The Securities and Exchange Commission (SEC) has revised the rules related to investment in mutual funds under management of the same asset management company to enhance flexibility for efficient investment management and to ensure consistency with the Regulatory Guillotine* guidelines without compromising appropriate investment protection.

Currently, asset management companies have established mixed funds with more diversified asset allocation to meet different demands of investors and to enhance efficiency for managing investment in each type of assets.

In this regard, asset management companies may choose to invest in mutual funds that concentrate on a specific type of assets and require specific expertise of fund managers to ensure economy of scale for such investment management.

In addition, asset management companies view that the existing rules that allow management of mutual funds through investment in other mutual funds under management of the same asset management company only up to two tiers for general mutual funds may not be flexible enough.  

The SEC has therefore revised the governing rules in this matter to allow mutual funds to invest in other mutual funds under management of the same asset management company up to three tiers** to increase flexibility for asset management companies to manage asset allocation more efficiently. This would support the development of investment types or strategies that are more versatile in response to investor demands while maintaining preventive measures on conflicts of interest.

The revised rules also protect the best interest of investors by prohibiting collection of redundant fees, prohibiting the exercise of the voting right of the invested funds, providing correct and complete information for investment decision making, and disclosing information in the fund scheme and prospectus.

The revision of the investment rules has undergone public consultation the results of which showed that most respondents agreed with the guidelines proposed by the SEC. The revised rules have come into force since 1 January 2022.

Source: SEC News

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Remarks:

* Regulatory Guillotine is the regulatory review of the existing laws and regulations. The reviewed laws and regulations that are not necessary or do not keep pace with situations or remain obstacles to living or occupations will be abolished or revised to lessen burden on people. By doing so, methods used must be done with speed, transparency, low costs with participation of all related parties.   

** Mutual funds are allowed to invest in mutual funds under management of the same asset management company in three tiers at the most. For example, Mutual Fund A invests in Mutual Fund B and Mutual Fund B invests in Mutual Fund C, etc.  

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