As Vietnam’s financial and securities market develops rapidly, securities investment funds are becoming an important tool for capital mobilization and allocation, contributing positively to economic growth and expanding investment opportunities for foreign and domestic investors. However, to ensure these funds operate safely and effectively, and aligned with international practices, Vietnamese law has established specific and stringent regulations governing the establishment of investment funds. NPLaw will clarify the applicable legal framework and highlight main issues to help organizations and individuals intending to establish such funds should pay particular attention to them through the following article.
I. The impact of establishing investment funds in the current context
At present, as the financial market expands and the demand for capital mobilization increases significantly, the establishment of investment funds has become a concerning matter to connect capital from investors with enterprises and potential projects. Thus, investment funds not only support enterprises in expanding production and business activities but also promote the development of the capital market, diversify investment sources, and reduce the pressure on the banking credit systems.
For instance, the rapid growth of venture capital funds in recent years, such as VinaCapital Ventures has invested in numerous technology companies in Vietnam including Logivan, Rever, and FastGo. Due to capital from such funds, many Vietnamese startups have been able to expand markets, develop products, and compete both domestically and internationally.
II. The establishment of investment funds?
1. Definition of an investment fund
There are multiple ways to define an investment fund depending on perspective and approach. According to the U.S. Securities and Exchange Commission (SEC), an investment fund means a company collects money from many investors and invests it in securities such as stocks, bonds, or other short-term debt instruments. Investors purchase contributions in the fund, each part represents the ownership of a portion in the fund and the generated income (SEC, 2023).
Meanwhile, the OECD (2023) considers investment funds as financial structures in which investors contribute their capital to invest in a diversified securities portfolio. Individual investors purchase shares in the fund, reflecting the securities ownership within the portfolio. The selection of investment assets is conducted by professional fund managers.
Clause 37, Article 4 of the Law on Securities 2019 of Vietnam defines: A securities investment fund is a fund established from investors’ contributions for generating profits from investments in securities or other assets, including real estate, in which investors do not hold the day-to-day control rights over the fund’s investment decisions.
Thus, an investment fund is a non-banking financial intermediary that attracts capital from various sources for investment in stocks, bonds, currencies, or other assets. Fund management companies are responsible for administering investment funds, and the funds themselves represent the financial products and services provided by such companies.
2.Types of investment funds permitted under Vietnamese law
Article 99 of the Law on Securities 2019 provides that there are two types of securities investment funds:
- Public funds and member funds.
- Public funds include open-ended funds and closed-ended funds.
Specifically:
- A public fund is a securities investment fund offering fund certificates to the public.
- A member fund is a securities investment fund with two (02) to ninety-nine (99) contributing members, all of whom must be professional securities investors.
- An open-ended fund is a public fund whose certificates must be redeemed upon investors’ request once publicly offered.
- A closed-ended fund is a public fund whose certificates are not subject to redeem upon investors’ request once publicly offered.
III. Legal provisions governing the establishment of investment funds
1. Regulatory framework on the establishment of investment funds
The establishment and operation for business activities of securities investment funds are regulated by Article 100 of the Law on Securities 2019:
- For public funds: The establishment and public offering of fund certificates must be conducted by securities investment fund management companies in accordance with Article 108 of the Law on Securities and registered with the State Securities Commission of Vietnam.
- For member funds: The establishment must also be conducted by securities investment fund management companies in accordance with Article 113 of the Law on Securities and reported to the State Securities Commission.
2. Conditions for the establishment of investment funds
Clauses 38, 39, 40 and 41 of Article 4 of the Law on Securities 2019 set out the conditions for the establishment of securities investment funds as follows:
- Public funds:
+ Open-ended funds: Public funds whose certificates must be redeemed at the request of investors.
+ Closed-ended funds: Public funds whose certificates are not redeemed at the request of investors. - Member funds: Securities investment funds established with between two (02) and ninety-nine (99) members, all of whom are professional securities investors.
Specifically:
- A public fund may be established when the following conditions are satisfied under Article 108 of the Law on Securities 2019:
+ At least 100 investors (excluding professional securities investors) have purchased fund certificates, except for exchange-traded funds (ETFs).
+ The total value of issued fund certificates is at least 50 billion VND. - Pursuant to Clause 2 of Article 100, member funds must be established by securities investment fund management companies and reported to the State Securities Commission, and the establishment are specifically regulated under Article 113, as follows:
- A member fund is established based on capital contribution agreements among its members.
- Establishment conditions include:
+ Minimum contributed capital of 50 billion VND;
+ Between two (02) and ninety-nine (99) contributing members, all of whom are professional securities investors;
+ Under a securities investment fund management company;
+ Assets deposited with a bank independent of the fund management company.
3. Sanctions for violations relating to the fund establishment
Article 31 of Decree No. 156/2020/ND-CP dated December 31, 2020 on administrative sanctions in the securities sector states that violations of legal regulations on the establishment of member funds may be subject to fines ranging from 50 million VND to 500 million VND. Specifically:
- Failing to amend or supplement establishment dossiers when requested information is inaccurate or insufficient, or when new relevant ones arise, is subject to fines of between 50 million VND and 70 million VND.
- Using mass media to advertise, solicit contributions, or survey markets during the establishment of member funds, or improperly increasing or decreasing charter capital, is subject to fines of between 70 million VND and 100 million VND.
- Failing to report the establishment of a member fund; establishing a fund without meeting statutory conditions; and failing to report risks and asset losses of the fund within statutory time limits.
IV. Questions on the establishment of investment funds
1. Which authority grants licenses for domestic investment funds?
Under Article 100 of the Law on Securities 2019, the State Securities Commission of Vietnam is the competent authority for licensing domestic investment funds.
2. How long does it take to process an application for the fund establishment?
According to Article 220 of Decree No. 155/2020/ND-CP, within 10 days of receiving a complete and valid application, the State Securities Commission must issue a fund certificate to the applicant; in cases of refusal, a written explanation must be provided.
3. If the investment fund wants to change its investment objectives, does it need to re-apply for a license?
Article 218 of Decree No. 155/2020/ND-CP requires that securities investment funds obtain prior approval from the State Securities Commission before implementing certain changes, including:
- Increasing or decreasing charter capital of member funds; increasing charter capital of closed-ended funds or real estate investment funds.
- Amending the fund’s duration.
- Changing custodian or supervisory banks.
- Changing the fund’s name or its management company.
Accordingly, if the adjustment of investment objectives results in any of the above changes, prior approval from the State Securities Commission is mandatory.
4. What conditions must fund managers satisfy under the law?
Clause 13, Article 2 of Circular 98/2020/TT-BTC stipulates that a fund manager is a securities practitioner holding a valid fund management license, designated by the fund management company to oversee and manage the fund’s investment activities.
5. What is the process if an investment fund wishes to expand abroad?
Pursuant to Article 52 of the Law on Investment 2020, investors may engage in investments abroad through contributing securities investment funds.
If a Vietnamese investment fund wishes to expand abroad, it must obtain approval from the State Securities Commission in advance. In addition, approval of investment policies (if required) and an abroad investment registration certificate under the Law on Investment 2020 must be secured.
V. Should legal counsel be sought for assistance with the investment fund establishment?
It is advisable to seek legal counsel for the investment fund establishment, as lawyers can ensure compliance with applicable law, minimize legal risks, assist in preparing and finalizing dossiers, and provide effective solutions to complex issues.
Should you require advice on establishing an investment fund, please contact NPLaw for direct consultation and guidance.
