Vietnam's fund management industry has chance to make breakthrough development: exec

Tax incentive policies will help people have confidence in investment funds and create a habit of long-term and disciplined investment, writes Nguyen Hang Nga, general director of Vietcombank Fund Management Company Limited (VCBF), a joint venture between state-controlled Vietcombank and Franklin Templeton Investments (FTI).

The scale of Vietnam's fund management industry is still very modest. By the end of 2024, the total value of assets managed by the industry was equivalent to only about 7% of GDP.

Notably, nearly 90% of this came from investment trust contracts, mainly from insurance companies and allocated to bonds and deposits.

As for public investment fund products, especially open-end funds, although there was impressive growth in 2024, with the value of open-end funds doubling to about VND53 trillion ($2.03 billion) and the participation of nearly 400,000 investors, the scale is still very small, at less than 1% of GDP.

Although China started developing its fund management industry only about a decade earlier than Vietnam, the powerhouse has reached a fund asset ratio equivalent to nearly 21% of GDP. Similarly, that of India, a country with a lower per capita income than Vietnam, has reached nearly 18% of GDP. In the U.S., this figure is even up to 133%.

Thus, it can be said that the Vietnamese fund management industry is facing a great opportunity to become an important pillar of capital supply for the economy, in addition to the traditional banking channel. However, for the industry to truly play its role, synchronous and breakthrough solutions are needed.

First, investment funds need to be recognized as an important capital channel for the economy, helping to reduce capital pressure on the banking system.

A sad reality in Vietnam is that while the people's capital resources are abundant and the investment needs of enterprises are very large, the main capital channel between people and enterprises is through the banking system.

In the context of increasingly low bank interest rates, people continue to seek investments in gold, real estate or foreign currencies. But capital flows from individual investors can be mobilized for enterprises through professionally-managed investment funds, without going through the banking system.

This not only improves returns for investors but also reduces the burden on the banking system, especially when the credit to GDP ratio has reached as high as about 134%. Therefore, investment funds should be considered by the Government as an important capital channel for the economy, supplementing the banking system.

Second, it is necessary to allow banks to provide asset management services and officially distribute fund certificates.

As analyzed above, when people invest in funds, banks will see its burden of receiving deposits and lending to the economy reduced. That is, when advising people to invest in funds, the risk of the banking system is reduced, not increased.

However, currently in Vietnam, commercial banks are not officially allowed to distribute fund certificates,l while banks are the main distribution channel for fund certificate products in many countries around the world.

Banks are also not officially allowed to provide asset management services or investment consulting services. Meanwhile, in some banks around the world, fees collected from asset management services can account for more than 40% of their total service fees.

Although the current Law on Credit Institutions allows banks to distribute fund certificates through subsidiaries, these companies do not directly own data or have relationships with individual customers of the bank. This creates a major barrier in terms of costs, operations, and distribution efficiency.

Therefore, amending the Credit Law to allow banks to officially provide asset management consulting services, investment consulting, and fund certificate distribution is crucial to develop the fund industry, thereby reducing the pressure on capital supply of the banking system and reducing risks to the national financial system.

Furthermore, open-end fund products are still unfamiliar to most individual investors, and being consulted through reputable banks will help people confidently choose reputable products.

Along with expanding the scope of banking operations, to ensure that consulting services are provided transparently and to protect investors, issues related to types of products allowed to be introduced, capacity of consultants, their ethics, and consulting standards need to be strictly regulated to reduce risks of mis-selling at banks.

Third, there needs to be solutions to increase the quantity and quality of goods in the capital market, a prerequisite for funds to have attractive profits, creating long-term confidence for investors.

The market is currently facing a serious shortage of "quality investment goods", including listed stocks and listed corporate bonds.

The supply of quality stocks is still limited. The market lacks new listed large private corporations, while the equitization progress of state-owned enterprises is still slow.

The proportion of bank stocks accounts for more than 35% of the VN-Index, making the investment portfolios of funds lacking diversity, and there are not many businesses in basic sectors capable of maintaining sustainable growth.

To overcome this, it is necessary to promote the IPO and equitization process in a substantial manner, improve the post-equitization governance capacity, and support large private enterprises to meet listing conditions.

The government can consider having a policy to exempt corporate income tax for newly listed companies to motivate enterprises to list, creating a new wave of listing.

The process and procedures for issuing bonds to the public and listing bonds take too much time, causing businesses to often not choose this option. Therefore, it is necessary to quickly simplify the procedures, shorten the time for reviewing and approving documents so that businesses are motivated to issue bonds to the public and list bonds, creating a source of goods for bond funds.

With the regulation that open-end bond funds can only invest a maximum of 10% of their assets in privately placed corporate bonds, the absence of listed corporate bonds also means that open-end bond funds cannot increase in scale.

Fourth, increasing investor confidence - from transparency to practical efficiency

Although only about 9% of the population owns a securities account, 85-90% of transactions in the Vietnamese stock market come from individuals, most of them are speculative and short-term investors.

Confidence in long-term investment channels through professional organizations such as open-end funds is still not really strong.

Part of the reason comes from the common trading habit of individuals in the market, which is to proactively make decisions on their own to trade, especially during bull market cycles.

However, the core values of investing through professional organizations, such as strategic discipline, sustainable performance, and strict risk governance, are not yet widely disseminated and fully understood.

To change this, the fund management industry needs to promote the leading role of investment experts with in-depth expertise, not only in asset management but also in improving financial knowledge for the community.

Reputable fund management companies need to take the lead in making information about operational efficiency transparent and building channels to disseminate systematic and accessible financial knowledge.

The shift in investment behavior from “emotional surfing” to “strategic, targeted investment” needs to be guided by both knowledge and practical evidence, instead of relying solely on product promotion.

Last but not least is the tax incentive policy to encourage investors to invest long-term.

The Government should have a policy of exempting personal income tax for periodic investments in funds with long holding periods, for example five or 10 years (with regulations on maximum levels compared to income and amount).

The Government can refer to the policies of other countries, for example in Thailand, people are exempted from tax up to 30% of income and a maximum of 500,000 Baht when periodically investing in mutual funds and holding until retirement.

The Government should also increase the tax-free contribution to the voluntary supplementary pension fund from VND1 million to VND3 million ($114.7 million) to encourage businesses and individuals to participate in voluntary supplementary pension funds.

In view of the mentality of chasing short-term profits, the Government's tax incentive policies will help people have confidence in funds and create a habit of long-term and disciplined investment.

Breakthrough opportunities from synchronous actions

The Vietnamese financial market is entering a pivotal stage with expectations of status upgrade (from "frontier" to "emerging"), institutional reform, and comprehensive digitalization. This is an opportunity for the fund management industry to become a pillar of the capital market.

To take advantage of this opportunity, the industry needs a synchronous action plan with close coordination from:

- Long-term orientation policies from management agencies

- Widespread distribution infrastructure

- Quality of professional human resources

- Abundant source of investment goods

If there is synchronous coordination between these factors, the Vietnamese fund management industry can absolutely grow strongly in the next 10 years, contributing to the "rising" era of Vietnam.

We believe that, with synchronous solutions and determination from both management agencies and pioneering financial institutions like VCBF, the fund management industry will truly make a breakthrough.

The Investor and its Vietnamese-language sister Nhadautu.vn are hosting a seminar titled “Raising investor awareness towards stock market status upgrade” in Hanoi today, July 17.

The event is in line with the country's effort to get its stock market status lifted from "frontier" to "emerging", efficiently implementing its Stock Market Development Strategy until 2030.