Securities Trading Activities of Investment Fund

If needed, customers can request to sell the securities. The proceeds from the sale of the pledged securities will be used to pay off the debt and interest, and the remainder will be paid into the customer's account.

The loan ratio is calculated based on the market price of the pledged securities as determined by the securities company.

4.2.5 Securities repo operations

This is a transaction where a customer sells securities to a securities company and agrees to buy them back within a certain period. The purpose of a Repo transaction is to finance a temporary capital shortage for customers in case they have securities to pay for the securities the customer has just purchased.

Repo's trading objects are government bonds and stocks.

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Participants in Repo transactions are financial institutions and institutional investors.

Repo transaction term is 1 day to 1 week, 1 month, commonly 1 year.

day.

The direction of Repo is that the customer brings securities to sell to the securities company.

securities, when the maturity date comes, they will buy back these securities and not vice versa.

When a customer wants to trade Repo, the securities company staff will quote the buying price and selling price, and if the customer agrees, the two parties will execute the Repo transaction.

Step 1: Application for repo transaction Step 2: Prepare and approve Repo contract

Step 3: Repo transaction at the company (through the company's transaction and accounting department)

4.2.6 Loans to advance money from selling securities

Customers can borrow in advance the amount of securities sold immediately after the order matching notice instead of waiting until T+3. The fee is small, the procedure is simple and quick.

4.2.7 Dividend advance loan

Customers can borrow in advance the dividend amount immediately after the announcement from the issuing organization about the dividend payment instead of waiting for the official payment date.

Chapter 4 review questions

Question 1: What is underwriting?

Question 2: What is public issuance? What is private issuance? Question 3: Who are the entities that guarantee securities issuance?

Question 4: Analyze the advantages and disadvantages of issuing securities through an underwriter?

Question 5: Describe the main methods of securities underwriting on the stock market?

Question 6: When participating in underwriting activities, what income does the underwriting organization have?

Question 7: When participating in underwriting activities, what risks does the underwriting organization encounter?

Question 8: Describe the form of margin lending at a securities company? Question 9: Describe the form of short selling at a securities company?

Question 10: Please describe the form of payment loans at securities companies? Question 11: Please describe the form of securities mortgage loans at securities companies?

Question 12: Please describe the securities Repo transaction at a securities company? Question 13: Please describe the form of advance loan for securities sales at a securities company?

Question 14: Please describe the form of dividend advance loan at a securities company?

Question 15: What are the effects of underwriting on the efficiency of proprietary trading activities? What measures should securities companies take to prevent risks from underwriting activities?

CHAPTER 5 BUSINESS OPERATIONS

SECURITIES OF OTHER ENTITIES

5.1. Securities trading activities of investment funds

5.1.1 Classification of investment funds

5.1.1.1 Classification by investment purpose

Due to the diversity of industries, there are many types of investment funds according to investment purposes, specifically:

- Portfolio funds (also known as sovereign funds) primarily buy securities listed on local stock exchanges, or shares of emerging market companies listed in international financial centers. For example, American Depositary Receipts (ADRs). These funds value diversification, marketability, and liquidity. They buy minority stakes in companies and do not seek a management role, with initial capital typically ranging from $50–$200 million.

- Private equity funds (also known as direct investment funds) buy substantial minority stakes in unlisted companies. Typically, the fund requires a joint effort between fund management (including general management and financial management skills) and specialists in specific fields.

- Venture capital funds primarily buy private equity stakes in new and small companies, with operating capital ranging from $30 million to $100 million. Venture capital funds buy significant minority (and sometimes majority) stakes in companies and often provide management advice.

- Domestic mutual funds (also known as trust funds) raise capital from domestic investors and buy securities listed on domestic stock markets.

5.1.1.2 Classification by capital mobilization structure after establishment

According to the capital mobilization structure after establishment, the Investment Fund includes closed-end investment funds and open-end investment funds.

- A closed-end fund operates like a company that issues securities to the public. Fund certificates are listed and traded on the secondary market at prices that follow market rules. This fund usually does not issue additional fund certificates, nor does it buy back its issued shares. Therefore, a closed-end fund does not increase its investment capital unless it issues new fund certificates, and investors cannot withdraw capital from the fund unless the fund buys back its certificates.

The net asset value of a closed-end fund is calculated based on the value of the securities in the fund's portfolio. The market price and the net asset value of a closed-end fund are completely different, the market price can be about 15-20% lower than the net asset value.

Closed-end funds typically raise capital from a limited group of shareholders. Shares in the fund are bought and sold at a premium or discount to their net asset value. These funds may be limited or indefinite in existence and may be listed on international stock exchanges.

The most typical form of closed-end funds is a series of funds with a fixed maturity and held by a management company. These funds fall into two categories:

+ Funds are organized for a certain period of time and maintain a predetermined investment policy.

+ Funds are held on an intermittent basis to reflect changing market conditions.

Although they are all managed by a single fund management company, the funds are managed and maintained separately and independently from each other. The advantage of this type of fund is that investors can switch from one fund to another with low or no switching costs.

- Open-end investment fund (also known as mutual fund): In an open-end investment fund, the fund management company is willing to buy back shares at equal prices.

with the net asset value published daily, usually at pre-agreed times. Open-end funds are willing to sell investment fund units at net asset value, possibly charging a sales fee, and to buy back investment fund units at net asset value, charging a redemption fee. Therefore, the capital of the investment fund is constantly changing. Investors can request the manager to buy back the fund's investment fund units at any time while the fund continuously issues new units to the market.

- Some open-end funds charge a sales charge. The selling price of a fund certificate with a sales charge is equal to the net asset value plus a percentage of the sales charge, usually 7.5-8.0% of the net asset value, and there is usually no charge for redemption of the fund certificate (i.e. the redemption price will be equal to the net asset value). The quoted price of these funds includes the net asset value and the selling price.

Zero-load funds are funds where the sale price of the fund unit is equal to the NAV, and these funds may charge a redemption fee, usually around 0.5%.

In addition to fee-charging funds and no-fee funds, there are also low-fee funds (usually 3% for sales charges). These are usually bond funds, or investment fund certificates issued by fund management companies.

The benefit for investors is that they can invest in the fund according to a pre-determined voluntary plan. Based on these plans, the funds manage the investors' investment money according to a fixed amount every month. Investors contribute directly or deduct money from their salary periodically into the fund and receive the entire capital contribution, including capital and interest, after a certain period of time from the first contribution to carry out their intended intention. Because of its large social nature, this type of fund is subject to strict management by the state.

5.1.1.3 Classification by investment object

According to investment objects, there are the following types of Investment Funds:

- Stock investment fund: is a type of fund that uses most of its capital to invest in common stocks, preferred stocks or bonds. This fund is often divided into Development Fund, Development Income Fund, Income Fund.

+ Development fund : this fund actively invests in stocks and has no restrictions on quantity, including common stocks, growth stocks, premium stocks, etc.

+ Development income funds usually invest no more than 60 or 70% of the Fund's capital in stocks to ensure stability in profits and achieve long-term growth. Therefore, the fund creates a balance in investing in stocks and bonds.

+ Income: the fund usually limits investment capital in stocks to less than 50% of the total capital of the fund to ensure stability in profits, so the fund often focuses on investing in bonds and convertible bonds.

- Bond investment fund : is a type of fund that invests solely in bonds to achieve stability in income. Funds are often classified according to the fund's investment focus.

+ Government bond funds are usually stable in income and highly safe through investing in government bonds.

+ Money market funds: usually invest in short-term debt instruments such as bills of exchange, promissory notes, etc. which are safe, short-term and highly liquid. These funds usually do not charge fees and their growth depends on the investor's attitude towards the stock market.

+ Domestic and foreign bond funds .

5.1.1.4 Classification by degree of freedom in management

- Fixed investment fund : This fund does not allow the manager to change the securities in the fund's investment portfolio, except in cases where the issuer of the securities agrees to change the nature or legal authority. This portfolio is determined from the time the fund is established and does not change throughout the life of the fund. The disadvantage of the fund is that it is less resilient when the price of securities in the fund's investment portfolio decreases. The advantage of the fund is that investors can determine the nature of the securities held in the fund's investment portfolio.

- Flexible investment fund : This fund allows the fund manager to change the securities in the fund's investment portfolio according to personal calculations to avoid losses for the fund. The advantage of the fund is that it has a certain freedom in fund management, achieving high expertise for experts, allowing them to control the decline in the net asset value of stocks or investment fund certificates, thus attracting investors.

5.1.1.5 Classification by organizational form

- The fund operates as a company : established as a company and investors are shareholders.

Investment companies raise capital by issuing shares and selling them to investors - as ordinary shareholders. These shares can be listed on the stock exchange or the over-the-counter market. The organizational structure of this type of company is basically the same as that of a joint stock company, including: general meeting of shareholders, board of directors, board of directors and other components. This type of fund is subject to the provisions of the Enterprise Law, Securities Law and usually operates in countries with developed stock markets.

- Investment fund in the form of contract, also known as investment trust fund model: established on the basis of a trust contract between the fund management company, the trustee and the beneficiary.

+ Fund management company: The company is the one who establishes and manages the fund by

way

1. Apply for permission to establish a fund and issue investment fund certificates to the public to create capital for the fund.

2. Select and make capital investments in securities funds or other assets in accordance with the fund's charter.

3. Determine the fund's profits and advise the fund's asset custodian on profit distribution…

A fund management company can be organized in the form of a joint stock company or a limited liability company, organized and operated in accordance with the provisions of law.

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