staff with knowledge of the real estate business to select properties with stable profits; at the same time, open a distribution channel for Fund Certificates through the extensive network of branches and transaction offices of the Industrial and Commercial Bank.

- REIT 3: Investing in social housing with a solid lease-purchase contract, targeting domestic investors.

Open-end bond fund:

Fund output: Actively seek fixed-interest investment instruments with attractive returns: CDs, Corporate bonds. In particular, in the case of establishing a REIT3 fund that is stuck due to the problem of transferring assets such as social housing units that are being rented to the fund, consider the approach and support for social housing project investors to issue MBS-Mortgage backed securities, corporate bonds secured by social housing units that have been rented and have a stable cash flow, from here will create a source of bonds for the Open Bond Fund;

Voluntary supplementary pension fund:

On July 1, 2016, the Government issued Decree 88/2016/ND-CP on the Voluntary Supplementary Pension Program, which is an important legal framework to encourage employers and employees to contribute to the Voluntary Supplementary Pension Program (in addition to the compulsory Social Insurance Fund) through the formation of a pension fund from voluntary contributions of fund participants and employers in the form of individual pension accounts to strengthen the connection between employers and employees and increase welfare sources for retirees. Along with life insurance companies, the Fund Management Company is also an entity authorized to manage the Voluntary Supplementary Pension Fund. Therefore, the Company has been actively researching to propose to the Vietnam Joint Stock Commercial Bank for Industry and Trade to deploy this product in the next 1-2 years, applied to the officers and employees of the Vietnam Joint Stock Commercial Bank for Industry and Trade to increase employee benefits, while increasing the asset scale and fee revenue for the Fund Management Company.

In addition, the Company can establish an ETF index fund listed on the stock market. This is an investment fund with high liquidity, low costs, and high transparency. Currently, in the Vietnamese stock market, there are 3 foreign ETF funds and 1 domestic ETF fund. ETF funds invest in a passive form, the fund's operating mechanism is not related to the direct buying and selling of securities on the market.

3.2.4.2. Develop new investment products and derivative market products to hedge investment risks as well as create financial leverage, speculation or risk structuring

To mitigate risk, the Company may use interest rate swap contracts to convert floating interest rates into fixed interest rates.

To create financial leverage, a stock swap contract with the market can be used. The investor may have to pay a cost of capital calculated on the basis of interest.

reference rate and receive the income of the stock and the difference in the future cost of the original derivative stock. The investor enjoys all the profits and bears all the losses of the stock investment. In this case, the investor does not need to use cash capital (except for the payment deposit) but still invests in stocks.

To speculate, investors make predictions about future market movements and bet on those predictions. Derivatives are a useful tool for doing so by taking a “long” or “short” position on the appropriate derivatives. For example, if a fund manager believes that a stock price will rise, they can buy a stock futures contract or buy a stock call option. Conversely, if they predict that a stock price will fall, they can sell a stock futures contract or buy a stock put option.

To structure risk, a fund management company can use derivative contracts to restructure the risk of existing products in its portfolio to create a new portfolio with different characteristics from the original portfolio. For example, a company currently has a corporate bond portfolio with an interest rate of 12%/year. However, the company predicts that market interest rates will increase, so it wants to convert its portfolio into a floating-rate portfolio. The simplest way is to execute an interest rate swap contract. The company will pay a fixed interest rate and receive a floating interest rate. That is, the company has restructured its portfolio from fixed to floating to take advantage of the market's trend of increasing interest rates.

3.2.4.3 Develop new products to take advantage of the bank's strengths

As a subsidiary of Vietnam Joint Stock Commercial Bank for Industry and Trade, Vietnam Joint Stock Commercial Bank for Industry and Trade Fund Management Company has the opportunity to take advantage of the bank's available resources such as human resources, information technology systems, relationship networks as well as associated investment products.

New products can be exploited by investors who are large, potential customers who are already customers of the Bank. Investment products can take advantage of the bank's payment and money transfer system to help investors have convenience in transferring investment money, receiving interest or other bank-related derivative transactions.

Product design must follow the correct procedures from the stage of surveying customer needs, product design, training the product marketing team to the stage of bringing the product to market.

In the current trend of integration and fierce competition in the market between financial institutions, the company's introduction of new products in combination with the Bank will create a superior advantage for the Company compared to other competitors.

In this study, some new products are introduced for the Company to refer to and develop. These are structured bonds, including:

- Interest rate risk linked bonds;

- Inflation risk-linked bonds;

- Foreign currency risk-linked bonds;

- Credit risk-linked bonds;

- Stock investment linked bonds;

Interest rate risk-linked bonds : Floating rate bonds are one of the most basic forms of this product. The coupon rate is determined based on a common reference in the market such as the average of 12-month mobilization interest rates of 4 major banks: BIDV, VietinBank, VietcomBank and Agribank. With a margin determined at the time of bond issuance, the bond interest rate is determined periodically, before the coupon payment date.

Stepped-rate bonds: are bonds with an interest rate that increases over the holding period. The longer the bondholder holds the bond, the more interest they receive.

higher because the risk of holding long-term bonds is higher than that of short-term bonds.

Variable payment bond: is a type of bond with a principal payment schedule that depends on a common reference interest rate in the market. The final principal payment date is fixed. Future cash flows and yield to maturity are not determined with certainty. This type of bond helps bondholders limit the risk of interest rate fluctuations.

Inflation-linked bonds : aim to help investors have a means to avoid inflation risks. Investors will receive a coupon higher than the inflation rate during the investment term of the bond, ensuring a positive real interest rate. This is especially important when capital mobilization interest rates during inflationary periods tend to increase to control inflation.

Foreign exchange risk-linked bonds : are bonds whose coupons depend on the exchange rate fluctuations of a currency pair. In essence, foreign exchange risk-linked bonds consist of a corporate bond plus a forward foreign currency purchase contract implicitly structured in the bond. That is, instead of buying a corporate bond and a forward foreign currency purchase contract, investors can request that the enterprise issue foreign exchange rate-linked bonds, with an coupon equal to the average 12-month deposit interest rate of 4 major banks plus a margin plus foreign currency investment gains and losses.

Equity-linked bonds : are bonds whose coupons depend on the price fluctuations of a stock, a group of stocks, or a general stock index on the market. In essence, equity-linked bonds consist of a corporate bond plus a derivative contract implicitly structured in the bond. Equity-linked bonds with principal preservation consist of a prepaid coupon bond and a stock call option. Bonds

A stock option-linked bond is a convertible bond, in which the principal payment at the end of the term depends on the stock price at maturity date... Credit risk-linked bond : is a combination of a regular bond

usually with a credit default swap. In essence, the investor buys the bond

conventional corporate bonds and buys the credit risk of a reference asset, thereby receiving an interest coupon combined with a credit risk premium. The interest coupon for a credit-linked bond consists of:

- Bond interest rate: equal to reference interest rate plus credit margin. Credit margin for this type of bond is smaller than the normal credit margin applied to the issuer.

- Credit risk insurance premium: based on the credit rating of the reference asset.

During the bond issuance period, if no credit event occurs, the investor will be repaid the entire principal amount at maturity. However, if a credit event occurs during the bond issuance period, the investor will not receive the principal amount of the bond but will only receive the principal amount after deducting the credit risk loss of the reference asset (i.e., receiving the recovery portion of the reference asset).

3.2.5. Building risk prevention tools for each business segment of the Company using statistical mathematical models

The biggest risk in the operation of the Fund Management Company is market risk. The Vietnam Joint Stock Commercial Bank for Industry and Trade Fund Management Company can use statistical models to measure market risk as well as other types of risks in investment activities.

The biggest limitation of VaR is that it is based only on normal market conditions from analyzing past data. VaR does not reflect the maximum possible loss but only reflects the loss with the highest probability under normal conditions.

normal market conditions. In highly volatile market conditions, VaR will no longer be meaningful. To overcome the limitations of VaR, companies also apply scenario analysis and stress testing to unusual market events. These risks are often referred to as event risks. Stress events that are modeled to determine potential losses include:

- Downgrade the credit rating of investment securities,

- The possibility of default on investment securities,

- Sharp decline in real estate prices affects the prices of securities with real estate as collateral,

- Sharp price reduction for equity securities.

Currently, financial institutions around the world are using three main methods to measure VaR, which are: Delta-Gamma method, historical simulation method, Monte Carlo method.

Delta – Gamma method : is the simplest method of applying VaR. It assumes that the risk of the portfolio is linear and the risk factors follow a normal distribution. Because the return of the portfolio is a linear combination of normal variables, it follows a normal distribution, with a density function distributed in a bell-shaped manner. However, because it also assumes a linear relationship between VaR and the variables, the Delta – Gamma method is less accurate than the next two methods.

Historical simulation method : is a full valuation method. It involves going back in time, say the last 250 days, and applying current weights to the returns of that asset over a historical time series. It is considered as looking back at history with current weights. Suppose the current time is t, and we have observational data for the period

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