Chilean mutual funds

At the end of June 2003, total assets managed by Chilean Mutual Funds reached $6.0 billion, equivalent to 9.0% of Chilean GDP.
A total of 59 domestic money market funds held $2,901 million, accounting for 39.0% of total asset.
A total of 17 international money market funds held $374 million. There were 45 domestic Debt/Bonds funds in the market, managing $1,495 million or 24.3% of total assets, and 48 international Debt/Bonds funds managing $895.
Also, there were 92 equity funds with $189 million in assets holdings, of them 35 were in domestic equity and 57 in international equity.
There were 68 mixed funds with $208 million in assets holdings, 9 have holdings in domestic assets and 59 in international assets.
It is expected that Chilean Mutual Funds will continue growing at a rapid pace, so as to achieve a global size of $7 billion by the end of year 2003. At the end of June 2003, there are 17 Asset Management Companies, managing 356 funds.
Trends concerning International Investment Funds
In the last three years, international mutual funds managed by the Chilean Mutual Funds companies have grown significantly, as the Chilean government has started a process of liberalisation of the local capital market while bringing it at par with the world financial markets.
The concept of globalisation is welcomed by local funds managers as well as customers, resulting in the increase in the number of international bonds. Equity funds have grown from 15, at the end of 1998, to 206, by June 2003.
REGULATORY ENVIRONMENT: Chilean Congress has introduced a series of amendments to current laws related to the functioning of local capital markets and in the Mutual Funds industry. In that bill, some amendments to the Chilean Mutual Funds law are included, that:
-- Allows mutual funds to invest upto 25% of its assets in foreign open or closed- end funds.
-- Allows mutual funds to lease some of its assets and enter in short-sale transactions
-- Creates a new type of "less diversified" mutual fund, denominated" Qualified Investor Fund" that will be able to invest under more flexible rules, as long as its investment policy, objectives and limitations are appropriately disclosed in its prospectus.
-- Eliminate the gain of capital tax to those mutual funds invested in domestic equities
The legal text also amends the Chilean Pension Funds law, allowing a Pension Fund manager to invest up to 5% of the fund assets in shares of local mutual funds, with a limit of 1% for any given local fund.
Chilean Mutual Funds are regulated by the Superintendencia de Valores y Seguros (the Security and Insurance Superintendence or SVS).
The government regulators have been actively reviewing current procedures for mutual funds investment in foreign securities, introducing more flexible regulations with respect to the types of foreign securities and the conditions and characteristics that a foreign security must exhibit in order to be held in the mutual funds portfolios.
The new legal text includes an important part of the Chilean Mutual Funds Association comments.
Congress approved to extend the application of tax incentives for Voluntary Retirement Savings (APV, Spanish abbreviation), incorporating Mutual Funds among others institutional investors, in order to manage resources.
Those entities that join the system will offer products similar to those in place today (mutual funds, investment funds, insurance with savings) and other products to be authorised.
Workers will be able to freely transfer their accumulated balances of voluntary payments and agreed deposits from one participating institution to another.
The main effect of this measure will be to encourage savings, providing tax incentives for saving, better investment alternatives and a relative liquidity, in the case of voluntary savings.
Workers will benefit directly because they will have a wider array of investment choices and they will also have the possibility of delaying tax payment. At present, a total of $23 million assets are managed under APV, and we expect an important growth in the near future.
At present, the Chilean Congress is discussing the introduction of a new amendment to the retirement law, by introducing the Collectives Saving Plans (APC, Spanish abbreviation), similar to Unites States 401-K.
The principal effect of this new measure will be the possibility that employers and employees could contribute jointly in the pension plan of employees.
Finally, Chilean Mutual Funds have exhibited a significant growth in the last few years as a result of the overall economic performance of the country, the globalisation of the local capital market and the adoption of up-to-date investment and marketing techniques by funds management companies.
As the economy continues on its path of recovery and further expansion in the next years, it is expected that the Chilean Mutual Funds industry will continue growing at a rapid pace, to achieve a size of 10% to 12% of the GDP, in the next two to three years.
Courtesy: MUFAP