Small and medium investors are expected to get more choice and market confidence will receive a boost under a draft law on securities investment funds.

The draft legislation was submitted yesterday to the latest session of the Standing Committee of the 10th National People's Congress (NPC) for a second review.

The national legislators, who began their bi-monthly session yesterday, will also review draft legislation on residents' identity cards, ports, control and prevention of radioactive pollution, road traffic safety and administrative approvals during their week-long meeting.

Securities investment funds are mainly mutual funds invested primarily in stocks and operated by investment companies.

They are attractive because most of the stockholders in the Chinese mainland's stock market invest individually and are generally weak in shielding off risk, and therefore more vulnerable to market fluctuations.

Retail investors pay a fee to invest their pooled money in order to see more stable returns on investments through the use of professional fund managers.

"Development of the securities investment funds will help enhance investor confidence and ignite the securities market," said He Yongjian, vice-director of the economics legislation office with the Law Committee of the NPC Standing Committee.

Currently China has approved 28 investment companies who are running 54 close-ended funds and 21 open-ended funds.

Close-ended funds are those with a fixed number of total available shares. They cannot be resold to a company for a fixed period of time and shares can only be traded among other investors.

Availability of open-ended funds, however, is based on demand. Investors can only buy and redeem their shares at banks and cannot sell them in the market during the life of the fund.

The net assets of the country's securities investment funds have reached over 120 billion yuan (US$14.5 billion), accounting for less than 10 per cent of the nation's stock value, according to the latest statistics from He's office.

But they are now governed by only a temporary regulation on the management of stock funds, issued by the State Council in 1997.

A more sophisticated law would oversee all registration and activities of investment companies that run securities investment funds and help bring a more orderly presence to current immature market sentiment, according to sources with the legislature.

The draft legislation is expected to include stipulations that standardize the operation of investment companies and check for irregularities, such as opaque operations and late disclosure of information.

A draft bill is put forward for a vote usually after three rounds of deliberations.

(China Daily June 24, 2003)