China Securities Regulatory Commission (CSRC) on Friday approved the first batch of 26 floating rate funds, which aim to align fund companies' income and returns with investors' interests.
The approval came 16 days after the Chinese securities regulator issued an action plan to promote high-quality development of public funds, reflecting the regulatory authorities' emphasis on implementing the public fund reform and building a mechanism to align fund companies' income and returns with investors' interests.
All of the funds track the performance of a large group of stocks picked to represent the broader stock market.
Their performance will be mainly compared to that of benchmark broad market indexes such as the CSI 300, CSI A500, CSI 500 and CSI 800. Some of them will invest in Hong Kong stocks and bonds.
Typically, management fees are charged at a fixed rate for China's publicly offered funds.
While active funds have performed poorly since 2022, fund companies still charge management fees at a fixed rate, arousing doubts.
The floating rate funds are set to address the concerns that investors lose money while fund companies make a profit effortlessly.
For example, if an investor buys shares of a floating rate fund and holds them for less than one year, the management fee will be charged at 1.20 percent.
If the investor holds the shares of the fund for one year or more, the fund's annualized return will outdo the benchmark by six percentage points, and the holding period yield is positive, the management fee will be charged at 1.50 percent.
If the fund's annualized return underperforms the benchmark by three percentage points, the management fee will be charged at 0.60 percent.
Industry insiders said the floating rate mechanism will benefit investors.
"If we want to charge higher management fees, our funds have to outdo the benchmark rate by six percentage points. That is to say, if the benchmark rate is set at 10 percent this year, our funds' return rate after the fee charge must reach 16 percent, so that we can charge higher fees. The condition is relatively high, closely linking investors' interests with actual returns," said Kang Le, general manager of Invesco Great Wall Fund Management.
Many fund companies have assigned fund managers who have a minimum 10-year work experience and who have successfully overseen the generation of 10 percent of annualized returns from funds management.
"We really hope that we can create a better long-term investment experience for our investors under the innovative mode," said Li Yimei, general manager of China Asset Management.
China approves first batch of floating rate funds
