Recently, investment funds in China’s retail market have grown rapidly owing to new schemes and developments. There are also signs of herd behaviour and black screen being observed in regard to the fund management in the capital markets. Traditionally, the fund manager fee had been regulated from the state. And as per these directives, the market was responding to changes in performance and further built the climate for Chinese businesses.
Securities Investment Fund Law of the People’s Republic of China governs the securities and funds invested through custodians. Funds focus investment money and trusteeship through custodians, managed by fund managers for use in stocks, bonds and other investments through financial instruments. Initially, the Securities Investment Fund System also prepared a Balance of Power system where the trusteeship is with custodian and management by fund managers. Therefore, there is dual supervision for fund. There is no direct intervention from fund custodian and investors once the assets are invested. The supervision is only exercised by attending to congress held by fund. A large number of investors have the opinion that there are many difficulties to unify, and ‘free rider’ phenomenon is very serious.
The fees that mutual-fund firms collect for managing portfolios are set as a percentage of fund assets. It is even more likely that a fund firm can link management fees to a fund’s performance versus its benchmark. Can performance or incentive fees enhance returns, or are they just marketing criteria that can persuade investors into purchasing superior management is a main question. Theoretically, these incentive fees are good as active managers have additional reason for boosting fund performance. Also, asset managers are paid high percentage the better funds do and low percentage the worse they do.