Newsletter
REGULATIONS GOVERNING MUTUAL FUNDS
On 1 November 2001, the Ministry of Finance (MOF) promulgated the Regulations Governing Mutual Funds, which set forth the rules to be followed by trust enterprises when raising mu-tual funds. The main content is as follows:
A trust enterprise with a certain credit rating may submit an application together with the required documents to the MOF for raising a mutual fund. If the mutual fund is intended for TSE or OTC trading, the trust enterprise must also submit listing application in accordance with the rele-vant securities laws and regulations. If the mu-tual fund applies to invest in money market, the MOF should seek the opinion of the Central Bank of China (CBC) before granting approval.
A trust enterprise must manage a mutual fund in accordance with the fund raising plan approved by the MOF. The regulations confine the in-vestment targets of a mutual funds as follows: a certain percentage of cash and bank deposits; government bonds, financial debentures, bonds and short-term bills issued in Taiwan by inter-national financial organizations with the ap-proval of the CBC and MOF; repurchase agreements for the above types of securities; shares, bonds and convertible bonds issued by TSE or OTC listed companies; gold; futures and derivatives; beneficiary certificates issued by trust enterprises under financial assets securiti-zation plans; chattels and real properties; and others as approved by the MOF.
In addition, the use of the funds is subject to certain restrictions. For instance, they cannot be used for providing guarantees or collateral, en-gaging in securities margin trading; and trading between different mutual funds managed by the same trust enterprise. Also, the total investment by mutual funds in shares, bonds, convertible bonds and commercial papers issued by any one company may not exceed certain percentage as provided for in the regulations. Limits are also placed on: (1) the percentage of the total amount of a fund in terms of deposit with a single finan-cial institution, investment in financial deben-tures issued by a single financial institution, in-vestment in corporate bonds and short-term bills guaranteed by the same institution; (2) the amount used for futures trading; and (3) the amount invested in any beneficiary certificates issued by a trust enterprise.
A mutual fund must maintains independent ac-counting records, separate from the trust enter-prise's own property or other entrusted property. A trust enterprise must form a trust property as-sessment committee to evaluate the management of the mutual funds at least once every three months, and report to the board of directors. Trust enterprises must prepare and deliver writ-ten reports related to the condition and evalua-tion results of each mutual fund to beneficiaries.
For each mutual fund, the trust enterprise must designate at least one responsible person, who shall have the authority to manage the fund and the trust property under the fund. Such person may not simultaneously hold other duties, and must meet certain qualifications.