On October 9, the China Securities Regulatory Commission (CSRC) publicly solicited opinions on the "Administrative Measures for the Operation of Publicly Offered Securities Investment Funds (Draft for Comment)," aiming to improve full-chain regulation of public funds across product classification, fundraising, investment operations, subscription and redemption, holder rights, and legal responsibilities, promoting the industry's commitment to value investing and long-term investing while protecting the legitimate rights and interests of investors. The current measures will be abolished once the new rules take effect.
Under the draft, the establishment threshold for equity funds is proposed to be lowered to 50 million yuan. The draft supports the development of equity funds and proposes reducing the establishment threshold for equity funds, fund of funds (FOF), and similar products from 200 million yuan in scale and 200 million units in shares to 50 million yuan and 50 million units respectively. The establishment threshold for fixed-income funds remains unchanged.
CSRC Tightens Oversight of "Narrow-Base Drift" and "Broad-Base Narrow Investment"
Regarding the "narrow-base drift" problem, where thematic funds have vaguely and overly broad investment scope definitions and actual investments may deviate from the direction indicated by the product name, the draft proposes that fund contracts should use identifiable and quantifiable methods to clearly define the investment direction indicated by the fund name. The relevant scope should align with market consensus and be directly related to the investment direction shown in the fund name.
For the "broad-base narrow investment" problem, where whole-market stock selection funds become highly concentrated in a single industry or popular sector during operation, effectively turning into industry thematic funds, the draft requires that for funds whose names do not indicate a specific industry or theme, fund managers should strengthen diversified investment management and must not concentrate investments in a single industry or theme. This revision emphasizes that fund products cannot engage in "style drift," and investors must not bear risks inconsistent with the product name and contract without their knowledge.
Removing the "3-Year, 200 Million" Mandatory Liquidation Line for Initiator Funds, Aligning Exit Conditions with Ordinary Funds
The revision optimizes the exit requirements for initiator funds by deleting the special provision that initiator funds must be forcibly liquidated if their scale does not reach 200 million yuan after three years of establishment, aligning the exit threshold for initiator funds with that of ordinary funds. This is positive for pension FOFs, equity-biased products, and other products that align with regulatory direction but require long-term cultivation.
Fund Managers Prohibited from Inducing Short-Term, Frequent Subscription and Redemption by Deploying Multiple Similar-Style Funds on the Same Sales Channel
The draft proposes that fund managers should strengthen counter-cyclical layout management of fund products based on factors such as market capacity, liquidity, valuation levels, and the company's investment management capabilities, and prudently design the investment operation methods of fund products. When developing multiple fund products with similar investment styles, fund managers should strengthen justification of reasonableness and necessity, equip sufficient human and material resources, and ensure that business development is compatible with management capabilities, risk control levels, and actual market demand. Fund managers must not induce short-term, frequent subscription and redemption by investors through deploying multiple similar-style fund products on the same fund sales channel.
Moderately Relaxing Overly Strict Restrictions to Broaden Innovation Space
Currently, FOFs and "fixed-income plus" products are gradually becoming important directions for public funds to serve residents' wealth management and medium-to-long-term capital. This revision makes multiple optimizations regarding fund investment in other funds. Specifically, while lowering the establishment threshold for FOFs, it allows FOFs to invest in ETF feeder funds to better leverage FOF asset allocation functions, and raises the upper limit for non-FOF funds' investment in other funds from 10% to 30%, supporting "fixed-income plus" and other equity-containing low-to-medium volatility products to achieve value appreciation more through stock ETFs and other funds. It also clarifies that fund investment in REITs shall be managed as securities investment.
A relevant person in charge at the above-mentioned fund company pointed out that these arrangements help broaden the investment tools and strategy space for public funds, enhance product asset allocation capabilities, and better meet the diverse needs of pensions, insurance capital, and residents' long-term wealth management. Public funds should not only provide single-asset products but also comprehensive solutions adapted to investors' life cycles, risk preferences, and return targets.
This revision also broadens space for fund innovation. First, it improves the definitions of equity funds and bond funds, allowing stock index futures and treasury bond futures to have the combined value of bought and sold futures contracts, calculated on a net basis, included in equity assets and bond assets in accordance with relevant regulations. This provides institutional space for public funds to better use futures tools for risk management and enrich investment strategies.
Second, it revises and enriches the types of fund operation methods by adding "open-ended funds with no fixed term" and deleting the original requirements for mandatory annual dividends and distribution ratios for closed-end funds. This will help support institutional investors in allocating more to closed-end funds through relevant accounts, creating more suitable product forms for insurance, pensions, and other long-term capital to invest in public funds. It promotes industry innovation in products and strategy expansion on the basis of standardization, transparency, and stability.
Improving Mini Fund Management Requirements to Guide Orderly Exit of Small-Scale Products
Excessive fund products and the long-term survival of some mini funds have long been practical issues in the fund industry's development. Funds with persistently small scale not only have lower investment operation efficiency but may also dilute fund returns through fixed fees and increase investor costs.
This revision systematically improves regulatory requirements for mini funds, including that after meeting mini fund standards for 60 consecutive working days, if the manager chooses to continue operating, it will no longer be required to convene a holders' meeting but should bear the fixed costs incurred during fund operation. It urges the establishment of a mandatory exit mechanism, requiring fund contracts to clearly stipulate that the fund contract terminates when the fund's net asset value falls below a certain scale for a consecutive period. At the same time, the revision optimizes the exit requirements for initiator funds by deleting the special provision that initiator funds must be forcibly liquidated if their scale does not reach 200 million yuan after three years of establishment, aligning the exit threshold for initiator funds with that of ordinary funds. This is positive for pension FOFs, equity-biased products, and other products that align with regulatory direction but require long-term cultivation.
In addition, in response to the situation in practice where certain matters may require convening a fund unit holders' meeting even if they have limited impact on the fund's risk-return characteristics and main investment direction, this revision moderately narrows the circumstances under which a holders' meeting must be convened, adjusting "changing the fund's investment objectives, scope, or strategy" to "major changes in the fund's investment objectives, scope, or strategy, meaning relevant changes result in major changes to the fund's risk-return characteristics and main investment direction." Meanwhile, it clarifies that certain contract modification matters may not require a holders' meeting if the manager and custodian reach agreement, announce 30 days in advance, and promptly inform investors. Examples include adding financial instruments to the investment scope that have no major differences in risk-return characteristics from existing financial instruments, moderately adjusting investment ratios without causing major changes to risk-return characteristics, and changing the performance benchmark for reasonable reasons.
Click to view the full text: Administrative Measures for the Operation of Publicly Offered Securities Investment Funds.
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