DEVELOP FUTURES FUND TO PROMOTE CAPITAL MARKET PROSPERITY

The evolution of futures fund

Futures Investment Funds( futures fund) is an investment vehicle through which investors gain profits and bear certain risks by pooling their funds together and entrusting them to professional futures investment institutions to make futures investment transaction through commodity trade advisor (CTA).

In the 1980's, the varieties of futures developed from farm products to financial fields such as bonds, currency and index while futures fund also began to take effect in the operational risks of assets management.

In recent years, futures fund have developed rapidly. Data shows that small and medium-sized futures fund managed by CTA mainly focuses on frequent short-term investment in futures market based on technical analysis and it has increased from US$8.5 billion in 1990 to US$ 44 billion in 2000.

Functions of Futures fund

By nature, futures fund is a mode of futures trade because it bears the features of futures trade such as leverage mechanism and bilateral trade. Meanwhile, it also bears the characteristics of mutual funds such as specialist management, portfolio investment and scale effect.

Diversify investment to reduce the risk of portfolio

Research manifested that investment portfolio with low correlation coefficient could effectively reduce the systematic risk.

Lower investment cost to increase profit

Because futures fund holds a large amount of capital and its average turnover is bigger than that of common customers, it can enjoy preferential treatment on agency commission charged by brokerages, and operate at a lower level of cost. Compared with bond and stock, futures fund can effectively increase the profit through futures leverage mechanism, and buying and selling short.

Attract more futures investors

Because of the limited time and energy, it is very difficult for small and medium-sized investors to get better profits. But the fund management companies have such abundant knowledge and experience in investment analysis and management of investment portfolio that they can deal with all types of futures trading in a well-grounded and planned way, thus continuously increasing investors' fortune.

Participate in global investment

Futures fund enables investors to diversify investment domestically and investment globally due to their low correlation with international financial products.

China's capital market needs futures funds

Institutional investors such as funds are always the main force in the futures market.

Ever since 1980's, big companies such as Eastman Kodak, Alcoa and Amoco have begun to invest part of their pension into the derivative market.

The development of the derivatives market such as stock index futures calls for an urgent need to introduce the futures fund.

With the entry of open-ended funds and social security funds into the China's securities market, huge risk is brought about with the sizable capital. All these sizable funds need futures such as stock index futures to hedge risk or diversify investment. Futures fund, however, are very likely to provide them with an effective access to the financial futures market.

Develop the legislation in advance to ensure regulated development of China's futures fund.

It is suggested that the development of futures fund should be taken into full consideration in the Law of Investment Funds.

(by Zhu Juehai)